The changing role of international finance centres in the modern world

Globalisation has seen capital flows cross borders and enable growth like never before. The world’s international finance centres (IFCs)—cities and regions with strong concentrations of expertise in financial services and favourable investment ecosystems—have played a major part in ushering in this shift. Yet with rising concerns about inequality and revelations such as the Panama and Paradise Papers, offshore international finance centres have become, perhaps without solid foundation, targets of mistrust and suspicion. In this changing world, how can IFCs operate successfully as responsible global actors—and be seen as such? In a lunchtime roundtable hosted by Prospect alongside the Government of Jersey and Jersey Finance, representatives from Jersey’s financial and digital industries joined public officials from the UK to discuss the role, value and future of IFCs.

Prospect representative Jon Bernstein chaired the event and opened up the hour-long discussion with a few questions. How do IFCs, he asked attendees, support global development, and what is their value—and the value of Jersey as an IFC in particular?

Joe Moynihan, Chief Executive at Jersey Finance, defined the Jersey IFC as “a platform which allows international, institutional, or private investors to pool funds, to invest in different locations.” He spoke of the “good quality legislation, independent judiciary, and stable jurisdiction” offered by Jersey, noting the Island “has a very stable government; our tax system has not been changed from an income tax point of view since the Germans left [in 1945]”; “we have created a platform which makes it very attractive for international investors.” Robert Moore, Business Development Director UK at Jersey Finance, offered his perspective as someone who works closely with UK intermediaries. “Clients are looking for a jurisdiction that provides stability, not just from an economic point of view but politically.” A mere forty minute-flight away, Jersey’s location, infrastructure and regulatory environment make it an attractive option to the UK intermediary market. Tim Morgan, Chair of the Jersey Funds Association, further spoke of the high concentration of expertise in Jersey, observing “you can get things done extremely effectively, and transparently, in a place like Jersey.”

Nigel Mills MP, Member of the Finance Committee, put a challenge to the industry representatives. Major scandals, after all, have created a culture of public suspicion towards IFCs and raised questions over whether their principal attraction actually lies in their tax-friendly environments. What, then, to say to people who “think that actually what you mean is that the tax position is a bit lower and bit safer?” He also contended that “all the reasons you listed [for choosing Jersey], the UK could probably do them all.” What then, distinguishes Jersey’s offering from other financial centres such as the City of London?

Senator Ian Gorst, Minister for External Relations at the Government of Jersey, responded that “in a much more connected global world, clients will be making decisions to use a service provider perhaps in New York, one in London, perhaps use a Jersey structure… but there are lots of others which wouldn’t necessarily come in otherwise. Tom Le Feuvre, Director of Global Markets and International Agreements at the Government of Jersey, also echoed the role of globalisation. Today, “wealth is created faster and further south and further east,” he said: “the customers of Jersey and London of tomorrow are more likely to be in Guangzhou than Geneva.” Jersey represents “a neutral ground” at a time when “global business chains are becoming more complicated and businesses spread across more countries.” Tim Morgan, speaking from an investment funds perspective, agreed that the business which Jersey sees frequently involves multiple jurisdictions, bringing together international investors. This in turn supports vital foreign direct investment (FDI) into jurisdictions like the UK. In fact, it was noted that Jersey accounts for an estimated £½ trillion of FDI into the UK, which is equivalent to five per cent of the total stock of foreign owned assets in the country.

David Henig, Director of the UK Policy Project at the European Centre for International Political Economy, also picked up on globalisation, this time to make a broader point about the culture of mistrust towards globalised economic activities. “There’s a danger of overly complicating and distinguishing yourself from what's happening in globalisation. Financial services are complex, most people don’t know what an IFC is.” The broader suspicion towards IFCs is, then, “not unique. People are suspect of a lot of things going on in trade. They all think ‘why can’t we manage it in our local town?’”

The discussion moved on to consider: what does a ‘successful’ IFC look like? Commenting upon the issue of transparency, Henry Wickham, Counsel at Ogier (Jersey) LLP and Chair of the Jersey STEP Branch, addressed the question of trust and the public interest. “It’s important that measures are taken to combat money laundering, we all know that. We have the rigorous JFSC [Jersey Financial Services Commission] providing oversight.” As a representative from the private wealth and trusts sector, Wickham noted interest in how the concept of personal privacy interacts with the public interest: “whatever we’re doing, we’re still respecting that fundamental human right to have a private life.” Gorst echoed the value of Jersey’s regulators, noting “We have made political commitments to follow the very highest and best international standard, because that matters,” citing the Island’s commitment to the EU’s anti-money laundering directives, and voluntary adoption of the General Data Protection Regulation (GDPR). Mark Hoban, JFSC Commissioner, agreed: “People look at standards of IFCs, and find out where people try to do their business. Reputation is a differentiator in ensuring we follow best-in-class.”

Nigel Mills MP restated his belief in transparency, particularly in relation to public registers of beneficial company ownership, commenting: “If you choose to take advantage of the corporate veil, then you should expect the fact that we should know who owns that company...” While today’s “bizarre” situation, he continued, makes it possible to know the intermediary shareholders of companies: “you don’t know who really owns the company… you should be able to know who really owns the companies that you’re dealing with.” He also contended that with limited resources, law enforcement agencies around the world are increasingly relying on the scrutiny of journalists and civil society to track down illicit financial flows, and public registers of beneficial ownership are central to that. Participants agreed, however, that Jersey has a solid reputation for anti-money laundering, with a beneficial ownership register in place for over 30 years that has been validated by international standard setters. David Postlethwaite, Legal and Technical Manager at Jersey Finance, noted that Jersey’s authorities also have a range of sophisticated legal tools available in the fight against financial crime, including powers to confiscate tainted funds. This is backed up by a culture of cooperation and information sharing with agencies around the world, including strong ties with UK law enforcement. He said that Jersey’s authorities  “do not wait for foreign jurisdictions to come to us; we are being proactive and identifying financial crimes.”

Aside from tax, there was another lingering question in the room: how will the UK’s departure from the European Union affect IFCs like Jersey? Tom Le Feuvre asked MPs about the future of the UK’s tax policy after leaving the EU. “The UK has always been a force internationally arguing for tax sovereignty but also the importance of fair tax competition...how is the UK charting a direction outside of Europe?” Robert Neill MP responded, “there’s nothing wrong with having a competitive tax policy,” which, he concluded, is “necessary for the UK’s future.” On Brexit, Neill also noted while “there is a very well established set of information sharing protocols” between regulators in Jersey and the UK, “we may need to think from the UK’s point of view what we need to do because, as we exit the EU, we lose our automatic access to the European criminal justice information system, and we will need to rely on an equivalence regime.”

Global economic shifts after Brexit were also on Lord Waverley’s mind, as the Vice Chair on the All-Party Parliamentary Group on Financial Markets and Services asked about the global character of Jersey, noting the impressive growth of wealth and hunger for capital in South America: “How innovative is Jersey in attracting new markets?” James De Veulle, Chair of the Jersey Society of Chartered and Certified Accountants spoke of the very international nature of the Island: “we need to operate in a global environment”, observing that the employees at his firm come from over thirty countries.

A final, future-facing voice came via Tony Moretta, CEO of Digital Jersey, who represents the tech sector. He took a step back to appreciate Jersey as a region: “What attracted me to Jersey is that it’s a large country in microcosm; over 40 square miles, it runs its own health service and education service, it has an agricultural sector and tourism sector.” And now, a burgeoning digital sector, where medical software, e-commerce, and fintech companies are growing. “There are other markets coming along,” he reflected, noting in particular the opportunities in data technology. “There are ways technology can be used to improve a lot of services”—the future is already here.