Independent assessment has proved to be a helpful ally in promoting Jersey as an offshore jurisdiction. Phil Austin looks at the benefits of increased scrutiny
Professionals and other financial advisers placing investments offshore on behalf of their clients are benefiting from the increased scrutiny that the jurisdictions have faced in recent years.
It is clear that international finance centres are entering a new era, spurred on by the increased scrutiny from multinational organisations and governments, in which regulatory and legislative developments have become important differentiators. As competition intensifies, it is my belief that these factors will be highlighted by jurisdictions whenever possible to demonstrate their commitment to quality. This is surely welcome news for investors and their advisers.
For some of the offshore jurisdictions themselves, independent assessment has proved a helpful ally in promoting their strengths.
Jersey, for example, has obtained independent endorsements for its actions both in tackling financial crime and for the quality of its regulation from organisations such as the Financial Stability Forum established by the G7 nations and the Financial Action Task Force, a UN organisation.
Even the OECD issue, in which Jersey was included along with 34 other centres on a provisional list of so called 'tax havens' with harmful tax regimes, provided the island with the public opportunity to demonstrate the strengths of its jurisdiction. The island is working alongside its counterparts in Guernsey to argue its case. We remain in discussions with the OECD and we are determined not be included in any future OECD list. The list, originally expected in July, has in any case now been postponed until the autumn.
The introduction of regulatory enhancements is clearly welcome news for investors and their advisers. Jersey, under the direction of the Jersey Financial Services Commission (JFSC), this year saw the introduction of the Financial Services (Jersey) Law, which extends the requirement of registration to trust and company service providers and imposes stricter regulation on their operation.
The tightening of the rules in the trust and company area follows on from earlier legislation designed to regulate investment business in Jersey. Prior to that, the island was one of the first to embrace the need for more stringent anti-money laundering legislation through the introduction of the Proceeds of Crime Law.
The island's commitment to the regulatory and legislative requirements of the global marketplace was well illustrated last month at a three day conference on international co-operation staged by the JFSC, the island's finance industry regulators. At the conference it was announced that Jersey had become the first offshore international finance centre to secure an official Memo of Understanding with the German Securities Regulator. This agreement ensures mutual help and exchange of information for investigating securities offences such as insider trading, market manipulation and conducting financial business without a licence.
The Memo of Understanding is an indication of the international recognition Jersey has for its willingness to co-operate with the leading western governments in the fight against international crime. Similar Memos of Understanding have been established by Jersey with regulators in South Africa, Belgium, the UK and Bermuda.
The need for Jersey to respond to leading organisations across the globe regarding the quality of its jurisdiction has helped to forge even greater co-operation between industry sectors in Jersey itself. The industry has been united in defending the island's reputation for delivering quality products in a well-regulated environment.
Jersey Finance, which was set up this year to represent and promote Jersey as an international finance centre, is itself a result of this co-operation.
It is hoped that this closer consultation between various industry bodies and with the regulators will ultimately be of benefit to the offshore investor.
An example of this is within the funds sector where new measures are being considered. Representatives of the Jersey Fund Managers Association are presently in talks with the regulators with a view to introducing a distinct set of fund categories, including a new category for products designed for institutions and sophisticated investors in the securities markets. While all the product providers would be regulated, the product itself in this particular category would not be. This would offer the time saving and streamlining that institutional and professional investors require and would help encourage more sophisticated business of this type.
Jersey started from the basis of private client and trust work in the 1960s. The next decade saw the island's banks introduce services for expatriates, particularly British expatriates who were attracted to an English-speaking, politically stable location where familiar banking names were present. While maintaining this traditional appeal, the attractiveness of the jurisdiction to overseas investors has since been widened to include many foreign expatriate customers. Jersey can offer them legitimate fiscal benefits and provide investment products that are truly portable, an important consideration for professionals who regularly move around the world with their careers. Jersey is home to clients from more than 200 countries and they are attracted here by the overall quality and safety of the jurisdiction.
We have come a long way as a finance industry and today most observers are amazed at the size and scope of the business and services on offer. The long established nature of Jersey's finance industry is a primary reason for its remarkable breadth and diversity. The range of skilled professionals working in banking and in the related fields of investment, trust and company work, legal and accounting services has been central to Jersey's more recent success. This world class skills base has been the springboard for a host of innovative products and services, and has helped the industry to develop successful niche business.
The use of Jersey as the jurisdiction of choice in the European zone for establishing securitisation vehicles shows no sign of abating. The number of special purpose vehicle authorisations has shown a dramatic increase in 12 months from 403 in 1999 to 630 last year. The numbers have trebled in three years.
The growth in the administration of global employee share option plans from Jersey is another example. Our top law firms can point to the high proportion of companies from the FTSE 100 that have found that the legislative environment and the skills available in Jersey are ideal for administering these plans. The use of Jersey structures, particularly limited partnership legislation, for private equity and venture capital funds, has also proved a significant growth area. In insurance also, there has been steady growth in the number of licensed offshore companies.
The leading jurisdictions in the offshore industry have needed to respond to a changing environment in which the quality of regulation and legislation are of paramount concern. Jersey, with its existing armoury of regulation, is well placed to meet those challenges. The combination of its political stability and fiscal independence, its convenient time zone straddling the world's major finance centres, and its comprehensive skills base, makes Jersey a formidable competitor for quality offshore business in the future.
• Through closer scrutiny, Jersey has emerged with its reputation and standing as an international finance centre enhanced.
• Jersey can offer legitimate fiscal benefits and provides investment products that are portable for professionals who move around a great deal.
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