When Geoff Cook became the second Chief Executive of Jersey Finance in January 2007, there were just five other employees and a modest budget. It had been founded in 2001 by the Jersey Government and the Island’s finance industry to represent and promote Jersey as an international finance centre (IFC) and had staged some events in London and organised an exploratory trip to the Middle East.
Today, it has more than 30 staff, 160 industry members, offices in Jersey, Dubai and Hong Kong, representation in London and virtual offices in Shanghai and Mumbai. The last reported year of 2016 was a record business year for Jersey’s finance industry, with employment back to the peak of 13,000 reached before the global financial crisis in 2007.
Perhaps most important for Jersey’s reputation, it is seen as leading international initiatives to curb tax abuses and increase the transparency of the world’s taxation systems. Its role has been praised by international regulators such as the OECD and IMF. Most recently, Jersey’s status as a cooperative jurisdiction has been confirmed by EU finance ministers and the OECD Global Forum.
Before taking the top job at Jersey Finance, Geoff Cook had worked for HSBC in London, running its UK Wealth Management business which employed around 2,500 people. More relevant to Jersey, he had previously been Deputy Chief Executive of HSBC International, which is based on the Island.
What attracted you to this job, and what were your priorities?
“The Jersey Finance role was an exciting opportunity to represent an industry rather than a single brand. It would enable me to rejoin my family who had stayed in Jersey when I had returned to London at a critical point in the children’s education. Making a real difference to the Island was very tempting and attractive.
“I very quickly realised that there had been no strategic review of the finance industry, partly because it had experienced decades of almost unbroken growth – but there was no money for one in such a tiny organisation. However, I had been on a strategy leadership programme at London Business School while working for HSBC, so I asked whether they could lend me some bright MBAs to do the review. I could pay costs but not salaries and they sent two Americans and one Japanese who did an excellent job.
“They produced a blueprint for Jersey’s finance industry, which we persuaded the Government to invest in implementing. Over the next two years, we opened our network of overseas offices around the world, and also ramped up activity in them because we were too dependent on the UK and Europe. The demographics and overstretched public finances of Europe were going to drive protectionist behaviour and their governments would want to bring in more tax. We felt that it might be harder for Jersey to operate cross-border in those markets because we were so competitive from a tax point of view.
“That has progressively happened but our international expansion means that more than 50% of our new business now comes from growth markets outside Europe. At first, some member firms felt that it would be risky to do business in distant markets where it would be hard to check the bona fides of clients. It would also be expensive to do business development there and open overseas offices. But when they saw it being successful, they progressively bought into it: in the Middle East, for example, 40 of our 160 firms are now very active.”
What changes did you make in Jersey’s business offering?
“The review also covered other topics such as speed to market and adapting Jersey’s services to appeal to different cultural groups. In the Middle East, trusts were harder to sell because people in their culture don’t like losing control of their money. So, we developed a common law foundation which leaves the patriarch or donor with more control over the management of the gifted assets – and we now have more than 350 of them.
“We have also worked quite hard on Islamic finance, which has probably been slower than expected to take off globally but is still predicted to grow to a market of $3 trillion. But some groups, especially the younger generation, are showing a keener interest and want to ensure that their financial arrangements are Sharia-compliant. There is also a lot of Islamic finance structuring done through Jersey but we’re going to revisit it to see whether we need to enhance or improve the offering.
“We did a second review after the 2007 financial crisis. At first we thought it was just a correction but when Lehman Brothers went under we realised it was much more substantial and asked McKinsey to do a risk review. Our stability as a financial centre wasn’t really affected because we don’t do the sort of racy things that the big centres do, like investment banking, M&A or sophisticated derivative-led business. And there’s limited lending from here.
“But although we felt we were a stable and relatively low-risk jurisdiction, McKinsey raised concerns about what would happen if the parents of Jersey financial institutions failed or had to repatriate capital. Cost-cutting programmes had begun and we concluded that banking was going to slim quite radically and if we didn’t diversify, we would follow them.”
What new sectors did you decide to enter?
“We decided on two big initiatives. One was to promote the private wealth and fiduciary businesses and the other to promote the alternative funds industry and in particular create a hedge fund cluster. Our hedge fund footprint has since risen from three firms to 30 and we think we’re Europe’s biggest hedge fund centre outside London and perhaps the fourth or fifth globally. That growth has come through nurturing the environment and marketing to that community.
“We have also increased the alternative investments footprint, because we felt that people were worried about banks and looking for alternatives to cash. With increasing budget deficits and low returns on cash deposits, investors were switching to alternative investments in search of returns. In fact we saw a contrarian growth opportunity driven by the same demographic drivers that we had thought might create problems for us.
“We really went for it by modernising the legislation and regulation to create the best environment for booking alternative investments, promoting funds, marketing into Europe and making the processes smooth and efficient. When we started this process, we probably held around £100 billion in alternative assets but it has now more than doubled to about £250 billion.
“Private equity has also grown and Jersey has become a significant European centre for asset management and administration. We did lose 1,800 jobs through post-financial crisis pressures but this contrarian initiative put more jobs on through growth in these other sectors.”
How have you dealt with the huge wave of international regulation?
“After Lehman’s collapse, it was clear that the financial crisis was more than a market correction. The sheer scale and volume of CDOs and other sickly assets sitting on institutional balance sheets became clear and we realised that there was so much on bank balance sheets that it would take years to work through it.
“The proposed regulatory changes began to flow through from international regulators – on holding more capital, proprietary trading by banks, liquidity rules, ring-fencing of retail banks in the UK, bank recovery and resolution regimes and so on. And because the politicians were on the ropes, they started blaming IFCs and imposed more regulation on them.
“Happily, Jersey’s regulators had already committed to meeting international standards, unlike many competitors. It was hard and costly to keep up with the pace but less difficult than for others – I think we did well. We easily kept up with the Basel capital adequacy changes, with all our banks already better capitalised than the new rules. We were early adopters of the OECD transparency standards. And because we’re big enough to have scale but small enough to be agile, we were able to handle the huge swathes of new regulation.
“When it came to implementing the EU’s Alternative Investment Fund Management Directive (AIFMD), the first proposal was for a three-year exclusion zone around Europe while Brussels sorted itself out. Meanwhile third countries couldn’t market in Europe – which is what I meant about protectionist tendencies.
“Anyway, that was negotiated away and Jersey came up with an AIFMD-equivalent regime – the first country in the world to do that. This gave us first-mover advantage, which has been one of the primary drivers for the pretty spectacular growth we’ve had in the alternative funds industry since then.”
Why did you start commissioning independent research papers?
“When Jersey was criticised in the early years after the financial crisis, we would stand behind our regulatory credentials and cite the praise bestowed on us by international regulators. But we were still wrongly seen as a facilitator of cross-border capital flows which were helping people to avoid paying their fair share of taxes and harming public services.
“I felt we had to demonstrate our value to trading partners, so I proposed that we commission an economic study of our relationship with Britain. It’s our closest political relationship and we don’t want the UK government looking at us in a negative way. I was successful in persuading our Government to fund it and we produced our first ‘Value to Britain’ report in 2009.
“This revealed that we were supporting 180,000 jobs in the UK, together with significant GDP created by investments coming through Jersey and the taxes it generated. Although there would be some tax leakage, it would be inconsequential compared to the value we generated for the UK economy. That was transformational among people in government and policy circles and David Cameron eventually said that Jersey shouldn’t be called a tax haven.
“Since then we’ve done about 10 similar pieces of work, of which the latest is on Jersey’s value to pension funds and pension fund account holders, which supports and improves the pension prospects of 58 million people worldwide.”
How do you cope with press claims that IFCs damage the global economy?
“When you get those sorts of accusations, the people responsible for managing the system generally call for more regulation. But the Paradise Papers published last year came and went and the impact was much lower than the Panama Papers which came out in 2016.
“This time the response was a bit more balanced, as people realised that investors pool their money with other international investors to reduce friction and costs when investing across borders. They pay their tax when they repatriate the profits, so it’s not about dodging taxation. But the accusations give cheer to critics who already want to curb IFCs and there will be yet another investigation by the European Parliament.
“It’s just part of how we live and we have to deal with it by having good information and good arguments, showing the evidence of the scrutiny we come under and the transparency that’s available here. And we point out the differences between ourselves and other IFCs – our regulatory track record, the value that we generate for other economies and that we’re of net benefit to them.”
Are you confident about the future for Jersey Finance?
“I’m very confident, because of all the investment we’ve put in place, our political and fiscal stability, our expertise, our skills, our good governance and our substantive regulation. We can capture the opportunities and deal with the reputational challenges. Not all IFCs are so well-placed and some will fall by the wayside because they can’t meet the requirements necessary to stay in the game.
“So there will fewer IFCs in the future but those that remain will be stronger and more resilient. I believe that Jersey will be one of the leading global IFCs, well able to compete with key centres such as Dubai and Singapore.”