Safe harbour in uncertain times

Amid rising turbulence and uncertainty across many of the world’s major financial markets, the Channel Islands are proving they are an increasingly secure and stable partner to City firms

As the world grapples with rising costs, interest rate hikes and the impact of the Russian invasion of Ukraine, are investors starting to look elsewhere for stable, experienced and secure jurisdictions to place and manage their money? 

The obvious answer is yes – but just how well set up are places like the Channel Islands to provide security during volatile periods? And does it really make a difference where you place your money in this increasingly globalised world?

John Clacy, Head of Deloitte UK Financial Services Portfolio Audit and Channel Islands Lead Partner, says trust and reputation are paramount – and certainly make a difference – in times of uncertainty and volatility. And the Channel Islands have built a considerable reputation for this over the past 50 years or so. 

“Investors and advisers are familiar with the islands’ expertise and have confidence in what we offer,” he says. “The islands have unique products that provide managers with global access and flexibility, while wrapped in a strong regulatory framework that gives investors confidence. 

“Unlike the UK, the islands have never been part of the EU, so they have remained unchanged over recent years and have an unbroken track record of stability.”

Unique bond

Clacy points to the unique relationship with the City of London that has grown over many years as organisations from the two jurisdictions have worked together.

“As a result, there is a lot of trust and respect, which is a strong basis for doing business, particularly right now, when there is so much uncertainty,” says Clacy.

For investors looking to capitalise on private equity opportunities in particular, the number of private equity/venture capital funds in Guernsey continues to grow, thanks to products such as the Private Investment Fund.

Clacy says the islands tick every box for fund managers right now – genuine substance, a proportionate and robust regulatory regime, which is in line with international anti-money laundering standards, tax neutrality and a well-regarded professional services industry.

Amy Bryant, Deputy CEO at Jersey Finance, takes a similar line to Clacy. “There’s no doubt that in uncertain times, investors will look for safe harbours to support their asset protection, wealth management and cross-border investment objectives,” she says.

“That’s across the board, from private investors and family offices through to institutional investors and asset managers.”
 
But she insists this is not a new phenomenon. “Stability, in a fiscal, regulatory, legal and political sense, has been the hallmark of Jersey’s proposition as an IFC for more than six decades. 

“It’s why today investors from across the globe look to Jersey to manage and administer a total of more than £1.4trn of private and institutional assets.” 

She is clear what the Channel Islands offer that other jurisdictions do not. “Looking back over the past 60 years, it has always been the case that Jersey’s financial services platform is built on ensuring stability and certainty. 

“What really differentiates Jersey from other IFCs is the robust nature of the regulatory environment and the rule of law, which is tried and tested.”

Legislative edge

Legislation is progressive but amended incrementally, as needed, to reflect market demands, she explains. 

“Jersey’s trusts law, for instance, has only been modified a handful of times since it was introduced nearly 40 years ago, and is now seen as the blueprint that a range of other jurisdictions have tried to copy. That stable tax and political landscape also makes for an environment that offers no surprises or shocks – and investors like that.”

So have the Channel Islands as jurisdictions noticeably seen increased interest during the current climate? Aslam Shareef, Director and Head of Funds at Fairway Group, certainly thinks so. 

“There is a visible increase. I have personally seen this for Jersey Plc in recent times and it will increase further as more investors and investment managers come to know about the Channel Islands and its offering,” he says.

“The product we are seeing particular interest in is the Jersey Private Fund (JPF), with its attractive attributes such as 48-hour turnaround and cost-effective administration. 

“This makes it a popular choice among investors and investment managers. In my opinion, this is the most successful fund product coming out of Jersey.”

Bryant explains that the increased focus on regulatory change and development has been exacerbated by geopolitical instability too. Combined with the pandemic of the past two years, this means centres offering stability are more in demand than ever.

However, she stresses that it was the global financial crisis more than a decade ago that was the real trigger for the ongoing and deepening uncertainty in markets, and which resulted in the raft of new global regulatory initiatives that endure to the present day. 

These initiatives, she maintains, have shaken up global financial markets – from reporting mechanisms such as the US’s Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) to regulation such as the Alternative Investment Fund Managers Directive (AIFMD).

“It was in the aftermath of the financial crisis that Jersey’s finance industry had the foresight, with the Government of Jersey and the Jersey Financial Services Commission, to invest in a long-term strategy that would focus on delivering on innovation and diversification, while safeguarding the stable platform it had so carefully nurtured,” Bryant explains. 

“That strategy has really paid off – and we’ve seen a strong uptick in high-quality business during the past 10 years because of it. Our funds industry, for example, has grown some 75% over the past five years alone.” 

Challenges ahead 

With a clearly positive picture across the Channel Islands, it stands to reason that there are opportunities for Channel Islands financial services businesses to support the City and its clients during these more turbulent times. 

Challenges remain, however. Bryant highlights the need to balance the stability that investors look for with the demand for innovative solutions. 

“A good example of this is in the growing areas of digital and fintech solutions, digital assets and the world of ESG and sustainable finance,” she says.

“These are often seen as disruptors to the status quo. But these emerging areas play out well in terms of our strategy to diversify within our industry and there is a clear place for innovation in supporting our key message of stability.”

She adds: “Governance, compliance and oversight are areas where fintech solutions can play a big role and they are areas that are fundamental to our IFC proposition. 

“Our sustainable finance strategy is exactly that – sustainable and long-term – which, by definition, should provide investors with confidence.”

Stabilising influence

The unique relationship between the City of London and the Channel Islands is something Shareef picks up on, too. 

He explains that the finance world is maturing and becoming increasingly sophisticated. “It’s no more about ‘let’s go to the cheapest or most convenient jurisdiction’; it’s more of a ‘let’s go to a well-regulated, stable and competent workforce jurisdiction’,” he says.

“The UK is an integral part of the Channel Islands and a longstanding partner for various reasons. And with so much uncertainty within the UK political landscape – post-Brexit and now with the Russian invasion, too – the Channel Islands provides a calming effect to the City. 

“It’s a location where investors and investment managers can be assured that they get the benefits of a well-regulated and stable jurisdiction that has ease of doing business and the required talent pool to service their needs.”

The Channel Islands, Shareef believes, has to stand out and not just be “put in the same basket” alongside under-regulated offshore jurisdictions.       

So how successfully are these stand-out credentials promoted? Clacy believes both Jersey and Guernsey do a great job of marketing their financial services expertise. 

“Of course we could do more, but the audiences that matter understand what we have to offer,” he says. “Our local firms also do a tremendous amount to promote the islands’ products. And because so many global players have a significant presence in the islands, we are well connected to the main IFCs and around the world.”

Shareef is similarly positive. “Agencies such as Jersey Finance and its counterpart in Guernsey are very active towards this cause,” he says. “Both of them do an outstanding job of keeping the Channel Islands on the table for discussion and hosting networking events. 

“These agencies have got it covered. The most recent event we attended was arranged by Jersey Finance in Riyadh and Jeddah. The main aim – which was achieved – was to promote this as a leading financial centre and jurisdiction of choice in terms of offshore.”