Are we at a tipping point? It’s certainly a thought provoking and provocative title for a conference , and I would like to thank the Chief Executive and Committee of the AIC for inviting me to speak today and to provide you with my perspective.
If you were to pay attention to some of the local and even national media – which I would not necessarily recommend – you could easily believe that the scales have already tipped. I would like to provide some balance to that claim.
It is true that Brexit, changes of political administration, both locally, nationally and internationally, and uncertainty within the global economy present challenges that must be met with robust action, and some degree of courage. But they are not insurmountable. Nor are they lacking in opportunities, if we are prepared to seize them.
At a time when these challenges present a risk to continued inward investment and confidence in the financial services sector globally, balance and stability are exactly what investors need, and they are exactly what the Channel Islands offer.
Stability has been the hallmark of Jersey and Guernsey’s financial services industries for over 40 years. During that time we have faced repeated calls for increased transparency, more robust regulation, and changes to our tax regimes. We have been the subject of unfounded media criticism, and tarnished by the exposés of the Paradise and Panama Papers – when the wrongdoing was taking place in other, unconnected, jurisdictions.
Time and again, we have met those challenges and proved that the focus of government, the regulator and professionals, is to provide a responsible, effective and stable financial services industry.
Brexit provides us with another opportunity to promote the Channel Islands globally as safe, stable and secure financial centres. The Government of Jersey’s Brexit planning has been developed on the basis of a ‘no deal’ or ‘Hard Brexit’ scenario since the UK referendum in June 2016.
I should say that contingency work was taking place before the referendum, and we were able to present a Report to the States Assembly setting out our proposals the day after the leave vote.
Given recent developments in the negotiations and the increasing probability of a ‘no deal’ scenario, this has proven a prudent approach.
Early on, we set out four key objectives, which have remained the cornerstone of our preparations for Jersey:
- to continue the fundamentals of our existing relationship with the United Kingdom
- to continue the benefits of our relationship with the EU, as under Protocol 3
- to ensure Jersey has the right agreements and international relationships to benefit from global opportunities, and
- to mobilise government departments to ensure effective engagement, manage our legislative programme, and to work collaboratively with the other Crown Dependencies
On this last point, one I will return to later, I must emphasise that the governments of Jersey and Guernsey in particular have been in regular communication and are strongly aligned in preparing for Brexit.
From Jersey’s perspective, we have been clear with the UK government that Jersey’s interests should be taken fully into account in the ongoing negotiations with the EU.
And, while I cannot provide you with an unequivocal guarantee that the Island will not be disadvantaged by Brexit, I can repeat that we have a strong and productive relationship with the UK government and I believe that our interests are being taken into account.
We have put the right measures in place for engaging UK Ministers, parliamentarians and officials.
This has included my quarterly meetings with Robin Walker MP, Minister at the Department for Exiting the European Union, and the Ministerial representatives of all the other Crown Dependencies. The next of those meetings will take place next week and I am sure there will be plenty to discuss.
We have also had productive Ministerial engagement at the British Irish Council, the Jersey London Reception, party conferences and in other political and diplomatic fora.
The Ministers I have met have made clear their commitment to representing the interests of Jersey and the other Crown Dependencies, and to respecting the established constitutional relationship between the UK and the Channel Islands.
Jersey officials have been working, and continue to engage on a daily basis, with UK officials from DExEU and other departments across Whitehall through roundtables, workshops, conference calls and visits.
The negotiations were always going to be challenging and, as we reach the zenith, the rhetoric and the risk of a cliff edge will no doubt increase. I am confident, however, that we are well-prepared for this outcome.
Brexit has broken the internal silos within our public sector, and the exchange of information and collaborative working across departments means that we are in the strongest position possible as we enter the final six months to Brexit day.
Brexit and Financial Services
As you will know, in most areas, including for financial services, we are outside the EU as a ‘third country’, but with specific bilateral relationships in certain areas such as data protection and security.
Jersey’s ‘third country’ financial services relationship with the EU will not change in the event of a no deal Brexit, or through a negotiated withdrawal and transition, meaning no disruption to market access is anticipated.
However, we will stay watchful for the outcome of the UK-EU negotiations on financial services.
In particular, Jersey and Guernsey may need to be legislatively agile to take account of any future relationship agreement struck on financial services.
We will take account of the views and concerns of the financial services industry and act in the best interests of the island when considering the ways in which Jersey may build into any future partnership between the UK and the EU. This means taking into account that the UK and the EU currently have a shared regulatory regime for financial services, whereas Jersey has an autonomous third country regime.
Nevertheless, Jersey is looking to work closely with the UK to enhance the already symbiotic and mutually beneficial financial services relationship we share.
We need to demonstrate to investors, to intermediaries and to our global partners that we have in place the necessary contingency planning for Brexit, and the confidence to continue offering world-leading financial services.
I want you to share that confidence – not misplaced, but built on an understanding of our unique position, of our detailed planning, and our robust engagement with the United Kingdom.
We have recently undertaken a contingency planning exercise in Government to ensure that all Departments are prepared for and able to manage the potential risks to their areas of responsibility, in the event of a hard Brexit.
We are in ongoing discussions with HMRC to formalise the Jersey-UK customs arrangements for the future, to ensure that we can guarantee the seamless flow of trade in goods, including essential supplies, between Jersey and the UK from Brexit Day.
We have put in place the Jersey EU Settlement Scheme to ensure that all EU citizens living and working in Jersey have the guarantee that they will be able to remain after Brexit, continuing to contribute their significant economic and social value to our Island.
We have published online the Government of Jersey’s position in relation to the areas covered by the UK’s Day One No Deal technical notices.
Further responses to those Notices will continue to be published in the coming weeks, accompanied by public and industry engagement to ensure that businesses and individuals know what steps they may need to take in the event of a no-deal scenario.
While the risks to financial services are minimised by our third country relationship with the EU, we cannot be complacent. I would strongly encourage you to return to your Boards and to your risk management officers to ensure your own business contingency plans are in place to provide continuity and access to the services, products and staff you require from March 2019.
Financial services in a post-Brexit economy
What will the role of international financial centres be in the post-Brexit world?
I think there is a unique opportunity for us to be ever more ambitious and engaged in the global economy. We will need to look to new markets and sources for inward investment, as we continue to demonstrate our value to London and Europe.
Our relationship with Europe will be in need of special attention given the loss of the UK’s influence within the European Council. Through the Channel Islands Brussels Office, Jersey and Guernsey have continued our direct engagement with EU institutions and Member States throughout 2017 and 2018.
Alongside the Chief Minister of Guernsey, Deputy Gavin St Pier, I visited Brussels in July, meeting the French, Swiss, Romanian and Latvian Ambassadors to the EU. It was an important opportunity to reinforce the value that we place on the ongoing relationship between Europe and the Channel Islands, and on the contribution their nationals make to our Islands. We will continue these regular engagements and I foresee an increased focus and importance on our direct representation in Brussels from 2019.
In looking to expand our global reach, we’re also building the capability to promote our Island’s products and services as we forge a stronger international identity for Jersey.
As an outward-looking and export-oriented economy, I believe that Jersey has every potential to conduct more trade with non-EU markets, in line with broader changes in the global economy.
In 2017, I approved the creation of a Global Markets team in the Ministry of External Relations, dedicated to developing relationships in Africa, India, the Middle East and China. That team is already bringing together a broad range of government departments and partner organisations – to pursue our long-term objective of becoming a ‘partner of choice’ in priority markets.
Jersey and Guernsey must continue to innovate, to attract global investment and the high skilled, high value roles that provide buoyancy to our economy.
We must not only be early adopters of international standards, but become leaders in gigabit connectivity, innovative financial services vehicles and in regulation; proving that we are agile and alive to the needs of global investors.
I know John Everett will be speaking to you this afternoon, and I don’t wish to steal any of his thunder, but I wanted to touch on the wider regulatory issues that both Islands will face in the coming months.
By the end of this year, Jersey and Guernsey will be required to respond to the concerns raised by the EU Code of Conduct Group on Business Taxation.
Jersey has made a number of commitments to the Code Group in relation to its concerns about the need for businesses to demonstrate economic substance in the Island.
Since then, our government has been working across departments, the JFSC and industry to develop a package of measures that, we believe, should satisfy EU concerns.
Many of you will have seen, and hopefully contributed to, the consultation in August on legislation that would allow the Tax Department to identify companies carrying out “relevant activities” – including banking, insurance and fund management – and impose substance requirements on them, which may include having physical offices and employees based in Jersey.
The consultation on these proposals represents the latest step in the evolution of the Island’s international tax policy – and maintains our longstanding commitment to tax neutrality, transparency and that regulated financial institutions have a real physical presence in the Island.
We also continue to take part in the Exchange of Notes with the United Kingdom, Crown Dependencies and Overseas Territories, to enhance the effectiveness of law enforcement cooperation through the sharing of beneficial ownership information.
In the last month, the Government of the Cayman Islands, for their own reasons, have chosen to withdraw from this process.
I want to leave you with no doubt that we will continue to meet our commitment under the Exchange of Notes, to help combat tax evasion, money laundering and corruption.
Channel Islands Cooperation
You will have noted throughout my speech that in many areas the governments of the Channel Islands are already closely aligned, or are taking a joint approach to external challenges.
Close cooperation between Guernsey and Jersey has long been the stuff of legend, where the Crapauds and the Donkeys have been portrayed as perennial foes. But things are changing.
Our Islands both face significant international challenges – whether from Brexit, cybercrime, or threats to our financial services industries – and Jersey and Guernsey are already working closely together on these issues.
In the last two weeks I have attended UK party conferences alongside Guernsey Ministers. Meetings with DEXEU, the British Irish Council, and the Normandy Summit, which is being held tomorrow in St Peter Port, are conducted on a dual-Island basis.
We do work well together. And we do achieve our desired outcomes when we pool our knowledge, our skill and our influence.
Brexit provides the catalyst not to be more divisive but to work more closely together.
Joint working between Guernsey and Jersey has, for the first time, been formalised by the creation of the Channel Island Political Oversight Board - to support ongoing cooperation between the two islands’ public administrations, and to find and support new partnership opportunities to improve our public services and reduce costs to taxpayers.
This new initiative has set specific targets against both islands’ government business plans, financial plans and transformation programmes.
That means not just working together, but jointly procuring in a way that unlocks shared benefits, improving the sharing of data, and developing policy together.
Aligning how our public services are offered and achieving cost efficiencies will create tangible results for Islanders, which I hope will drive their confidence in joint working, and their passion to see more of it.
On a final note, yesterday Jersey’s Council of Ministers lodged the Common Strategic Policy, which provides our vision for the next four years.
One of its five key priorities is a commitment to create a sustainable, vibrant economy and skilled local workforce for the future. This commitment is particularly pertinent given the publication – also yesterday - of the GVA and GDP statistics for 2017.
Productivity, as measured by GVA per full-time equivalent worker decreased by 2% in real terms in 2017.
Over all sectors of the economy, productivity has fallen by almost a quarter in real terms since 2007, driven by a decline in the productivity of the finance sector of more than a third. Improving productivity is critical to ensuring our future prosperity.
As a government, we will urgently develop a comprehensive economic framework that will deliver the economic evidence to assess and prioritise how and when we act.
We will ensure that Jersey’s infrastructure is fit for our future needs – including public buildings, utilities and the digital environment.
And we will evolve the Financial Services Policy Framework and Digital Policy Framework to ensure that our policy capabilities and industry engagement support the continued growth of these sectors.
However, improving productivity is not just an endeavour for government but a responsibility that must be borne across all Island industries.
For those who attended the Chief Minister’s opening of Enterprise Week, you will know he asked every Island business to commit to offering paid internships and work experience for our Island’s students. I would ask you, as leaders in your industry, to make that same commitment and to continue the valuable investment in your own employees, and in our Islands students, that will provide the necessary skills for our future workforce.
The scales may be looking to tip the global economy towards a period of uncertainty and disorder.
It is our responsibility, for residents, businesses and investors in the Channel Islands, to balance those scales.
Events like this, where industry professionals can share knowledge, take part in informed debate, and suggest innovate solutions to common problems provides the necessary countermeasure to speculation and media headlines.
I believe we can achieve the balance that will see the Channel Islands continue to be the centres of choice for global investment, and lead to continued prosperity for our businesses, our employees and our Islanders.