Jersey's Finance Industry Profits Up More Than 75%

You might think that with all the anti-offshore rhetoric around right now, that Jersey’s finance industry would be in a downward spiral.  Well figures released today seem to show that it is in rude health.  According to the Island’s Survey of Financial Institutions, profits in the finance sector rose by more than 75% last year, to just under £1.1 billion, and employment figures remained level. 

It appears that the good fortune is not distributed evenly throughout the sector, as an analysis of the figures shows that the majority of the phenomenal growth came from a small number of businesses. This tends to support an observation I have often made, that market instability seems to be sorting out the men from the boys, with the top players pulling away from the pack.

More pleasingly, it seems that profit is not rising because of cost cutting – on the contrary, expenditure on goods and services by the finance industry was up by approximately 10% to £760 million, equating to £410 million being spent on-island by finance firms alone.  This demonstrates the critical importance of the industry to the local economy, over and above its tax contribution.

These figures will be welcome news indeed for an industry which has faced a number of challenges in recent times.

Independence for Jersey is not the remedy for political attacks

Sir Philip Bailhache, Jersey’s Assistant Chief Minister, has hit back at recent political attacks on the Island’s finance industry by suggesting in an interview with the Guardian newspaper that Jersey should consider seeking full independence from the UK.

Jersey is one of five crown dependencies (the others being Guernsey, the Isle of Man, Alderney and Sark), all of which are largely self governing save that the UK government is responsible for representing them internationally.

Sir Philip's controversial comments come after a period of difficult relations between the UK and the Channel Islands, which has seen the scrapping of Law Value Consignment Relief for goods shipped from the Channel Islands, changes to the QROPs legislation which seem particularly to have targeted Guernsey, and, last week, the Prime Minister branding legal tax avoidance as morally repugnant.  These things, in the view of Sir Philip, demonstrate that the interests of the Islands and the UK are not always aligned.  He commented:

"I hope that the constitutional relationship with the UK will continue. But if it becomes plain that our interests in fact lie in being independent it doesn't seem to be that we should bury our head in the sand and say we're not going to do that."

Whilst I understand Mr Bailhache’s frustration with UK politicians taking action which sometimes damages the Channel Islands’ interests whilst offering little, if any, concomitant benefit to the UK, I struggle with the idea that declaring independence would improve the situation.

The UK is not the only country which is clamping down on legitimate tax avoidance. François Hollande made a manifesto pledge to stop French banks operating in tax havens and has introduced a raft of new measures which penalise the use of trusts, and the US has introduced its FATCA legislation which has put new and very onerous tracking and reporting requirements on the assets of US persons, shifting the onus for reporting from the individual tax payer to the financial institutions they use.  Doubtless other countries will also introduce similar measures in time. The fact of the matter is that the political climate has changed since the economic crisis, and the smaller international finance centres have to find their feet in the new paradigm.  At the moment, they are struggling to do so.

One of the current difficulties and frustrations for the crown dependencies is that they are not generally members of the big decision making bodies, such as the EU, G20 or the OECD and therefore do not get a chance to actively participate in debates regarding the future of tax regulation.  There is an old adage that if you don’t have a seat at the dinner table, you are on the menu for lunch – a position of great vulnerability. 

The crown dependencies currently have to rely on the UK to represent them at these fora – something which the UK sometimes does vociferously but increasingly often does not.  It is far from an ideal position, but what would declaring independence from the UK achieve?  Surely it would make a weak situation much worse?  Not only would Jersey not have a seat at the table, but nor would it have the UK to fight its corner at least some of the time.  And indeed even if it did have a seat at the table, it is such a small territory that it would have no realistic prospect of having its voice properly heard.  Imperfect though it undoubtedly is, speaking through the aegis of the UK government is better than not being able to speak at all.

Furthermore, if Jersey becomes independent, it won’t stop the UK introducing a general anti-avoidance rule (as was announced in the last budget) or any other measures it wishes to implement to penalise those who choose to use tax planning structures.  Nor will it stop other countries doing what they feel is right.  So I am struggling to understand what would improve.

However, one area where I am broadly in agreement with Sir Philip is in his attitude to tax structures.  He is quoted in the Guardian as saying:

"I think this idea that there is some kind of grey area where things are within the law but you shouldn't do them is potentially quite difficult … People have to ask themselves: 'If you feel strongly [about] something people ought not to be doing, why don't you change the law to make it unlawful?'" 

Holding oneself out as a moral arbiter is dangerous territory for those who work in the finance industry.  How can one judge what is right and what is wrong, and where the line should be drawn?  Up until this week, most people would have said that for independent contractors having a company through which to bill work was an entirely legitimate and appropriate method of mitigating tax, and yet a cursory glance at the Daily Mail will see that they, at least, are now condemning such arrangements.  What next – will it be considered morally repugnant for wealthy people to invest money in ISAs?

I am not arguing that there should be no debate around tax avoidance and the UK government (and others around the world) are perfectly entitled to bring in GAARs or similar measures if they feel it appropriate.  As an when such measures are introduced, the crown dependencies need to react to them.  But morality should be a matter for the individual tax payer, whereas matters of law should be paramount for the financial services companies which assist them.

In my view, it is naive to think that independence would improve Jersey’s ability to defend its finance industry and I have very rarely in 25 years of working in the industry heard strong voices in favour of independence.  I suspect, therefore, that Sir Philip remains in a minority.

The future of Jersey’s prosperity, and that of many other offshore financial centres, probably lies much further afield than the UK, the US and western Europe.  Other economies, such as in the BRICS, are growing faster and offer more opportunity for business. Countries tend to go through a cycle of maturity.  When they are rapidly growing, they want to encourage inward and outward investment and will permit and even encourage structures which facilitate the free and effective movement of capital.  As they mature and growth slows (as has happened in many of the traditionally strong western economies) so the focus shifts towards ever increasing complexity of regulation, and a desire to prevent "leakage" of cash from the system.  Jersey Finance Limited is therefore, in my view, right to be  building relationships in those territories who have the most growth potential, and should remain focused on this rather than trying to achieve independence.

Cyprus joins the PIGS

As had been widely predicted, Cyprus has become the fifth eurozone country to seek a bail-out to shore up its ailing economy.   On a day when Fitch, one of the leading rating agencies, cut the Island’s credit to junk status, the writing was on the wall for the government in Nicosia, which yesterday confirmed that the knock on effects of the Greek debt crisis meant that the territory was now in deed of financial aid. 

Cypriot banks are heavily exposed both to Greek government bonds, which were heavily written down earlier this year, and to Greek private-sector debt, which will be badly hit if Greece exits the Euro.  

Market jitters regarding eurozone stability were not helped by Spain also formally requesting a banking rescue of up to €100 billion ahead of tomorrow’s summit, or by an announcement in Athens that Vassilis Rapanos, the man appointed to be the finance minister in Greece’s new coalition government, had quit on health grounds even before he had formally started the job.

Cyprus is one of the smallest of the 17 members of monetary union.  Although its expected bailout of several billion euros is relatively small compared to that required by the PIGS, it will be seen as symptomatic of the contagion of eurozone problems.  Foremost in the mind of the Cypriot negotiators will be to try to secure a bailout without having to agree to changes in taxation which may harm its international finance business.

GAAR proposals take shape

In the last budget the Chancellor announced his intention to introduce a “General Anti-Abuse Rule” or GAAR, to try to prevent aggressive forms of tax avoidance. 

There has been a lot of speculation since then about the scope of the GAAR and how broadly it would be drawn, but we can now see for ourselves the way that government thinking has developed on the subject, as on 12 June 2012 HMRC issued a consultation document which outlines the key proposals.

The good news for the international finance centres is that the Government has shied away from a broadly drawn anti-avoidance rule (on the grounds that it would cause uncertainty which would be detrimental to UK business interests) and instead focused on artificial and abusive tax avoidance schemes which, because of their complexity or novelty, could not have been contemplated when formulating tax legislation. The GAAR will apply to counteract, on a just and reasonable basis, the tax advantage that would otherwise be obtained.

The consultation paper explicitly states that the proposed GAAR is intended to have narrower application than most general anti-avoidance rules found in other jurisdictions, which usually have potential application to a broad spectrum of tax avoidance, and confirms that the GAAR should not affect what the review described as “the centre ground of tax planning”.  So far, so good, but the devil, of course, lies in the detail.

Some examples are included in Annex B of the consultation document of the type of schemes that should fall within the GAAR.  These include accounting tricks to obtain relief for “losses” that have no economic basis and generating artificial tax deductions through the use of “repo” (sale and repurchase) agreements.  

The draft legislation introduces three concepts that are critical to the operation of the GAAR: “tax arrangements”, “abusive” and “tax advantage”.

“Tax arrangements” are defined as arrangements that, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements.

The consultation paper states that: “Tax arrangements are “abusive” if they are arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action….”.  In deciding whether the abusive test is met, many circumstances need to be considered including “the relevant tax provisions” and “their policy objectives”. Clause 2(4) also gives some examples of tax arrangements which may be abusive – for example, where “the arrangements result in an amount of income, profits or gains for tax purposes that is significantly less than the amount for economic purposes”.

The third concept is “tax advantage”, which is already common in UK tax legislation.

The taxes that the GAAR will initially apply to include income tax, corporation tax, capital gains tax, inheritance tax and stamp duty land tax. The intention is also to extend the GAAR to national insurance at a later date.

The draft legislation also places the onus upon HMRC to show that an arrangement falls within the scope of the GAAR – potentially a practical problem for HMRC given recent publicity about the huge backlog of cases they are already grappling with.  However, the consultation paper proposes to mitigate this, and to provide the taxpayer with some safeguards, by establishing an Advisory Panel to provide a quick and cost-effective way of helping both taxpayers and HMRC identify the borderline where the GAAR applies.  The Advisory Panel would also publish opinions from time to time and provide a mechanism for updating and expanding the guidance on the GAAR.

Despite the safeguards which have been built in to try to minimise disruption, the financial centres should be under no illusion that the introduction of the GAAR (expected in the 2013 Finance Act) will undoubtedly cause a period of uncertainty or disruption for clients and service providers alike.  Nevertheless, it is undoubtedly true that the GAAR proposals are not as bad as some had feared they could e – a small crumb of comfort in difficult times.

Hong Kong Bucks the Regulatory Trend by Relaxing Private Banking Regulatory Regime

At a time when in most of the world regulation is getting inexorably tighter, it seems that Hong Kong is bucking the trend.

Unlike most major international finance centres, Hong Kong is one of the few that currently does not regulate its fiduciary service providers, but banking business is of course regulated.  Plans are now afoot to ease the regulatory burden on the private banking sector in the territory, to make it more internationally competitive.

HK Monetary Authority chief executive Norman Chan has announced that Hong Kong aims to become the “premier private banking hub in Asia” and particularly to attract more business from mainland China.  In order to achieve this, the territory will introduce a more “user friendly” regulatory environment for the private banking sector, which it sees as catering to more financially literate clients than the retail banking sector.  

The HKMA proposes that a “Private Banking Customer” can be defined as a customer with either (a) at least US$1 million of assets under the management (AUM) with the bank concerned or (b) total investable assets of at least US$3 million.

The current banking regulatory regime is based on requirements for banks to make adequate disclosure in documentation about the features and risks of investment products and for intermediaries to assess the product suitability for individual clients and clearly explain products to them.  These fundamental principles will remain, but under the new regime for private banks there will be a reduction in the number of times intermediaries will be required to assess their clients suitability for certain products, the assessment will not need to be done each time a new investment is made, and the risk profile re-assessment, which is normally required every two years, will be scrapped unless the client indicates that there has been a “material difference” to his circumstances.

The underlying rationale behind the changes was explained by Chan to be that in private banking, customers often look to their private bankers for investment advice on a continuous basis having regard to the customers’ entire portfolios or balance sheets. This is quite different from the retail end of the market in which one-off sales transactions are common. HKMA therefore considers that suitability assessment for private banking customers can be conducted on a holistic or portfolio basis.  For example, as long as the portfolio allocation and the overall risk level agreed with the client is adhered to, a low or medium risk tolerance client buying high risk products that only constitute a minor proportion of his portfolio is not necessarily a “mismatch”. The same principle applies to some other aspects like investment tenor and concentration risk of AUM with any individual private bank, because the entire portfolio of the customer will be taken into account.

Chan claimed that despite the changes, the regulatory focus of the HKMA remained on investor protection.

These moves lay down a clear marker that Hong Kong aims to secure its position as the jurisdiction of choice for Asia-Pacific in general, and China in particular.  The reason for this focus is clear - Chan observed that according to industry research, Asia-Pacific accounted for half of the growth in global wealth from 2010 onwards, and China was the second top contributor to the growth in global wealth after the US.  In 2011, there were about 30 million millionaires worldwide, 20% of which were from the Asia-Pacific region. It is estimated that global wealth will rise 50% further by 2016, and the International Monetary Fund forecasts that, emerging Asia, led by China, will contribute almost 60% of the world’s GDP growth by 2016. By 2020, the estimated number of millionaires in Mainland China and Hong Kong together will be 3.7 million, with an accumulated wealth of US$14 trillion.  Clearly these are spoils worth battling for, and Hong Kong believes that reducing the regulatory burden on private banks its key to winning the battle.

Vickers Report - good news on the horizon for the Crown Dependencies?

Last week HM Treasury issued its long awaited White Paper on the recommendations of the Independent Commission on Banking, outlining its plans for the implementation of the Vickers Report.  Although it is still not clear what the implications will be for the Crown Dependencies, there are some promising signs.

As had been widely trailed, the UK Government proposes including a ‘ring fence’ for domestic retail operations of universal banks, forcing the separation of retail banking operations from the riskier investment banking.  The ring-fenced retail banks will not be permitted to offer their services to clients outside of the European Economic Area and the largest ring fenced firms will be required to hold a capital buffer of 17% against risk-weighted assets - a tougher funding requirement than exists in any country other than Switzerland.  This follows the recent agreement on the passage of the new Capital Requirements Directive and Regulation in the EU Council of Ministers, where the UK argued for the flexibility to implement higher capital requirements than the agreed minimum.

The overseas operations of UK banks have been exempted from the ring-fence, in line with expectations. The paper commits to implementing a bail-in mechanism, although the White Paper is short on detail on how this will operate.

The key issue for the Crown Dependencies is what impact the new arrangements will have on UK banks with branches or subsidiaries in the Islands.  In fact, the White paper specifically refers to the Crown Dependencies (which are important providers of banking deposits to the UK banking system, through upstreaming arrangements) and provides that:

“ It is possible that in the future cross-border resolution agreements with other non-EEA jurisdictions will emerge that provide resolution authorities a sufficient level of comfort that branches or subsidiaries in those countries will not present a barrier to resolution, nor an increased risk to the UK taxpayer. Where this is the case, arrangements may be made bilaterally to allow for ring-fenced banks to maintain subsidiaries or branches in those jurisdictions. In this regard, the Government is working with the authorities of Guernsey, Jersey and the Isle of Man to establish the conditions under which branches or subsidiaries in those jurisdictions would be consistent with the objectives of ring-fencing. It is encouraging to see that a combined effort, by industry, regulator and government has had some impact on accommodating upstreaming of valuable deposits into the UK banking system.”

Jersey Finance Limited has committed to continuing to work with the Jersey Bankers Association and the British Bankers’s Association to inform and encourage the right outcome for the UK Banking industry as well as for Jersey, whilst ensuring that the Island operates in the spirit of Vickers and in accordance with the intentions of the UK government.

The consultation on the White Paper closes on 6 September 2012, and legislation will be written in autumn.

Jimmy Carr - a tale of Governmental hypocrisy?

The last 24 hours has seen an extraordinarily personal attack on Jimmy Carr, who has apparently availed himself of an entirely legal tax avoidance scheme to minimise the amount of income tax that he is required to pay.  No-one has suggested he has done anything against the law, but politicians and a myriad of other commentators, including the Prime Minister himself, have lambasted Mr Carr for what they have labelled a "moral failure" on his part to pay what he should.  


If indeed the Government believes that such schemes are morally wrong, then it should legislate to prevent it, but the metaphorical public flogging of someone who has, presumably, taken professional advice and followed it to ensure that he stays within the existing rules, seems to me to be to be a peculiarly unpalatable form of bullying.  


But quite aside from this, David Cameron's comments seem to me to be rank with hypocrisy given that his condemnation of Mr Carr's tax avoidance came less than 24 hours after he apparently sent a message to wealthy French residents that the UK would welcome them with open arms (and permit them to avail themselves of the UK's very generous non-dom tax rules) if they wished to relocate to the UK to avoid  having to pay the new higher top rates of income tax being implemented in France.  Do they, under David Cameron's logic, not have a "moral obligation" to the French people to pay tax to the French exchequer, and not to relocate for tax purposes? 


Surely Mr Cameron must see the duplicity in his position.


This blog is not the place to argue the case regarding where the line should be between tax evasion and tax avoidance, or indeed to pontificate on the morality of trying to lessen one's tax burden at all - that is a lengthy and complex debate which requires much more in-depth analysis than is permitted here.  But at the very least there should be a consistent position.  The UK government cannot lambast Islands such as Jersey for facilitating tax planning by individuals (and vilify the individuals who avail themselves of the opportunities) when it offers (and indeed encourages) methods of avoiding tax for those who live in the UK, but were not born there.  


Or are we perhaps to draw the conclusion that whilst it is immoral to avoid paying money to the UK Exchequer, to do the same to a "foreign" Exchequer is perfectly legitimate?

Carey Olsen and Maples no longer Best Friends?

Channel Islands law firm Carey Olsen is branching out by opening a new office in Cayman, and is proposing to add both Cayman and BVI legal services to its service offering.  Up until now, the firm has only offered Jersey and Guernsey legal advice.

Carey Olsen is not the first Channel Islands firm to set its sights on Cayman, but what makes its move interesting is that the new office will be staffed by three former Maples and Calder lawyers - partners Jason Allison and Jarrod Farley, together with associate Nick Bullmore, who will join Carey Olsen as a partner.  Previously the two firms enjoyed an informal ‘best friends’ arrangement - when Maples decided to close its Jersey office it referred all of its Jersey clients to Carey Olsen, and Carey Olsen clients had access to Cayman and BVI legal services through Maples.  Although Carey Olsen managing partner Alex Ohlsson was quoted as saying that his firm continued to maintain an excellent working relationship with Maples and Calder, it is hard to imagine that Maples are exactly delighted about this development.  Indeed, the official line from the Cayman grand dame of the legal world was distinctly cool: their statement noted that the “relationship will be the subject of ongoing discussions with Carey Olsen.”  By which I assume they mean it will be brought to something of an abrupt end.

Ohlsson said that the decision to open an office in Cayman was a result of the Cayman Islands’ growing popularity, particularly among businesses based in or investing from or into Asia.  The formal launch of the Cayman office is scheduled for September.

The move will not leave Maples too badly off for fund lawyers – it recently announced that it had recruited 7 partners and 3 associates from rival law firm Walkers’ Cayman Islands and British Virgin Islands following the sale by Walkers of its trust company to Intertrust. 

Carey Olsen’s BVI legal capability will be led by Guernsey-based partner Andrew Boyce. Prior to moving to Guernsey, Andrew practised in the BVI and is dual qualified in Guernsey and BVI law.

It will be interesting to watch how easy Carey Olsen find it to make their mark in the Caribbean.  It is notable that whilst some Channel Islands firms have had success in the Cayman Islands and vice versa, a number have failed completely and none have really seriously challenged the market leaders in their newly adopted territories.

Jersey wins "Best offshore centre for Funds" award

JERSEY has been chosen as the best offshore centre for funds for the third successive year at the International Fund and Product awards.

The independent judging panel felt that the Island had conducted business in an ‘open and transparent’ manner, in line with its reputation as a leading offshore jurisdiction.

The Isle of Man came second, and was “Highly Commended”.

Commenting on this year's awards, Deborah Benn, chair of the judging panel said:

"There is little doubt that the past 12 months has possibly been the toughest year yet for the offshore industry. Not only has the ongoing backdrop of difficult economic conditions taken its toll, but higher than normal regulatory pressures have been evident this year. Yet despite this, entries have displayed a refreshing determination to keep up high standards of service which has impressed the judges. In particular, this year's winners and highly commended entries have really shone."

Cyprus on the brink of bail-out

With the Eurozone crisis, it seems as soon as one fire is put out another starts to burn.  No sooner has Spain secured agreement to a bailout than Cyprus suggests that it may have to do the same before the end of this month, both in respect of its banks and the territory’s general finances.


Cyprus is under huge pressure to apply for aid to salvage its second-largest lender, Cyprus Popular Bank, ahead of a 30^th June regulatory deadline. The bank is struggling financially due to its exposure to Greek debt, and has an estimated Euro 1.8 billion regulatory shortfall. Although this is not a large amount of money compared to the deficits being faced by banks in some other European jurisdictions, it is huge burden for tiny Cyprus, amounting to roughly 10% of GPD just to prop up this one bank.


Cyprus also has just over €2bn in short-term debt maturing next year, and at present it is difficult to see that it will be able to refinance this sum at acceptable rates.


Up until now, the Island has tried to avoid asking for a bailout, fearful that any such arrangement would come with many strings attached regarding austerity measures and, more seriously for its long term economic health, requirements to change its tax regime, which is currently one of the lowest in the European Union.  This would represent a significant threat to the offshore business which the Island conducts.


So keen is Cyprus to avoid interference in its tax regime, that it is rumoured to be attempting to negotiate with China or Russia to secure a private bailout without the need to resort to the EU, in the hope that the terms may be less onerous than would be applied by the EU.  It would not be the first time it has done this – the Island received a €2.5bn bilateral loan from Russia late last year, side-stepping its EU partners – but it is by no means clear that securing a second loan would be simple.


As most bailout discussions happen over weekends, to minimise market disruption, it is possible that the scenario could be discussed in earnest with the EU as early as next weekend.

Solvency II regulations causing dilemma for offshore captive insurance sector

The Solvency II regulations have generated a great deal of controversy in the insurance industry, with many commentators describing the rules as excessive and disproportionate, particularly for the captive segment of the market.

Solvency II is the name given to new EU regulations for the insurance industry that will introduce enhanced capital and corporate governance requirements. Captive insurers, which largely provide self-insurance for their parent corporations, have argued in Brussels that they should not be subject to the same stringent regulations as commercial re/insurers covering third-party risks, but as yet there has been no movement in Europe beyond some comments that they may look at “segmenting” captive arrangements. 

In the meantime, the main offshore captive jurisdictions (Bermuda, Guernsey and Cayman) have had to decide whether to try to achieve “equivalence” for the purposes of Solvency II, or choose to plough their own furrow.

In a time when many offshore centres are offering packages of legislation and tax arrangements which look increasingly homogeneous, it seems that the captive insurance market is one where there are some marked divergences of approach appearing. In particular, Bermuda has chosen to go down the equivalency route, whilst Guernsey and Cayman, on the other hand, have chosen not to.

Bermuda believes that its strategy will bolster the country's status of having a credible regulatory environment and allow European insurers to carry on with their operations in Bermuda. The thought process is that if Bermuda doesn't gain equivalence, European insurers may not be able to count the full value of their Bermudan insurance and reinsurance contracts towards their capital, which could potentially discourage them from doing business in Bermuda.

Guernsey and Cayman, on the other hand, believe that the Solvency II rules are so unpopular that their decision not to apply for third-party country equivalence will have a positive impact on their  reputations as captive insurance destinations.  And, although it is very early days, there are some early signs that they might be right. Paul Sykes, of Aon Insurance Managers last week told a London audience at a ‘Master Class’ session that the number of insurance licences issued recently in Guernsey continues to rise as the implications of compliance with Solvency II are better understood by captive managers and owners. He commented:

“While the capital requirements of Solvency II may be appropriate for commercial insurers who are dealing with the general public, many captive managers and owners believe that the regulatory standards of the International Association of Insurance Supervisors will be sufficient for most traditional captives.”

The dynamics may change again before the January 2013 implementation of the Solvency II deadline, but in the meantime a great deal is at stake for all the jurisdictions concerned.

Jersey funds show healthy growth despite global economic woes

Jersey’s fund sector has shown strong growth in the first quarter of 2012, with a 3.5% increase in the net asset value of funds under administration and a total of 1,412 funds registered as at 31^st March, the highest figure since 2009.

The net asset value of funds under administration increased by £6.8bn from £189.4bn to £196.2bn (3.5%) and the total number of regulated funds increased by 20 from 1,392 to 1,412 (1.4%) over the same period.

The total number of unregulated funds increased by 13 from 153 to 166 (8.4%) during the first quarter.

The value of total funds under investment management increased from £20.8bn to £21bn (0.9%) during the first quarter of 2012

Report shows woeful preparedness for FATCA

There has been a great deal of speculation recently regarding how far businesses have progressed with their FATCA preparedness, but few hard facts to back up the anecdotal evidence provided by practitioners such as myself.  It was interesting, therefore, to see a survey carried out by Thompson Reuters called "FATCA - How Ready Are You?" which polled almost 200 compliance personnel to ascertain what is really going on behind the scenes at a cross section of financial institutions around the world.  


And it seems the answer is "not a lot" for a fair few respondents!


51% of respondents admitted that whilst they had heard of FATCA, they were not aware of the impact of it on their business, and 48% expect to miss the implementation deadline of 1st January 2013 (only 21% actually expressed confidence that they would be ready in time).  2 of the compliance officers questioned said that they had not heard of FATCA, which should surely lead to a questioning of their career choice.


59% of compliance officers questioned said their company had a project team in place to assess what was needed, but that leaves a worrying 41% which as yet seem to be doing very little by way of a structured process to get their house in order.  Given that some businesses are likely to face a major uphill battle to gather the information required from clients in order to meet the new stringent requirements, let alone analyse the data, this seems to be leaving it perilously late in the day to get started.    


One of the other very interesting facts to emerge from the report is the extent to which the new regulations are likely in practice to impact the number of businesses willing to deal with US persons.  16% of those polled said that they would not accept new business from US clients in the future, and a further 8% said that not only would they not accept new business from US persons, but they would also close any existing arrangements with US persons.  In effect, this means that almost a quarter of financial services businesses in the future are likely to decline to deal with US individuals, which represents a very real diminution in choice for those affected.


The full report can be found at http://accelus.thomsonreuters.com/content/fatca-survey-results