Jersey, The International Financial Centre
BY PHIL AUSTIN, CHIEF EXECUTIVE, JERSEY FINANCE LTD
JERSEY has been an established jurisdiction for international financial services for more than 40 years.

Its emergence as one of the major centres in the offshore finance marketplace has developed naturally from its historical status in relation to the United Kingdom. This unique allegiance to the English Crown has given the Island long-term political and economic stability and an appropriate level of independence to handle domestic affairs including fiscal policy.

Banking
Banking has been a local industry in the Island from the 18th century, but it was at the beginning of the sixties that the modern finance industry truly emerged. The post-war era had seen dramatic changes in the world, not least in British foreign affairs. The granting of independence to many former British colonies led many UK expatriates to seek a safer refuge for their funds.

As early as 1961, the Merchant Bank - then known as H Samuel & Co - became the first City of London institution of its kind to join the handful of traditional high street banks in the Island. They began to offer a more sophisticated range of financial products which appealed to expatriates.

Jersey itself, a crown dependency, offered the fiscal and political stability for which these expatriates were looking. Furthermore, the Island was English-speaking, close to the United Kingdom and home to many familiar banking names. By 1972, 25 banks and other deposit-taking institutions had established a presence in the Island and total deposits had increased to £500m. Jersey had developed a new and thriving industry to sit alongside agriculture and tourism.

The most recent statistics, released in September 2002, show that Jersey has approximately 60 banks, holding deposits totalling £136 billion, with about two thirds of that amount in foreign currencies. Figures also reveal that there has been no downturn in the Island's appeal to investors and deposits have continued to rise consistently up to the present time. There are more than 23,000 clients of investment managers in Jersey and the amount of funds under management, while difficult to quantify exactly, is in the region of £97 billion.

Global Appeal
However, the attractions of the Island as a financial services centre have expanded far beyond its original appeal to expatriates. While the provision of offshore banking to the expatriate market remains a significant element of the services offered, the Island has diversified dramatically to appeal to businesses globally. Business introductions frequently arrive through lawyers, accountants and corporate bankers working in the world's biggest financial centres, particularly in London and New York. Jersey has many senior professionals with the experience to deliver bespoke solutions for corporate clients, supported by the legislative and regulatory framework that is constantly evolving.

The jurisdiction has been adept in creating corporate structures for global investment planning. Often special-purpose vehicles are established, taking the form of companies, limited partnerships or trusts.

Companies
Traditional offshore company formation remains an important financial service offered through firms in Jersey, and the Island has taken steps to make the jurisdiction more attractive to professionals who are seeking to establish such companies here. It is possible, for example, to re-domicile companies both in and out of Jersey thereby offering company owners considerable flexibility. Par value, no par value and guarantee companies are all permitted under the recently amended law and there are a number of innovative features that offer company owners and their advisers considerable diversity when planning their financial affairs.

Specialist Funds
Areas of particular growth include private equity funds, which are structured through the use of limited partnerships legislation in Jersey. Private equity schemes are often established on behalf of a client seeking to raise finance on the capital markets for investment purposes. Commercial property projects have also been prevalent. Investment vehicles are registered in Jersey to help banking groups arrange the funding of major commercial property schemes in major UK and European cities.

There has also been notable growth in securitisation and repackaging transactions. Insurance firms which have turned to Jersey for pension and life assurance schemes have also been looking to securitise some of their risks by using capital markets to issue bonds to institutional investors. The first special-purpose vehicles issued to establish such bonds were used to provide capacity in catastrophe insurance and reinsurance - particularly hurricanes, flood damage and earthquakes. Since then a global market has developed in weather-related derivative products. Securitisation of other insurance risks, such as mortgage default and credit risk, has also been successfully introduced.

Employee Benefits
Jersey trust structures have become a reliable vehicle for use by larger companies when they establish employee share ownership schemes (ESOPs). The Island is home to a number of specialist teams at many law firms and trust companies that concentrate primarily on administering the global employee benefit plans of some of the world's largest companies. Such schemes need to be portable and not subject to the varying tax ramifications and benefit calculations depending on the location in which the employee or expatriate happens to be working. One of Jersey's great strengths is its ability to combine a flexible regulatory framework with an available pool of skilled practitioners able to advise and implement these complex plans.

Stock Exchange
Another advantage for corporate clients is the availability of the Channel Islands Stock Exchange which, since its launch in Guernsey in 1998, has become an integral part of the finance industries in both Jersey and Guernsey. The Exchange's user-friendly listing rules, consistency of response, swift and efficient turnaround of documentation and its competitive costs have contributed to its success. The Market Authority meets daily to consider listings which adds an extra degree to the level of client service, an approach that is in keeping with the way business is undertaken in Jersey where this service is paramount.

Co-operation
Political and fiscal stability alone would not be sufficient to attract this range of financial business. There has been a requirement to construct a legislative and regulatory framework which meets the needs of the international investor and corporate client, while simultaneously ensuring that the Island can maintain a reputation for attracting only quality business to its shores.

The Island authorities and its independent regulator have given a whole-hearted commitment to enhancing regulation, and to co-operate with other countries in the fight against money laundering and international crime. As a result, Jersey's efforts in this regard have been recognised by international bodies and law enforcement agencies. Organisations such as the Financial Stability Forum and the Financial Action Task Force, both formed by the G7 nations to seek improved standards in the global financial system, have endorsed Jersey's level of regulation and its willingness to take a leading role among the offshore jurisdictions.

Leading Edge
The Island has maintained a leading edge approach to new legislation. The Financial Services (Jersey) Law, introduced in 2001, extended the requirement of registration, to trust and company service providers and imposed stricter regulation on their operation. The tightening of the rules in the trust and company sector, followed on from earlier legislation designed to regulate investment business in Jersey. Prior to that, the Island was one of the first jurisdictions to embrace the need for more stringent anti-money laundering legislation through the introduction of the Proceeds of Crime Law.

The Jersey authorities are also actively involved in negotiations with the UK over the European Union's requirements that finance centres across the globe make changes to selected tax practices. However, it should be noted that Jersey is not a separate member state or an associate member of the European Union, even though the Island is just some 14 miles off the coast of the European mainland.

Jersey's position within the European Union (EU) is defined by Protocol 3 of the Treaty of Accession of the United Kingdom to the European Community. Jersey complies with EU directives on trade in industrial and agricultural products, but is not bound by directives or regulations in other areas, such as Economic & Monetary Union, taxation or financial services.

However, the Island authorities and the finance industry are keen to co-operate with the many international initiatives that have been suggested, including those emanating from the EU. The primary concern of the authorities in Jersey is that there is a level playing field whenever new measures are implemented and that all financial jurisdictions, including competitors of the Island, some of which are member states of the EU, also comply with new directives.

Standards
However, all serious jurisdictions share the same aim of improved standards of regulation and legislation to help protect the legitimate investor and to support global efforts to catch fraudsters and terrorists. Many of the new measures are designed to help in the global fight to crack down on terrorist funding. Jersey is fully supportive and already has comprehensive anti-money laundering legislation and orders which will help the authorities freeze assets should any terrorist funding be detected in the future.

The finance industry in Jersey is also supportive of the call for more transparency and openness in financial services both offshore and onshore. These developments are good news for financial services clients world-wide.

Jersey anticipates that the dividing line between onshore and offshore will narrow. The emphasis is already far more on the quality of the jurisdiction in terms of meeting recognised international standards, the status and track record of the financial institution based there and the range, quality and diversity of the services. The Jersey finance industry appreciates that investors and their advisers are naturally drawn to finance centres that provide a broadly-based, well qualified and specialist service, appropriately regulated to enable the interests of the legitimate investor to be protected.

Forefront
It all points to a flourishing future for Jersey's number one industry. Its tax neutral environment, favourable time zone to the major financial centres, the top level names in banking, investment and fiduciary services that have chosen the Island as a home for business, the quality of the regulation and the twin pillars of political and economic stability that support the business, continue to blend together to help keep Jersey at the forefront of international financial services.

For companies offering financial solutions in Jersey, see the Jersey Overview

For more information about Jersey's international finance industry please visit the website of Jersey Finance Limited, www.jerseyfinance.je