Evolving to meet PE needs: a Q&A with Geoff Cook
This Q&A was first published in Real Deals on 3 November 2016.
Jersey Finance’s chief executive explains how offshore jurisdictions are evolving to meet private equity’s needs, why Jersey’s relationship with the EU is important for its future and what measures the island has in place to address tax concerns.
The private equity industry has grown up a huge amount over the last ten years. How has that changed what managers expect, and how has Jersey evolved to meet these needs?
GC: The industry is more sophisticated and more international. Managers want to domicile their funds in jurisdictions that can service their needs effectively and serve as a global platform for raising and investing capital around the world.
We have taken a number steps in response to these shifts. We are building more substance in Jersey and the ecosystem of advisers and services has grown strongly. We have the infrastructure and wherewithal in the Island to guide managers through things like base erosion and profit shifting (BEPS) and ESMA (European Securities and Markets Authority) regulations. This is underscored by the growth in employment in financial services in Jersey, which is nearing an all-time high. The industry added more than 800 new jobs in 2015 and 2014, net of any reduction. This helps fund managers because they can demonstrate that there is genuine substance to their activities in Jersey.
Since 2008 we have also grown internationally and pushed out into Hong Kong, Dubai and Mumbai. We are visiting these cities regularly and there has been an increase in the number of private equity groups using Jersey as a base to raise money from, and invest in, emerging markets.
Following on from that, what does the future hold for offshore financial centres following the release of the Panama Papers and the focus that governments and the OECD are placing on cracking down on tax evasion and avoidance?
GC: The Panama Papers added to the global public pressure for all jurisdictions to improve their regulatory systems, but it was a process that was already underway, and which Jersey had been engaged in for a long time.
A seminal point in this debate was 1998, when the sanctions for tax evasion changed from civil to criminal. The consequences for evasion are serious and can see a result in a prison sentence of up to 15 years. The deterrents have become significantly stronger.
Jersey took a big step in 2002 when it reached an agreement with the OECD to exchange information on tax matters. Jersey is also compliant with the Foreign Account Tax Compliance Act (FATCA) in the US, has signed up an Inter-Governmental Agreement (IGA) with the UK and was an early adopter of the OECD’s Common Reporting Standard (CRS).
What this means is that Jersey financial institutions have to send information held on their clients to Jersey authorities, who share this with the relevant revenue authorities around the world. Transparency is automatic.
A related issue is the question of beneficial ownership of companies registered offshore. How has Jersey addressed this issue?
GC: The Panama Papers have certainly magnified these issues and questioned whether offshore centers know who they are doing business with. Jersey has a longstanding central register of beneficial ownership information and is experienced in collecting, verifying and holding beneficial ownership information on all Jersey companies.
Some jurisdictions have been slower than others to make progress in this regard, but it is becoming increasingly important to demonstrate that your center is not a harbour for bad business.
Why is a robust regulatory and information sharing framework so important for Jersey’s relationship with key markets like the European Union?
GC: A good relationship with the EU is crucial for Jersey, and in order to do business the island has to show that it meets the very highest transparency and regulatory standards.
An example of illustrating how seriously Jersey takes these obligations is a report by the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, which reviewed Jersey’s institutional, legislative and regulatory framework and found that, of the 49 areas they assessed, Jersey was rated compliant or largely compliant in 48, placing us in the top tier of jurisdictions assessed under those criteria.
Meeting regulatory requirements puts Jersey on a very strong footing when it comes to doing business with the EU. When governance is strong and a strong regulatory and legal regime is in place, managers can base themselves in a jurisdiction and raise money with confidence.