The Emergence Of Super-IFCs

• Published date: 08 March 2023
• Subject Matter: Finance and Banking, Financial Services
• Law Firm: Jersey Finance Limited
• Author: Mr Elliot Refson and Philip A. Pirecki

How are domiciling decisions changing as managers and jurisdictions position themselves for the future and what does that mean for Jersey?

Elliot Refson: Twenty-five years ago, when international finance centres, or IFCs, were in their infancy, Jersey would have been seen as regulated, expensive and inflexible.

Fast forward to today, and Jersey is seen as proportionately regulated and competitive from a cost perspective. Jersey has always been an early adopter of regulation and legislation, which has meant a minimal change outlook, while others, playing catch up, are facing headwinds. For example, for Jersey, substance legislation has simply meant a codification of prevailing best practice. But some other jurisdictions are struggling because they don't have the depth of expertise required.

Political uncertainty is also an issue for some IFCs. For example, we have moved or established over 120 collateralised debt obligations and collateralised loan obligations from Cayman to Jersey this year, because European investors have become more wary of that jurisdiction.

Philip Pirecki: I think we are moving into a world of what I call super-IFCs with full substance, and I would put Jersey in that category. Jersey is like a mini-London; we have capital markets, banking, funds, private wealth - the full spectrum. That depth and breadth is a real differentiator because most jurisdictions simply don't have the human capital to make that happen.

Politically speaking, there isn't the appetite in most IFCs to import thousands of people to do the work, so you need to rely on homegrown talent. If you don't have a population big enough to support that - and to become one of these super-IFCs - you will increasingly become a niche player in the offshore world.

What are the key regulatory drivers that are shaping the IFCs of tomorrow?

PP: In onshore jurisdictions, we are seeing a move away from cross-border capital efficiency towards greater politicisation of regulation and, particularly in the European context, greater activism by regulators. It is impossible to say how long this will last, but it is the situation that we are facing right now.

ER: In terms of specific regulation, BEPS - base erosion and profit shifting - and substance requirements have had the biggest impact in recent years. Looking forward, however, I would say that the future lies in tokenisation. We have a working group made up of fund managers, government and the Jersey regulator, discussing this issue...