The Channel Islands jurisdiction has described its contribution to global "value chains," making a case for its existence at a time when IFCs continue to be criticised for existing at all.
International financial centres vie to stand apart and, in some cases, to ward off claims that they only exist to enable the wealthy to conceal money.
When investors from jurisdictions want efficient, speedy and robust channels for steering capital in the most lucrative direction, IFCs can be important hubs. And their clusters of business, legal and technical expertise develop a self-sustaining momentum of their own.
That’s the kind of argument that the UK Crown Dependency of Jersey likes to put forward. Jersey Finance, the organisation pulling together private sector and public sector bodies to make the island’s case around the world, argues that its network effect deserves more respect. Jersey Finance recently worked with the Centre for Economics and Business Research to plot Jersey’s global economic footprint.
The document says Jersey supported £170.3 billion ($222.9 billion) of global gross domestic product each year during a four-year period between 2017 to 2020. To convey a sense of how large this is, New Zealand’s direct contribution to global GDP was £172 billion. Jersey administers £1.4 trillion in capital, and its business activity underpins 5.1 million jobs. Regionally, the jurisdiction supports £62 billion of UK GDP, £31 billion of rest of Europe GDP (excluding the UK and Jersey); £46 billion Asia and Middle East GDP, and £24 billion of North American GDP.
“Jersey facilitates the flow of capital and investment globally. Financial services are integral to the range of business functions in supply chains across all global value chains, including research and development and procurement,” the report says.
Joe Moynihan, chief executive of Jersey Finance, is upbeat.
“Despite the persistent challenging conditions, thanks to our resilience and stability as a jurisdiction, Jersey continues to attract new business. This has been possible because of the experience Jersey has in the international markets, in dealing with highly complex regulatory frameworks and in facilitating cross-border private and institutional capital. Jersey can do all this by providing a no-nonsense and well-regulated platform,” he said. “There’s no doubt that over the coming years, that sort of stability, certainty and experience will be a hugely valuable asset.”
“The disruption caused by Brexit and geopolitical fragmentation, instability in certain regions, and, of course, the pandemic has meant that targeted and impactful investment has been needed like never before, not just to rebuild economies, but to rebuild communities too,” he continued. “IFCs like Jersey are in a fantastic position to rise to that challenge, by providing the perfect platform, with less friction and greater oversight, to facilitate capital movements and ensure that investment can be put to work with most impact where it is most needed. The challenge for IFCs right now is to really focus on clearly telling that story, to shed a light on the tangible impact they can have. That’s why we commissioned this important piece of research, to analyse the global economic footprint of Jersey’s finance industry and to better understand Jersey’s role as an economic conduit within Global Value Chains (GVCs).”
Not always friendly
Policymakers in Jersey know the international environment is not always friendly for IFCs. A few months ago, Jersey’s Chief Minister, John Le Fondré, responded in critical comments to US President Joe Biden for the latter’s call for a global minimum corporation tax rate of 15 per cent. Separately, Jersey, like other IFCs with UK links such as the Isle of Man, Guernsey, the British Virgin Islands and the Cayman Islands, is working out how to fine-tune its positioning now that the UK is out of the European Union. With the crackdown on Russian oligarchs’ financial holdings, pressure for all jurisdictions to provide data on beneficial ownership remains intense. (However, this also does not remove the need to strike a balance between avoiding secrecy without endangering legitimate privacy.)
At the same time, those jurisdictions which are able to show stability, robust economic growth and quality of life, are popular, particularly given geopolitical instability in Europe and parts of Asia.
Jersey can point to hard numbers showing its significance as a financial hub – some £225.9 billion of capital is served by the funds sector (based on annual averages from 2017 to 2022); £142.2 billion of bank assets and £1.14 trillion of trust and related capital is administered there.
According to the CEBR’s central forecast, the value of the capital intermediated in Jersey flowing downstream to Asia (including the Middle East) will see a doubling between 2020 and 2030, rising to £610 billion. Looking at North America, it will rise by slightly more than 50 per cent to £300 billion in 2030 from 2020. As far as the UK-related market goes, the rise in intermediation will be less dramatic, at 24 per cent over the 10 years to 2030, the CEBR said. The UK will still be the largest source of Jersey’s capital allocation by 2030, supporting an estimated £650 billion.
Jersey Finance’s Moynihan adds: “There’s no doubt that IFCs will continue to be challenged in the years ahead, often as a result of misunderstanding or misplaced stereotypes. Research like this [report] will be invaluable. This is about pooling capital and facilitating investment flows around the world and creating positive change, at a time when positive change is really needed. This is not about shifting money around without impact; this is about stimulating growth, providing jobs and wages for people around the world, helping to build infrastructure, and supporting real people in real communities. Looking forward, this sort of investment support will be critical to our collective global prosperity.”
Criticisms of IFCs continue, with even "onshore" jurisdictions such as the UK being criticised for allowing billions of pounds and the equivalent to "leak" away. This argument resurfaced here, prompting pushback.