It’s the time of year when we all take stock and look ahead, contemplating what the future might hold. There’s little doubt that Jersey’s finance industry has been through a tough few years and, for the trust company business sector in particular, circumstances seem to be combining to create a rather unsettled outlook.
The financial downturn which began in 2007 is still biting and governments around the world are driving for ever-increasing tax transparency from both high net worth individuals and corporations. In the UK, we’ve seen a number of celebrities hit the headlines for their use of aggressive tax avoidance schemes and no-one can predict where HMRC’s spotlight will fall next.
At the same time, the trust industry’s traditional markets are under pressure and so businesses are venturing far and wide in search of new clients and growth. Russia, China, India and Africa are the new targets and all present challenges and hurdles. Many trust companies have also branched out into providing funds services, with admittedly varying levels of success.
In the absence of organic growth, some businesses have become acquisitive and the past few years has seen the consolidation of the trust industry in particular, with the emergence of a handful of “major players” in the Island with branches, subsidiaries and offices in multiple jurisdictions. This whirlwind of takeovers and mergers has doubtless presented demands, and some headaches, for management when consolidating the new acquisitions.
We’ve also seen the entrance of private equity firms into the trust company sector. Whilst attracted to the prospect of healthy income streams, there have been some signs that private equity firms have not always understood, or appreciated, the complexity of the underlying trust business. If these firms are not careful, costly mistakes could be made, potentially damaging both their financial performance and reputation.
Notwithstanding the higher business risk appetites which typically have resulted from all of these pressures, businesses of course still have to comply with Jersey’s legal and regulatory regime, not least our continually evolving anti-money laundering requirements. The new Handbook is coming in and, whilst there are no fundamental changes to what is required of regulated entities, there are new provisions, such as the sharing of information from suspicious activity reports, which are likely to be relevant to most entities. As always, businesses must provide appropriate training to ensure that management and staff are aware of their responsibilities and obligations.
Changes to the regulatory regime and higher business risk appetites are among the factors increasing pressure on Compliance and Money Laundering Officers. Whilst these individuals are key to the success of any regulated business, the competing demands made of them can be enormous, especially if they do not receive the full support of their Board. It’s undoubtedly a tough job and indeed many firms are finding it increasingly difficult and expensive to recruit and retain decent compliance staff. In our sister island, the Guernsey Financial Services Commission allows regulated entities to engage external consultancy firms to undertake compliance and anti-money laundering tasks, or even to act as the Compliance Officer. Time will tell if our Commission revisits the rules in this area.
The Commission itself has been very active of late, as demonstrated, in part, by the increase in the number of public statements made against firms and individuals. The price of failing to comply with regulation can be very high indeed, curtailing the careers of the worst offenders and closing businesses down. Once the civil penalties regime comes into force later this year, the Commission’s armoury will be further bolstered and materially non-compliant firms may have to pay a heavy financial price.
Another development this year will be the Financial Services Ombudsman for the Channel Islands. Funded by industry and established by law, the Ombudsman’s remit is the independent and effective resolution of complaints made against banks, investment businesses and insurers, although not trust companies, and its impact is likely to become significant. It will be particularly interesting to see how the Commission and the Ombudsman interact in undertaking their respective roles.
The Commission also has a busy year ahead, starting off with MONEYVAL’s assessment this month. With all the challenges currently facing industry, the Commission’s job is arguably more important than ever as it looks to work with international developments and help industry to respond and grow.
There’s no doubt that the whole of our finance industry is facing a stormy time, a time of risk and uncertainty but also a time which offers opportunity for those firms and individuals ready and able to face the storm.