No one can predict the future. In a crisis, even the best informed, from global fund managers to heads of state, are left scrambling to catch up. We just have to try to adapt as events unfold, and to prepare for normality when it returns.
But some institutions and jurisdictions manage this better than others – and Jersey was better prepared than many when COVID‑19 hit.
Take the Crown Dependency’s decision to deliver ultra‑fast internet to 40,000 homes and businesses, a project completed in 2018. When the pandemic struck, it meant Jersey was ready. When office workers shifted to remote working in spring 2020, they could bask in some of the world’s highest download speeds. That meant no dropped Zoom calls and no fighting with family members over precious bandwidth.
‘You don’t realise you are planning for a particular risk, but we had the forethought to roll out a fibre‑optic network to the whole of Jersey,’ says Amy Bryant, Deputy CEO at Jersey Finance.
Adds Jill Britton, Interim Director‑General at the Jersey Financial Services Commission (JFSC): ‘If that additional bandwidth was not in place, the island would have been in difficulty. As an international finance centre with a global client base, Jersey would have really struggled; our reliance on technology to facilitate business is key.’
Flexibility as a USP
Jersey kept its companies registry open throughout the disruption – something that has not gone unnoticed by other markets and businesses looking to move to the jurisdiction. ‘We were business as usual immediately, both as a regulator and registry. Similarly, so was the finance industry. I was very pleasantly surprised,’ says Britton. Adds Bryant: ‘Other jurisdictions didn’t extend that service to clients in lockdown, so it was a bit of a USP for us.’
Jersey was also able to reap the benefits of decisions made in more stable times – for example, the hard work of the government and finance industry to keep Jersey abreast of changing financial regulations and to ensure the island was represented at the highest levels whenever global bodies convened to rule on the future of finance.
Colin Powell, a former government advisor whose links to Jersey stretched back to the 1960s, deserves a special mention. Powell sadly passed away two years ago, and Tom Cowsill, Tax Director at PwC Channel Islands, says the economist did ‘incredible work’ in building strong bonds of ‘mutual respect’ between Jersey and regulatory bodies, including the Financial Action Task Force and the OECD.
‘Jersey retains a seat at the table with the OECD on international tax policy discussions. That enabled us to influence debate, assess the impact early and take appropriate action to retain Jersey’s competitiveness,’ says Cowsill.
Being at the heart of talks, notes Britton, enables Jersey to be ‘better sighted on what is coming down the line, and to be prepared to act accordingly to meet international standards’.
‘Jersey is right at the heart of discussions, so we will be able to see risks ahead of time and prepare for them,’ says Henry Baye, CEO of Standard Chartered Bank Jersey.
Further, the decision by the Jersey government to hire the likes of Dominic Murphy as Assistant Comptroller of Revenue and Cora O’Brien as Deputy Comptroller of Revenue was a far‑sighted move, with international tax policy discussions becoming ever more complex and resource intensive.
Global tax harmonisation measures
Powell’s years of hard work at the coalface of financial regulation have paid off handsomely. Global bodies sought for decades to strike a unified agreement on cross‑border taxation. The process moved forward haltingly at times, and at a breakneck speed at others, depending on the state of the political and financial backdrop. Key moments include the launch of the OECD’s Base Erosion and Profit Shifting (BEPS) project in 2013; adoption of the US Foreign Account Tax Compliance Act (FATCA) and OECD Common Reporting Standard, and more recently, the support of the OECD/G20 Inclusive Framework on BEPS for a two‑pillar approach to addressing the tax challenges of digitalisation.
Again, that has worked in the island’s favour. ‘The OECD was not looking to simply dictate to the offshore world, but to have a dialogue with them,’ says Steve Meiklejohn, a Partner at Ogier. ‘Over a number of years, we have demonstrated we are a responsible partner that is advancing the case of tax neutrality as a principle.’
The OECD/G20 July 2021 statement on a two‑pillar approach is a major development, not just for global tax harmonisation, but also for every participant in Jersey’s financial services sector. Initially signed by 130 of 137 BEPS Inclusive Framework members, including Jersey, the proposals (although not yet finalised) are split into two pillars. Pillar One would create new taxing rights in relation to the world’s largest corporates, excluding financial services firms, by allocating a share of taxable profits to the markets in which those corporates’ consumers reside. Pillar Two aims to ensure that certain multinational companies pay a minimum rate of taxation (likely at least 15 per cent) on global profits, worked out on a country‑by‑country basis.
It is notable that the draft proposals include exemptions for, inter alia, funds and groups with a consolidated turnover under EUR750 million. ‘Pillar Two is understood not to include the funds sector, which is clearly a big industry for Jersey,’ says Britton.
She adds: ‘Jersey has a really strong reputation as a well‑regulated global financial jurisdiction, which is invaluable for investors. Because of that strong reputation, the island attracts a lot of business that could go elsewhere. Being well regulated and open to facilitating new business, as well as protecting that reputation, will secure Jersey’s future.’
Jersey’s economic substance law
Jersey’s ability to foresee future risks and temper their impact before they happen is a sign of its collective intelligence and maturity as a jurisdiction.
The Taxation (Companies – Economic Substance) (Jersey) Law 2019 was a reaction to concerns raised by the EU in relation to a need for tax‑resident businesses to demonstrate economic substance in the island. Jersey faced the charges head on. The new legislation required banks, fund managers and certain other companies undertaking ‘relevant activities’ to ensure they had local links of real economic substance.
For most companies, that wasn’t difficult. ‘We have real depth of quality and personnel,’ says Cowsill. Out of a population of 107,800, more than 13,500 work in finance, with a broad range of expertise at both director and administrator levels. ‘It is important, though, that companies and administrators fully understand the rules and the reporting requirements so that, in turn, Revenue Jersey’s consolidated reporting to international peers is accurate and helps to allay any concerns they may have in relation to the island’s financial services sector.’
Jersey has actually turned the law into a positive on many levels. ‘It gives us a chance to get closer to clients, and many have consolidated into Jersey, further enhancing their presence here,’ says Cowsill. ‘Investors are increasingly reputationally conscious and are looking to simplify structures and rationalise the number of jurisdictions in which they operate, with Jersey being a net beneficiary of this.’
The legislation has now gone through a full financial cycle, allowing Revenue Jersey and the industry itself ‘to see how the law works in reality’, adds Cowsill. ‘We have seen the first round of tax returns under the economic substance regime, and most companies are well placed to meet requirements without having to materially change their models.’
Leading from the front on global issues
Events of recent years have presented myriad other challenges and opportunities. Strength is forged in adversity, and Jersey has stood up to be counted, whether over substance laws, global tax initiatives or the long‑tailed pandemic. To Cowsill, the island’s trump card is its ability to set the tone on issues and to lead from the front. ‘We have consistently kept pace with global standards, ensuring we are not seen as laggards being dragged toward the finishing line. That allows us to prove our financial responsibility to the outside world and is increasingly important for reputationally conscious businesses.’
Bryant considers the foremost reason for the island’s strength to be its ‘ability to be agile. Our primary aim is to create a stable and attractive environment for cross‑border business. Over the past 18 months, the words clients and businesses have used to describe Jersey are “stable” and “resilient”.’
That stability has counted double over a decade when so much has happened, including Brexit. One obvious impact of the referendum was to convince private wealth clients to look around for more reliable jurisdictional partners. Many were attracted to Jersey’s steady moorings.
‘We have seen an uptick in the number of high‑net‑worth individuals seeking to relocate to Jersey in recent years and particularly since the outbreak of the pandemic,’ says Cowsill. ‘They not only want to reside here, but to bring their businesses and to integrate into the community.’
Jersey’s allure is an ‘amalgamation of factors’, he adds, whether that be the world‑class telecommunications grid, the fiscal and political stability or the work‑life balance the island can offer.
Mental health and wellbeing in the spotlight
The pandemic presented the financial world with a new set of challenges that demanded a new set of responses. With office workers locked down at home, juggling relationships and childcare, and spending hours each day in video meetings, thoughts turned to physical and mental wellbeing. Indeed, as crises so often do, the pandemic has altered our world in unexpected ways. It accelerated the diversity and inclusion agenda within businesses of all sizes. And it forced firms to think properly about the state of mind of their staff.
‘We are removing the stigma around mental health and allowing it to be discussed more openly,’ says Bryant. ‘Companies are working to create a supportive culture, allowing people to bring the best version of themselves to work and helping talent to thrive.’
Cowsill notes that PwC introduced a well‑received five‑point wellbeing plan along with initiatives such as an ‘everyday flexibility’ policy. ‘The key is that leaders are accountable and visibly committed to wellbeing,’ he says. ‘It now pervades the entire organisation, from firm‑wide through to individual team initiatives. For example, our tax team has created its own wellbeing programme, with champions ensuring it’s always on the agenda.’
The professional services firm actively discouraged overtime and came up with a new timesheet category that allowed staff to attend to private matters during work hours, with no implications for workplace assessments.
‘The outcome was that our productivity was actually higher throughout the lockdown period, as staff recognised that we were prioritising their wellbeing,’ James de Veulle, Head of Banking for PwC Channel Islands, told Jersey Finance as part of its Jersey Means Business research.
Risks and opportunities as we look ahead to 2022
As ever, challenges lie ahead. The environmental, social and governance movement is only just getting started, and Meiklejohn believes Jersey would be wise to keep abreast of the latest thinking, just as it did with shifting attitudes toward economic substance or global tax standards.
‘The whole sustainability discussion could present a risk to an offshore centre,’ he says. ‘There is a lot of regulation already introduced or coming down the track that will affect the conduct of financial services. Investment firms will be required to ensure products meet minimum standards in terms of sustainability. Jersey has launched its own sustainability initiative to stay ahead of the pack.’
But, Meiklejohn adds, it is easy for the reputation of any jurisdiction to be tainted by association with a particularly egregious environmental offender.
COVID‑19 has also forced financial and professional services firms to ramp up investment in technology. Britton points to digital identities as a hot topic, along with cybersecurity, adding: ‘We do a lot of webinars for clients, and have done a substantial amount of outreach.’
Some final words of acknowledgement must go to the island’s joined‑up thinking. Jersey’s regulators, politicians and financial services practitioners can only work at their peak by thinking and acting collectively – and that only happens with good communication.
‘The Jersey Bankers Association met on a monthly basis throughout the pandemic, giving industry a direct line of communication to government, the JFSC and Jersey Finance,’ says Baye. ‘Having that kind of forum available to stakeholders has been extremely useful.’
Cowsill says the key to future success is a ‘healthy working relationship between government, industry and the regulator. Healthy tension between stakeholders avoids the danger of an imbalance or an echo chamber, but with all parties working to ensure Jersey remains internationally competitive and keeps pace with international tax and regulatory standards.’