Offshore centres battle with Luxembourg for alternatives industry
Jersey and Guernsey are taking on onshore European domiciles, such as Luxembourg, to win new business from the alternatives industry. But the greatest fight they face is how to change perceptions.
They are a small, but nonetheless significant part of the financial services industry. Yet the British Crown Dependencies of Jersey, Guernsey and the Isle of Man, which contribute between them £300bn (€343bn) to the UK economy, argue that in common with other offshore centres, they have become a scapegoat for what went wrong during the financial crisis.
Their reputation has suffered, along with banker bashing and furore over the Madoff funds. Now they are struggling to prove they capable of operating as efficient fund servicing centres in future, amid mounting transparency pressure.
Much of that pressure is coming in the form of regulation from Europe and the US. It stems from the perceived regulatory failures highlighted by the G20 group of nations in 2009 following the crisis.
Geoff Cook, chief executive of Jersey Finance, says: “The EU saw the crisis as an Anglo-Saxon-induced event, and reacted accordingly by introducing new regulation in an attempt to exert significant control on shaping and managing events within their geography.
“Their instinct was to build a regulatory wall around Europe, and one of the outcomes was the proposed AIFMD (Alternative Investment Fund Managers Directive), complete with a three-year exclusion zone.”
Commentators say the directive poses a threat both to the industries it is attempting to regulate, and the offshore centres that traditionally serve them.
“Private equity lost one battle: we’ve got the AIFMD,” says venture capital tycoon Jon Moulton, a Guernsey resident and the founder of Better Capital.
EU centres such as Luxembourg see themselves as a beneficiary of upcoming regulatory changes. They believe they can win business from the Channel Islands by drawing in alternatives managers seeking more regulated structures.
Camille Thommes, director-general at the Association of the Luxembourg Funds Industry, says: “Following the political decisions taken at the level of the G20, the trend is towards more regulated products and services.
“This is what more investors are expecting, and there are noticeable trends of offshore funds going onshore. The introduction of the AIFMD will bring more alternative funds into the regulatory net.”