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  1. Analysis
June 29, 2021

Are more private banking clients getting onboard with offshore?

By Patrick Brusnahan

Offshore banking, particularly in the UK, could be seen as a bit dated and too traditional. This is not even considering the viewpoint that it is “dodgy” or “shady”. How is offshore rebranding itself and gaining more customers? Patrick Brusnahan writes

The offshore areas around the UK, including Jersey, Guernsey, and the Isle of Man, are in a spell of real opportunity. What are the experts saying?

Patrick Brusnahan (PB): What is the state of offshore banking at the moment?

Gail McCourt, Head of Private Client Fiduciary Services, RBC Wealth Management (GM): The private banking industry in the Channel Islands has an outstanding reputation for managing the wealth of international families. Through their associated trust businesses, participants also effectively manage clients’ estate planning needs and facilitate wealth transfer through dynastic family structures without the onerous requirements of probate.

In these uncertain times, Jersey and Guernsey provide an excellent platform for UHNW individuals and their families to hold their wealth and to facilitate generational planning. The Channel Islands have a stable political environment, providing protection for families often from politically unstable jurisdictions. They provide a world class legal framework, ready access to fund and investment management expertise and, with a convenient time zone, the islands are well placed to facilitate international private wealth business.

Rupert Pleasant, chief executive of Guernsey Finance , (RP): This is a very good time for private banking firms in Guernsey and for business across the whole financial services spectrum. I have spoken to a number of private banks on the island and they are all having a very successful 2021 thus far, with excellent new business flows and healthy pipelines.

While we cannot comment on what happened elsewhere, you may be aware that during 2020, while the rest of the world was in lockdown, Guernsey was very effective in controlling Covid-19 cases. Our exit from lockdown began in early May 2020 with life on the island returning to normal by mid-June. We enjoyed seven months without any Covid-19 restrictions, with the exception of travel in and out of the Bailiwick, so it was Business as Usual here.

In early 2021 there was another short, sharp lockdown following a spate of cases, however since early March we have once again enjoyed the freedom to meet in the office and go about life as normal.

As a result of this resilience and agility, with the majority of Guernsey’s workforce able to operate as normal, there has been huge interest generated in Guernsey which we have capitalised on. While Guernsey Finance’s off-island promotional activities were naturally curtailed, we demonstrated our agility by transitioning our physical events online, with virtual roadshows and webinars that generated much positive attention and which has put us ahead of the competition.

Tanya O’Carroll, managing director for the Isle of Man, Oak Group (TO): Initially at the start of COVID last year, there was a concern across the whole industry. And despite all our initial concerns, in fact, we’ve actually had a bumper year with our clients, kept our connections with clients going throughout various lockdowns, and, in fact actually built on these relationships.

As a result, we’ve managed to generate more business, we’ve developed greater connections with our clients, which I don’t think we would have had the opportunity to do so before COVID. It’s actually been very beneficial from our perspective.

PB: What type of client or HNWI does offshore attract?

GM: While Jersey and Guernsey attract their fair share of new UHNW residents each year, private banking clients tend to come from international families who do not themselves live in the Islands.

Typically the families that can benefit from private banking services and private wealth structures in the Channel Islands are those who have international arrangements that cross borders – they may want to support family members but not give them control over valuable assets, or they wish to pass down assets that may not be easily divisible. They may also want to pursue philanthropic goals for the future. Furthermore, such families may want a strong legal platform from which to organise their private family affairs, providing certainty of outcome when disputes arise.

While the concept of a global footprint may be glamorous, it is certainly complex, and private banking services and associated private wealth structures can help clients navigate the challenges around tax residency, cross border wealth transfer, estate planning and the needs of family businesses that operate across international borders.

The Channel Islands have built up a reputation as centres of excellence for philanthropic structures and we are seeing an increasing number of international families choosing Jersey and Guernsey to create charitable trusts or foundations to fund philanthropic projects. Given that such structures are essentially private in nature and are unlikely to be seeking funds from members of the public, they can be set up and administered subject to lighter (but nevertheless robust) regulatory oversight than may be the case in an onshore jurisdiction.

With a track record of over 60 years, the finance industries of both islands have not sought to resist change but have instead embraced it, ensuring that their expertise and regulatory oversight are now amongst the best in the world.

RP: There are various types of client who find Guernsey’s offering attractive, but this year in particular we have achieved our objective of becoming the jurisdiction of choice in the family office sector, experiencing strong and stable growth.

We continue to demonstrate our agility by continually developing our legislative and regulatory requirements to ensure that our regime is accommodating and supportive. This includes the revision of our Private Trust Company regime, which removes the director requirement from the corporate service sector, making it more attractive to new family offices.

Just this week the financial services regulator, the Guernsey Financial Services Commission (GFSC) announced changes to the rules surrounding Guernsey’s Private Investment Fund options which will enable more investors to take advantage of the structure.

The decision is another demonstration of Guernsey’s pragmatic approach which recognises the needs of the local fund industry to respond flexibly to their clients’ needs.

It is a fantastic development for the local fund sector and will ensure that the excellent flow of funds business continues well into the future.

There is also work underway on the development of a family investment company and other innovations to ensure we remain at the forefront of the sector.

Surrounding this innovative environment are a wealth of first-class support services for the private banks, which includes lawyers, accountants and corporate service providers.

TO: We have a number of initiatives and trends with start-ups, tech entrepreneurs, there’s an awful lot of initiatives and enticements that governments are offering people to move over here.

The skill sets are here as well. Not only in traditional financial services, but there is e-commerce and fintech. So the ultra high net worth individuals and the entrepreneurs associated with those businesses are also moving offshore.

PB: What about the reputation of offshore? Some still consider it to be “shady”.

GM: There can be a lack of understanding about offshore centres, often fuelled by unbalanced headlines. However, the services that the Channel Islands private wealth businesses provide are more akin to those provided by the major onshore financial centres, which is one reason why they prefer to be described as international finance centres rather than the somewhat pejorative term ‘offshore centres’. Indeed, trusts and other fiduciary solutions – for which these centres are renowned – are amongst the oldest wealth structuring tools in existence, providing families often spread across different jurisdictions with the ability to consolidate their assets in a neutral jurisdiction and to benefit the current family members and future generations.RP: To be quite honest, it surprises me that this unhelpful label persists in some areas, as it is simply not true in Guernsey’s case. The way we combat this misconception is by providing evidence that we are a jurisdiction of substance, safety, security and stability.

To give you some examples, Guernsey remains on the EU’s and OECD’s ‘whitelist’ of tax compliant jurisdictions.

Guernsey is rightly proud of its record in combating harmful tax practices, and has been an enthusiastic early adopter of the Common Reporting Standard (CRS ) and FATCA (Foreign Account Compliance Act). CRS has been described as the most significant outcome of the drive towards increased transparency.

In addition, Guernsey is committed to economic substance, being on the OECD and EU whitelists and introducing comprehensive local substance legislation in 2019.

Since 2016, Guernsey has been determined as ‘compliant’ or ‘largely compliant’ with 48/49 of the Financial Action Task Force ‘s (FATF) recommendations with respect to anti-money laundering and combating the financing of terrorism, which is the best score of any jurisdiction.

Guernsey has always been a responsible international citizen and continues to position itself as a force for global good, focusing on green and sustainability. The island has always been a tax compliant jurisdiction and we will continue to build on this position of strength.

TO: The offshore jurisdictions, such as the Isle of Man, Jersey, and Guernsey have been at the forefront of regulatory and tax compliance for all of the last 20 years. We are always expected to be whiter than white, we are always focused upon by authorities.

As a result, we strive together as businesses, as governments and as regulatory bodies, and industry bodies, because our reputation is paramount. If we don’t have good reputations, the whole of the industry and the offshore islands are at risk. To make sure that we are compliant, we all work together to ensure that is the case.

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