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Jersey – First for Finance: Adaptation of the finance industry in a global pandemic

3rd Dec 2020
By Tim Knight, Head of Corporate Services – Jersey

Whilst the human cost of the COVID-19 pandemic should of course not be overshadowed, the economic impact and the implications for global capital markets created uncertainty for institutional clients, yet recently announced vaccines have now injected some cautious optimism as we move into 2021.

For providers of corporate services, the initial impact of lockdown required swift adaptation of administration practices and working closely with clients, to mitigate any concerns around pandemic-driven financial result and its influence on current/planned transactions.

ADAPTATION IS KEY

In Jersey, service providers with robust IT infrastructure and largely paperless operations adapted the quickest to homeworking and were able to provide continuity of service to their clients when it was needed the most.

Jersey’s internet service providers upgraded all users on the Island to the fastest internet speeds to help with the increase in demand, an added touch of assistance on top of the already expanded fibre-optic network which took place in the last few years.

The Comptroller of Revenue in Jersey was also quick to issue guidance to reassure controllers of Jersey companies which were temporarily unable to meet the conditions set out in Jersey’s economic substance legislation. In particular, companies will not be determined to fail the economic substance test where they have to adjust their normal operating practices, for example by holding board meetings virtually, rather than physically in Jersey, because individuals decide to avoid travel or to self-isolate.

SUPPORTING CLIENTS THROUGH THE PANDEMIC

For real estate clients with assets in the already beleaguered retail sector, COVID delivered a harsh blow with centres suffering a significant reduction in footfall and food and beverage services outlets closing. As such, Jersey administrators have been busy working out covenant waivers, re-financing, rent concession agreements and re-gears, for their clients.

Whilst this has resulted in additional work locally, it has been difficult and also uncomfortable passing on higher costs to clients already needing to manage cash-flow issues. In these circumstances, we have offered fee holidays and discounts to help clients manage their business through the pandemic and which will hopefully strengthen relationships in the long-term.

To date, the banks have been supportive but one wonders how they might behave at some point in future, should the economy fail to show signs of recovery into 2021. The UK Government’s business disruption loans will assist along with supportive fiscal policy and other measures and interest rates could fall to zero or below.

WHAT DOES THE FUTURE HOLD?

It is evident that many corporates have put plans for investment and expansion on hold and there has been a consequential slow-down in transactional activity. Financing of new ventures will also become more difficult. However, there have been benefactors, most obviously in IT infrastructure companies and we have seen new vehicles established for corporates taking advantage of value.

Mergers and acquisitions activity should also increase, resulting from companies seeking to combine strengths and manage costs given the uncertain outlook, even with the distribution of the recently heralded vaccines.

Whilst the exact timing is subject to some conjecture, the arrival of a tested and effective vaccine will certainly be the catalyst and ‘shot in the arm’ for global markets and will also give more confidence to corporates currently holding off investment plans.

There were eight vaccines in phase three trials and typically half of pharmaceuticals at this point achieve approval. At least two of these are now set to be approved before the end of the year.

There will undoubtedly be initial delays to distribution as some require cold storage and initial doses will likely be prioritised to hospital/essential-workers but potentially vaccinations on a larger scale could be available from summer 2021.

For real estate, rents are likely to be soft in the near term and clients holding most asset classes may need to accept a lower rate of return until the economy fully recovers. For Jersey’s financial sector, we will need to capitalise on the efficiencies generated and resulting from lockdown.

COVID-19 has certainly proven the robustness of the Island’s IT infrastructure and the adaptability of the financial services sector to remote working. This has been essential to deliver service continuity and has been of great reassurance to clients. It has already changed the way we work, enhancing efficiency and providing greater flexibility to many employees now enjoying an office/home-working balance.

Jersey already has an enviable reputation as a leading global financial services centre for the experience and quality of its workforce, political stability and regulatory infrastructure. These key qualities will remain a requirement for international corporate clients choosing a reliable jurisdiction to base funds and investment structures. The resilience and resourcefulness of service providers to help their clients navigating through this pandemic should prove to underpin that reputation.

To read the full version of Jersey – First for Finance’s 2020-2021 publication, please download the PDF below.

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