By Phil Austin, Chief Executive
In four decades the Island of Jersey has developed into one of the world’s leading offshore finance jurisdictions. The Island has relied on its political and economic stability, product innovation, and the quality of its regulation to support the successful development of the industry.
Jersey has attracted some of the world’s leading financial organisations to its shores and its workforce has the experience required to meet the diverse needs of international investors. Today Jersey has thriving banking, funds and trust sectors and whilst it remains a leading centre for private clients seeking a safe, secure home for their assets, it has diversified significantly in recent years to appeal to world-wide corporate and institutional business.
A history of banking in Jersey
When Hill Samuel moved to Jersey in the early 1960s, the Island’s main industries were tourism and farming. Local politicians had the foresight at this time to predict the value of having a financial services industry. Their work in creating an environment attractive to international financial services organisations has made it Jersey’s dominant industry today, responsible for almost 70% of all company tax revenue.
The financial services sector began from a basis of private client and trust work in the 1960s, but it was the next decade, when the Island’s banks began introducing services for expatriates, that the industry flourished.
It was a time in which travel was becoming easier and more widespread and an increasing number of British citizens were spending a period working abroad. These expatriates were attracted to an English speaking, politically stable location where familiar banking names were present.
Whilst many of Jersey’s expatriate customers are still British, the Island’s appeal has broadened over the years to attract a wide range of international investors. Jersey is home to clients from more than 200 countries and they are attracted here by the overall quality and safety of the jurisdiction. Bank deposits have grown consistently over the years and by May 2003, figures from the Jersey Financial Services Commission, the Island’s Regulator, show that more than
£156 billion was held in deposit in Jersey, £108 billion of this held in foreign currencies.
Services to the private client
Private client wealth management business has been one of the building blocks of the Island’s success and it remains a core feature of the Island’s product offering. High Net Worth clients and their advisers seek expertise on wealth management and Jersey has the expertise to provide the financial planning solutions. Alongside this, there is more cross border movement of people, and there are more cross border transactions and cross border asset holdings.
For international clients that fit these categories, a tax benign jurisdiction can be an important aspect in effective financial planning. Jersey’s simple and long established fiscal structure has considerable appeal in such circumstances.
Services for businesses
In recent years Jersey has also developed an increasing speciality in providing bespoke services to large corporate customers.
For example, the use of Jersey as the jurisdiction of choice in the European zone for establishing securitisation vehicles shows no sign of abating. The business has proved valuable for a small number of the larger banking organisations, where skills in structured lending built up over a number of years, are now being used to support the creation of a number of special purpose vehicles, sometimes to facilitate a securitisation transaction. There are also specialist firms that have begun to focus particularly on the administration required when locating a securitisation offshore.
The Island continues to witness growth in the number of institutions based in leading centres such as London, Paris and New York, using Jersey structures for the setting up of private equity and venture capital funds and the running of captive insurance companies. The top Jersey based law firms point to the high proportion of companies from the FTSE 100 that have found the legislative environment and the skills available in Jersey are ideal for administering their global employee benefit plans.
The result is a finance industry that is remarkably diverse. The range of skilled professionals working not just in banking but also the related fields of investment, trust and company work, legal and accounting services has been the platform which has allowed Jersey to become an innovator in niche markets.
Jersey’s popularity as a finance centre has been enhanced in recent years by its ongoing commitment to the regulatory process.
The Island has undergone several independent assessments, all of which found Jersey’s regulatory framework to be first class. The Edwards Report in 1998 (a Review of Financial Regulation in the Crown Dependencies of Jersey, Guernsey and the Isle of Man), for example, placed Jersey "…clearly in the top division of offshore finance centres…" because of the rigour and independence of its financial regulation.
Further assessments by international organisations such as the Financial Action Task Force and the Financial Stability Forum have additionally enhanced the Island’s reputation for probity.
The Island has also been recognised by leading Western Governments including the United States, for its efforts in co-operating in the fight against money laundering. Following September 11, the Island acted quickly to support international efforts to trace terrorist funding, adopting the Terrorist Financing Order in October last year. It is virtually identical to the legislation introduced in the City of London in the same month and it ensures that any assets held by those suspected of funding terrorist activities can be frozen.
Jersey has quality regulation across all sectors of its fiduciary business which many other locations cannot claim. It has extended regulation to cover investment business and trust and company providers, and it has enhanced its anti money laundering rules to help in thwarting financial crime. These regulatory controls give added peace of mind to investors considering where to shelter their assets.
The Island’s unique constitutional relationship with the United Kingdom is another factor that has been important in the Island’s development as a finance centre. Jersey has its own Parliament with autonomy from the United Kingdom on domestic issues including fiscal matters. This constitutional arrangement is enshrined in 800 years of history.
The Island is not a part of the European Union but that has not prevented Jersey from co-operating with financial service initiatives that have been driven from Brussels. In the summer of 2003, Jersey, along with the other British Crown Dependencies of Guernsey and the Isle of Man, reached agreement with the European Union over the future direction of its taxation policy. This agreement was an important milestone and helps to secure the long-term future of the Island as a leading finance centre able to compete on a level playing field with other jurisdictions. Jersey will continue to provide a tax neutral environment for investors.
The Island’s geographic position has served it well too in attracting new international business. Jersey’s finance professionals start work before Hong Kong closes and are still at their desks when the New York Stock Exchange opens for the day, making the servicing of European and Far Eastern clients far easier here, than it would be in the Caribbean, for example.
A tax neutral environment, a favourable time zone, a range of top level names in financial services, supported by the twin pillars of political and economic stability, will help to keep Jersey at the forefront of international financial services in the years to come.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.