Jersey: the key milestones in the fifty year history of an international financial centre
Jersey in 2011 celebrated its fifty year history as a modern international financial centre. GEOFF COOK looks back at how the Island became a leading international financial centre and what were the key events that facilitated the growth of its financial services industry

Jersey’s modern finance industry first emerged before the beginning of the moon landing programme and when the Beatles were still without a recording contract. Although the sixties were famous for ushering in a cultural revolution, it was also a period when global finance services began to change.
Click for large image...
Geoff Cook

Jersey, celebrating the 50th anniversary of its finance industry this year, was one of the first locations to experience the impact of the rise of the offshore financial services industry.

Banking and Wealth Management
The first key date was 1961 when Jersey’s Parliament, the States of Jersey, agreed it would repeal an old eighteenth century act which limited the interest rate to be charged for loans to a maximum of 5 per cent. The move prompted the arrival of the first merchant banks in Jersey, beginning with Hill Samuel incorporating a Jersey subsidiary in December 1961 and Kleinwort Benson following shortly afterwards. Soon Jersey was building its reputation as a safe, secure home for banking deposits, while it continued to develop as a centre for trust business.
Click for large image...
Jersey: Mont Orgueil Castle - Gorey Harbour

By the time the Beatles had broken up, Jersey was welcoming its first US bank to its shores when First National City opened an office and Jersey’s bank deposits total had reached half a billion pounds, of which only a quarter were deposits held by the traditional British clearing banks. Jersey was established as a centre for international finance business by the end of the sixties.
Fast forward fifty years and the breadth and depth of financial services now available from a mature jurisdiction such as Jersey is extensive and designed to meet the requirements of both corporate clients, institutional investors and high net worth individuals managing cross border assets or seeking shelter for their investments in a stable, well regulated location.

From its early origins as a centre for expatriate and private banking, wealth management and estate planning, Jersey’s finance industry has diversified to encompass a raft of corporate services including company management and corporate governance, securitisation, listing services, structured finance, insurance and capital markets business. It has become a leading European centre for funds activity, with a focus on providing administration services for the alternative investment funds industry and there are an ever widening range of wealth management services based on a choice of investment vehicles, including trusts, foundations and partnerships.

Laws and Regulations
During the fifty years of development and growth, Jersey has enhanced its legislative and regulatory capabilities to meet the requirements of the international marketplace. The authorities have pursued policies designed to protect the jurisdiction’s reputation for probity and stability, while evolving its legislative and regulatory framework to match market needs.

An important policy move took place in the early 1970s when it was agreed that our industry’s future was best secured by limiting the banking organisations permitted to open offices in Jersey. The decision was taken of only licensing banks in the world’s top 500 who were effectively supervised in their own jurisdiction. While there was considerable appeal amongst banks to open in Jersey in this period - and at one time there were more than 60 international banks in St Helier – the restriction meant we were less likely to licence banks with a risk of failure. Famously in Jersey, the authorities declined to grant a licence to BCCI, the banking group that later collapsed in 1991.

Another significant milestone was in 1984 when Jersey enacted its Trust Law, the world’s first, which gave further impetus to the wealth management sector. Since then, the trust laws have been subject to frequent and consistent re-appraisal to ensure that they remain relevant to the requirements of corporate clients, wealthy families and individuals while the Jersey trust law has proved to be a blueprint that others followed.
Between 1989 and 1993 further tax efficient vehicles were established on the statute in Jersey to ensure we remained competitive with other jurisdictions. By 1991 bank deposits had risen to �45 billion and within a further ten years the figure had more than doubled to �122 billion. In the same period the value of investment funds had increased from a mere �7 billion in 1990 to �95 billion in 2001.

The reputation of international finance centres has been a prevailing issue for many decades with the requirement for strong, robust regulation, supervision and oversight proving as equally important as the development of innovative new products. The Jersey Financial Services Commission was created in 1998. Independent of government, where the supervision of financial services was previously managed, the new JFSC has a remit to protect and enhance Jersey’s reputation in financial and commercial matters, as well as protecting investors.

In recent decades all financial centres have been subject to increasing international scrutiny and Jersey has emerged from such reviews by the UK Home Office, the International Monetary Fund (IMF), the Financial Action Task Force and the Organisation of Economic Co-operation and Development (OECD) with its reputation enhanced. In 2009 Jersey was one of the first jurisdictions to be included on the OECD’s ‘white’ list of jurisdictions which had substantially agreed the international tax standard alongside the likes of the UK, US and other countries in the G20. Since then, Jersey has achieved one of the highest ratings when the IMF conducted its most recent review of its regulations and supervisory capabilities.

Throughout the last decade Jersey has shown itself to be among the leaders in compliance with the international standards of financial regulation, transparency and information exchange.

Fund Sector Evolves
Jersey established a prominent funds industry in the 1970s when leading fund management groups set up offices in Jersey to develop and promote products to UK expatriates and other international investors.

However when the UCITS directive encouraged increasing funds business to base itself in financial centres within the European Union, it was necessary for Jersey’s offering to become more diversified if we were continue to compete effectively. It resulted in a gradual shift toward more specialist markets and fund services for professional investors. Jersey’s fund practitioners had engineered such a wealth of experience in managing international funds business, particularly during the eighties and early nineties, that it was possible to re-ignite the industry by turning to this different, burgeoning sector of the market.

This re-emergence was crystallised in 2004 with the introduction by the Jersey authorities of the Expert Fund Regime, which streamlined the approval process for funds enabling Jersey to more successfully compete for alternative investment fund business such as hedge funds, private equity and property funds. At the heart of the reforms was an emphasis on regulating the authorised service providers rather than individual funds.

More Innovations
The diversification of the industry has been a feature since the 1990s. Another innovation was the creation of The Channel Islands Stock Exchange in 1998. A global business, the Exchange has attracted 200 issuers and has a market capitalisation in excess of $50 billion. The Channel Islands Stock Exchange (CISX) offers a full listing and trading facility for commercial business and closed ended investment companies, with market makers and an order book facility.

It took advantage of the growth in alternative investments and has become an attractive European location for international investors seeking visibility for their listed vehicles.

The CISX is often innovative and, for example, was a pioneer in the private equity sector, being one of the first stock exchanges in Europe to permit the listing of interests in limited partnerships.

There has been a growing interest in providing insurance services and the newly formed Jersey International Insurance Association, hopes to build on existing business which has included special purpose vehicles, transformers and securitisation linked to insurance transactions. Insurance has been a part of the Jersey Industry for many years, though not as highly visible as other sectors.

The most significant change in the last decade has been the decision by Jersey to invest further in the development of its finance industry in new emerging markets, reflecting the shift in global wealth from traditional western markets to the powerful new economies of China and India and the consistent growth in the Middle East.

Throughout the Gulf, Jersey is promoting its expanding range of Shariah compliant financial products, including Islamic asset management and fund domiciliation, special purpose vehicles, sukuk structures and Islamic private wealth management.
Jersey Finance now has offices in Hong Kong and Abu Dhabi and representatives based in both Mumbai and Delhi, part of the strategy by the authorities in Jersey to grow its finance industry’s presence in international markets in the coming years.

The Future
In this anniversary year for Jersey’s finance industry, there is plenty of evidence to suggest that the industry is well placed to continue to prosper. Jersey has remained a strong, stable partner for international business within the world’s financial markets throughout the recent global crisis, often acting as a conduit for the distribution of capital to the world’s leading finance centres and as a gateway to European markets for those in the emerging markets.

At the same time, we remain a leading provider of banking, funds and wealth management services in the more traditional markets. We believe that Jersey’s finance industry will benefit from the increasing international requirement for high quality financial services from jurisdictions which meet far more rigorous standards of corporate governance, international co-operation and transparency.

(This article was first published in April 2011).