Adaptable Jersey poised for post-Brexit success
By Iain Mason (pictured) – Managing Director, VG – Brexit was reported as an unpleasant shock for the Channel Islands’ trust industry, with concerns jurisdictions may find themselves caught between a transparency rock and a privacy hard place.
While Brexit undoubtedly has implications for many aspects of Jersey’s relationship with the EU, its effect differs from that in the UK. Although closely connected to the UK, Jersey is not subject to the laws of the UK and never has been a member of the EU.
A unique relationship
Being outside of the EU, Jersey has always been able to readily adapt to the market conditions and work effectively with both the UK and EU member states. Jersey already has strong existing relationships with both the UK as well as intermediaries across the EU, with little direct impact on Jersey’s financial services industry resulting from Brexit.
As an industry we have always enjoyed a globally mobile client base and geographically well-diversified relationships. This means that while the UK is Jersey’s most significant trading partner, the industry will still operate in both the UK and EU markets as it did before and continue to leverage international relationships.
While Jersey may feel some short-term impact from the trade deals negotiated between the UK and the EU, London’s capacity and capability will not be easy to replicate in the EU for a long while, even if the EU were to develop its own finance centres in the future. Despite the recently delivered UK Budget announcing corporation tax (CT) increases to 25% from April 2023, the UK remains an attractive jurisdiction for investment, relative to EU member states with higher headline rates of CT. Most commentators predict Brexit will be advantageous to the UK economy in the longer term and Jersey, as a jurisdiction which facilitates capital flows in and out of the UK, will in consequence also benefit.
Increased regulation increases competition
Notwithstanding the impact of numerous global crises, the market capitalisation of Jersey’s listed companies on global exchanges grew by GBP2bn in 2020 and Jersey’s net asset value of regulated funds under administration grew by GBP12.6bn in Q4 2020. Jersey’s strong constitutional ties with the UK mean Jersey is well-placed for access to UK investors and opportunities.
For fund promoters looking to raise funds in Europe, in particular utilising National Private Placement Regimes, Jersey represents a much more cost-effective and less bureaucratic solution when compared to a hosted Alternative Investment Fund Manager (AIFM) arrangement located in an EU member country. As the EU continues to forge ahead with new regulation, both within the funds and capital markets space, jurisdictions, like Jersey, which offer increased ease of doing business, flexibility and more cost-effective solutions, will become more attractive.
A transparency rock and a privacy hard place
Alongside the flexibility of Jersey’s regulatory framework, a large part of the predicted sustained growth is the continued high level of trust in the regulatory framework in Jersey, as well as the unrivalled expertise. As an industry we have keenly demonstrated to the EU and UK that we are responsible international players and will not entertain tax evasion or aggressive tax avoidance schemes. While Jersey was not a member of the EU, some aspects of EU legislation were adopted in compliance with the bilateral agreements in place between Jersey and member states including, for example, several Tax Information Exchange Agreements.
Brexit has provided further opportunity for Jersey to continue forging its own independent agreements with member states. Prior to Brexit, Jersey had ten full bi-lateral double taxation agreements and 12 partial double taxation agreements with other countries. Embracing tax transparency and enacting robust financial regulation will continue to be an important focus for Jersey, matters often under the UK and EU spotlight.
Despite being an active participant in all the international initiatives in these arenas, UK and EU politicians are led by public sentiment as to Jersey’s financial service offerings. As the UK will attest, trusts are not all about tax, however. In most cases, clients are looking for structures to deliver their succession plans, to secure assets which are at risk of expropriation or confiscation by a hostile regime, or to maintain control over family wealth or businesses.
In relation to tax, clients are looking for tax neutrality, not to gain advantage from low tax rates, but rather to avoid being taxed twice on the same income or gain. We have many clients in tax-free jurisdictions; they are clearly not motivated by tax, rather they come to Jersey for the robust governance and administrative expertise that we have to offer.
Jersey is at the forefront of tax information exchange schemes, beneficial ownership registers and anti-money laundering reporting. Conversely, the very regulation built to demand and ensure transparency, if taken too far, could serve to undermine the right to privacy and safety of beneficiaries – due to the risk of criminality or extortion resulting from disclosure. Jersey has struck the right balance by ensuring access is restricted to competent authorities in foreign jurisdictions and not the general public.
Poised to play a supporting role
The modern, sophisticated client demands safe, secure and flexible legal and regulatory frameworks which can adapt to changing market conditions such as the post-Brexit financial sector. We expect the UK to apply legislative focus to Jersey as it continues to market London as a pre-eminent finance centre, but at present there are no disruptive legislative changes that will affect Jersey’s trust industry in relation to Brexit.
Brexit will leave a lasting impact on the UK-EU relationship and there are undoubtedly challenging times ahead as we continue to navigate the effects of Covid-19. As the UK looks to strengthen its relationships beyond the EU, however, Jersey is well-placed to play a key role between the UK and international markets. Unexpected as Brexit was, it is proving to be an opportunity rather than a threat.