With the outcome of Brexit still very much in the balance and the cause of some uncertainty in the international funds landscape, Kenny Rae, Group Director of Institutional Client Services in Jersey, and James Tracey, Managing Director of JTC’s Guernsey office, explore how the Channel Islands are positioning themselves ahead of the UK’s exit from the EU and why they are both positive on the future of both jurisdictions as fund domiciles in Europe…
Q: How big an impact do you think Brexit will have on the Channel Islands?
Kenny Rae (KR): “The landscape is changing on a daily basis so I won’t even try to predict the ultimate outcome of Brexit. What we can say however is that against this backdrop of uncertainty caused by Brexit, Jersey and Guernsey can actually offer investment managers a degree of certainty.”
“Given that the Channel Islands are not part of the EU or coupled to the UK’s membership, Brexit will have no direct impact on the financial services industry here. Whatever the outcome, Jersey and Guernsey’s position in relation to the UK or EU doesn’t change. There is certainty here, and that’s very attractive in the cross-border investment funds space at the moment.”
James Tracey (JT): “The access the islands already provide to the European market will remain unchanged by Brexit. Both have secured ‘third country’ rights to distribute in Europe using National Private Placement Regimes – a process that has been in place for some time, that is proving to be very efficient and that will remain in place for the foreseeable future.”
Q: So do you actually see opportunities for the islands as a result of Brexit?
KR: “In the event that the UK doesn’t reach a deal with the EU then this could create certain issues for UK-based fund managers who have marketed to investors throughout the EU under the AIFMD passport. National Private Placement Regimes continue to work well, offering a cost-effective solution and enabling UK, and other non-EU, fund managers to achieve EU-wide distribution of their funds. This presents a real opportunity for the Channel Islands to support the UK’s alternative fund management community and provide guaranteed, ongoing and seamless access.”
JT: “In fact many promoters who have experience of managing funds in both the EU and the Channel Islands understand the comparative ease in many cases of using Guernsey or Jersey and the high standards they hold themselves to. That will stand them in good stead as they try to navigate the fallout of Brexit. The recent confirmation by ECOFIN, for instance, that both islands apply good governance in respect of tax practices, is the latest endorsement of the islands from an international authority, and should give further comfort that both Guernsey and Jersey take a mature approach to proper conduct and tax transparency.”
“The natural advantages that the islands have are numerous too; close physical connections to major financial centres (particularly London), a GMT time zone, and importantly independent stable and autonomous governments which operate under common law. These are big pluses for the islands.”
Q: How significant are recent regulatory agreements signed by the islands with the UK’s FCA?
KR: “Marketing non-EU funds into the EU is a big opportunity for the islands, but the importance of the UK investor market is not to be understated either. The recent MoU signed by the UK and Jersey’s financial regulators gives certainty for fund managers looking to access UK investor capital through Jersey. The MoU will enable Jersey domiciled funds to continue to be marketed, uninterrupted, into the UK through private placement in the event of a “no deal” Brexit outcome.”
JT: “As Kenny has already pointed out for Jersey, Guernsey has also agreed an MoU to ensure that it is simply business as usual from here. The same cannot be said in the UK where plans are either being made to avoid fallout due to a hard Brexit, or they are being deferred (at least in terms of implementation) until there is some certainty on which to act. This uncertainty appears likely to persist through to 2020. I have great sympathy for managers of UK domiciled funds given the political impasse that appears to exist on all matters relating to Brexit!”
Q: Looking forward, what role can the Channel Islands play as a European funds centre post-Brexit?
JT: “The Channel Islands’ relationship with the EU and UK mean they have the potential to play a really valuable role in supporting cross-border funds activity throughout and beyond Brexit. Today, they are perfectly positioned as global financial centres to continue to provide efficient ways of deploying investment capital in a tax neutral environment.”
“Decisions around fund domiciliation are not straightforward and the trend has certainly been towards multi-jurisdictional structures to cater for different investor preferences. With that in mind, we are finding more and more that clients are reassured by our ability to offer a full range of servicing locations, Guernsey and Jersey absolutely being part of that. We sit perfectly in the Channel Islands, for example, to offer a prime location for investment funds and corporate investment vehicles, with the added bonus of being able to support feeder and SPV vehicles in the EU through our Dutch, UK & Luxembourg teams.”
KR: “All in all, in an uncertain world, Jersey and Guernsey are both really well placed to offer flexible solutions going forwards, and we certainly see them as part of an integrated solution that can support managers and investors through Brexit and in the long-term.”