TCC takes £10 million fund investment

The Consulting Consortium, a UK based regulatory compliance consultancy for FSA regulated businesses, has taken a £10 million investment from the British Growth Fund in return for a minority stake in the business.

TCC is slightly unusual for a regulatory compliance business in that alongside its consultancy services it has developed a SaaS solution called RecordSure which monitors and analyses telephone calls for compliance purposes.

TCC has been a beneficiary of the rapid growth in the need for regulatory advice in an increasingly complex compliance environment and has been growing fast.  In December 2013 it was named in the Sunday Times Virgin Fast Track's Top 100

TMF Group shows commitment to fund admin by acquiring remaining stake in Custom House

TMF Group, the Doughty Hanson-backed corporate services firm which previously owned 51% of Custom House Global Fund Services, has agreed to acquire the remaining 49%.

Custom House provides administration services to the alternative investment sector.  TMF Group has an existing fund administration offering spanning  Rotterdam, Sydney, Geneva, Sofia and Malta, but the acquisition will significantly increase its middle and back office capability in the alternatives investments space.  The combined group will offer fund services from 14 global locations, with almost $40 billion of assets under administration.

Dermot Butler, who founded Custom House some 25 years ago, will become President of TMF Custom House Global Fund Services, and Mark Hedderman will remain as CEO.

This transaction is subject to regulatory clearance but completion is expected by June 2014.

Electra Partners buy Ogier Fiduciary

Electra Partners have agreed to buy Jersey head-quartered Ogier Group's fiduciary services business for £180 million.

The deal sees an £83 million equity investment, with debt being financed by HSBC, Lloyd's and RBS.

The deal is a vote of confidence in Ogier Fiduciary's management team and the offshore financial services business.  It is expected that the investment will enable the management team to expand its overseas operations.

Butterfield acquires Legis trust business

Bermuda head-quartered Bank of NT Butterfield & Son Limited (“Butterfield”) has announced that it is to acquire the trust and corporate services business of Guernsey based Legis Group (“Legis”).

Thirty-five staff will move from Legis to Butterfield in the deal, which is Butterfield’s first acquisition since 2007, when it acquired the Bentley Reid Group.  Butterfield Group operates it trust business from five jurisdictions: the Bahamas, Bermuda, the Cayman Islands, Guernsey and Switzerland.

Essentially, the deal (which remains subject to regulatory approval) will hive off Legis’s private client business to Butterfield, leaving Legis, and the 50 or so staff who will remain with it, to focus on fund administration and tax advisory services. 

Legis was established over 30 years ago by partners of Ozannes law firm (now part of Mourant Ozannes) and was acquired by the management team in 2011.  The Butterfield transaction follows a trend for specialization within the industry.

AnaCap-backed First Names Group continues its acquisition agenda

The First Names Group (formerly IFG International), the Isle of Man head-quartered trust company continues its rapid expansion with the acquisition of Mercator Trust in Guernsey.

This is the fourth acquisition for FNG since AnaCap backed its buy out in July 2012.  FNG has previously acquired the Basel Group, Citadel and Moore Management and this latest acquisition, which remains subject to regulatory approval, will take staff head-count over 520 people, making it one of the larger offshore fiduciary groups.

FNG now has offices in IoM, Jersey, Guernsey, Cyprus, Switzerland, Luxembourg, Ireland, UK, BVI and Japan, although its remains primarily IoM and Channel Islands centric in terms of headcount.

Mercator has existed for over 30 years in Guernsey, and originally spun out of an accountancy firm.

Mercator’s trust and corporate services business will change its name to First Names Group later this year, while its funds business will be incorporated into the Moore Management brand.

FNG is following a buy-and-build strategy which has been adopted by many of the private-equity backed fiduciary services businesses, including Intertrust, Vistra, TMF, Sanne Group, Hawksford and JTC.  They all seek to build scale in what remains a fragmented market with regulatory pressures pushing smaller firms into consolidation.

JTC makes second Ardel acquisition

JTC, the Jersey head-quartered trust company backed by PE house CBPE has acquired the Geneva-based business of Ardel Trust for an undisclosed sum.

JTC Group has acquired Ardel Trust Company (Switzerland) SA (ATCSA), which was part of the Guernsey head-quartered Ardel Group formerly known as Bachmann Trust Company. JTC had already bought Ardel's Guernsey based fund administration business earlier this year.

All 13 staff members are joining the JTC Group and the business will continue to operate from its Geneva offices.

David Cameron in surprise controversial move to publish register of beneficial owners of companies

This summer at a G8 meeting the British Prime Minister stated his intention to introduce a register of beneficial ownership of companies, in order to crack down on tax evasion.  This was a big step towards transparency and it was clear from the outset that the British offshore Islands would be expected to follow suit.  In fact, many of the offshore Islands were already well ahead of the UK in this regard - Jersey, for example, has had a central register of beneficial owners for many years - and so the impact of the initiative was not expected to be significant.

However, in a surprise move David Cameron announced that Britain would make the UK's register of beneficial ownership public.  This is a wholly more controversial move.

It is difficult to argue against a central register of beneficial owners per se - there is a clear benefit to governments and tax authorities being able to identify who owns and controls companies in order to minimise the risks of crime and tax evasion.  There is also a need for information to be shared between jurisdictions in an increasingly globalised world, and we have seen a plethora of Tax Information Exchange Agreements signed and commitments made to automatic exchange of information.

What is less clear, is what the benefit is of making the information available to the general public, and how these outweigh the inherent right of an individual to privacy.

Prime Minister Cameron did touch on this issue during his announcement:

"Some people will question whether it’s right to make this register public.

Surely we could get the same effect just by compiling the information and using it within government?

Now, of course we in government will use this data to pursue those who break the rules. And we’re going to do it relentlessly. But there are so many wider benefits to making this information available to everyone.

It’s better for businesses here – who will be able to better identify who really owns the companies they’re trading with.

It’s better for developing countries – who will have easy access to all this data, without submitting endless requests for each line of enquiry.

And it’s better for us all to have an open system which everyone has access to – the more eyes that look at this information, the more accurate it will be."

But just saying that it is better does not make it so.  Companies who have a commercial need to know who they are trading with are free not to trade with an entity that refuses freely to give them the information.  And are there really that many examples of companies doing business with entities that they would not have traded with had they known who was behind the company? Are there a sufficient number to outweigh the rights of the huge number of entirely innocent individuals (because of course the crooks will simply give false information) who will will have their privacy invaded by such a register?  

Of course some wealthy people flaunt their wealth and so for them the impact of publication of a register of beneficial ownership is likely to be minimal.  But many don't.  Some simply are not flashy people and don't want complete strangers to know that they are rich.  If I am a young man who has just inherited a business from my father, am I not entitled to keep this confidential from anyone other than those who have a legitimate need to know, for fear of being targeted by gold diggers, or inundated with begging letters from charities? What possible public good does it serve to give that information to any Tom, Dick or Harry who wants to know?

And why is there a public interest in knowing who owns companies (by and large the preserve of the wealthy, or those who aspire to be so), but not, for example, in knowing who gets welfare benefits?   Would publishing the details of welfare recipients not do a great public service in helping to stamp out claims abuse?  If I can see my next door neighbour is claiming disability allowance but I know he is regularly running half marathons, I could shop him to the police and save the tax payer money. But we wouldn't really contemplate making that type of information public.  There would rightly be an outcry.  We would be invading the privacy of the benefits recipients, and even if the aim is to prevent fraud it wouldn't outweigh their right to privacy. So why are the well off not entitled to the same privacy - not from the government, not from the tax authorities, but from the general public? Perhaps it is because in these straitened times it has become something of a social stigma to be wealthy.

In my view, the decision to make the register public is not one founded in a genuine desire to reduce tax evasion (that was already achieved by having the register available to the government and HMRC) but a political gesture designed to play well in the newspapers. Because of course in practice it is the press who will be one of the big beneficiaries of this move.  Once the information  is made public it will doubtless be trawled through by the gutter press in order to write inflammatory stories about wealthy individuals.  You only have to read the newspaper coverage of the strike at Grangemouth last week to see how wealthy people have become hate figures in the popular press. The Mirror's headline, for example, was "Grangemouth billionaire boss relaxes on his £130m super-yacht after freezing pay" not "Grangemouth boss pleads with Union to take the steps necessary to secure the future of the Company".   I would be prepared to place a large wager that publication of a register of beneficial ownership will lead to a flood of stories "exposing" the wealth of individuals who had previously avoided drawing attention to themselves.  

There may well be a public interest, in the sense of curiosity, in the information, but not in the sense of a real public good. 

Despite the lack of an obvious and real benefit to the publication of the information, it is likely that the British overseas territories will come under enormous pressure to follow suit.  Any such move is bound to be considerably more controversial than the original proposal, which was simply to set up a register accessible to governments and tax authorities.  I hope that we will see a mature and considered dialogue around the issue rather than simply bully-boy tactics that we have seen in the past, given the many legitimate concerns that are bound to be expressed. But whether or not David Cameron manages to brow-beat the offshore Islands into following his initiative, he is likely to find it an impossible task on a global basis. In a world where in many countries there  is a real threat of kidnapping or extortion against wealthy individuals, or where jurisdictions simply prize their citizen's privacy more highly than in the UK, he is likely to run into a brick wall.  

Brevan Howard shifting operations to Jersey from the UK

Over the past few years many people have speculated on what the impact of AIFMD will be on the fund administration world.  Some firmly believe that it will result in an upsurge in business for EU based fund-friendly jurisdictions such as Luxembourg and Ireland, and will be a nail in the coffin of the offshore funds business.  Others argue that funds will increasingly use the offshore locations whenever possible, to avoid what is seen by some as unnecessarily onerous obligations associated with operating within the EU framework.  The truth is that no-one really knows for sure yet which way this will play out, but everyone in the industry is watching with interest.  It is therefore very interesting to note that Brevan Howard, the world’s third-largest hedge fund with some $41 billion under management, has now moved the bulk of its operations out of the UK in favour of the Channel Islands, Switzerland, Asia and the USA.

This has not happened overnight.  Alan Howard, who is a critic of the interventionist policies of the EU, moved together with a number of his firm’s key traders, to Geneva in 2010. This was followed by an initiative to internationalize the business and make it less UK centric – a decision which has led to a situation where fewer than 200 of Brevan Howard’s 450+ employees, and only a handful of traders, are now based in London, whereas only a few years ago they were all based in the capital.

Many of London’s hedge funds were critics of the AIFMD rules, but few have moved location in response, particularly after the Financial Conduct Authority made some changes to the regime in order to appease them  and to avoid an exodus.  It seems, though, that this was not enough to lure Brevan Howard back to the UK.

By 2014, it is expected that around employees will be based in Jersey, which has long been its official head-quarters but which until now had only a skeleton staff.  The Jersey team will be headed up by James Vernon, one of the co-founders of Brevan Howard, and most of the firm’s asset allocation, risk management, compliance and HR functions will be carried out in the Island. 

The other key beneficiary of Brevan Howard’s move to a less UK-centric focus has been the USA, where the firm now has 60 employees in New York and Washington.

It would certainly be rash to speculate that this is the start of a trend, but nevertheless it will come as a  welcome boost for the Jersey financial services industry, which has been seeking for some time to promote itself as a location for hedge fund business.

Salamanca to acquire Investec Trust

Investec Trust, the private wealth fiduciary business with offices in Jersey, South Africa Geneva and Mauritius is to be sold to Salamanca and the current Investec Trust management team.

Salamanca is a merchant banking and operational risk management group. 

Investec Trust currently has around 600 trust structures holding over £4.5 billion in assets under administration. The business will be re-branded as Salamanca Group Trust Services following completion.

Fenchurch Advisory Partners acted for Investec Bank Plc and Salamanca Advisory acted for Salamanca Group and the management team.

The transaction is subject to regulatory approval.

LDC supports MBO of Equiom

In the first of the post-summer deal announcements in the fiduciary space, LDC has announced that it is to support a second MBO of Equiom Limited, a Manx-headquartered trust company.

In addition to its core trustee and company services, which account for 70 per cent of its business, Equiom operates niche business lines including Yachting, Aviation & e-Gaming.

Equiom traces its roots back over 30 years, having started as the fiduciary business of Ernst & Young, before being acquired by Anglo Irish Bank in 2002. In 2006, the company was subject to an MBO, led by existing Group Managing Director Sheila Dean, in a transaction backed by Isis Equity Partners.

Since then Equiom has completed a number of successful acquisitions including Intertrust’s Isle of Man Yachting and Aviation business in January 2011, Jersey-based Andium Trust in October 2012 and City Trust, an Isle of Man independent corporate and trust service provider, in April 2013.

Equiom currently employs over 100 people across three offices in the Isle of Man, Jersey and Malta, and is planning to use the investment from LDC to fund both organic growth and acquisitions in what remains a fragmented market.

G8 proposals on beneficial ownership - how the wheels came off for David Cameron

After all the hype, what really was agreed by the G8 regarding tax and transparency?

David Cameron went to the summit all fired up to crack down on tax cheats, and made the creation of public registers of beneficial ownership one of his cornerstone aims.  The rhetoric in the British press on the subject of tax avoidance has become so toxic (not to mention inaccurate - of which more later) that only a few brave souls dare mutter anything in opposition to the ever more strident calls for "something to be done" - no matter how bonkers the proposals or how inaccurate the information on which they are based.  

So it might have come as something of a surprise to the PM to find that not all of the G8 members were on the same page as him at all.

Russia, Canada and the US all opposed the idea of public registries of beneficial ownership.  And quite right too.  Having a register which is available to tax authorities or government agencies is one thing, but what on earth is the justification for giving every Tom, Dick and Harry who is nosey enough to look, details of people's private affairs?  What business is it of my next door neighbour what assets I own?  Since when did the UK become a country which decided that a legitimate right to privacy was not something we cared about?  This surely is a step too far and one which I am pleased did not get rail-roaded through the G8.

You might think that Obama stood up to David Cameron on the issue in order to safeguard the right to privacy for his citizens.  But then of course he isn't exactly a champion of an individual's right to confidentiality - he has his own tricky situation to deal with back at home regarding the huge scale covert tracking of private communications which has recently come to light courtesy of a whistle-blower.  No, the reality is that the US is one of the worst offenders when it comes to facilitating tax avoidance and lack of transparency - Delaware has a tax avoidance business the size of which would make most people's eyes boggle, something with Obama often seems to forget when in finger-wagging mode talking about such dens of iniquity as Cayman and the BVI.  I suspect that protecting Delaware's competitive position had much more to do with Obama's stance at the G8 than the idea of standing up against a huge erosion of the rights on individuals to legitimate privacy.  But whatever his reasoning, at least it has helped prevent the David Cameron juggernaut from making such ill-thought-out changes.

So what did the G8 actually agree then? The final communique offered little more than support for an existing review being carried out by the Financial Action Task Force (FATF), which is certainly not wedded to the idea of a central register of beneficial ownership, and a statement that each G8 nation would  commit to their own "action plans" on this issue. The UK is leading the charge and has said it will  set up a central registry of beneficial owners, and will consult on whether this should be made publicly accessible.  The US, on the other hand, is to leave the decision on how to proceed to individual states - so don't expect  Delaware to be making changes any time soon. 

So the reality is that, despite the less than rapturous reception from the G8 members to the proposals, the UK is going to plough ahead and has brow-beaten the  British overseas territories into publicly supporting it.  Surely that therefore means that big changes are afoot for them and that their businesses?  Far from it.  Because in fact what the press tend not to report is that many of the offshore centres are far more proactive in this area than the onshore countries which like to preach on the subject. For example, Jersey already holds a central register of beneficial ownership of companies. The UK does not. In addition Jersey regulates those who form and administer companies and trusts, and requires them by statute to maintain up-to-date and accurate information on the ownership of those for whom they act.  The UK does not.  In fact, all the information held in the Island is available to tax authorities and law enforcement agencies on request - something which the UK cannot claim. The truth is that the move towards central records of beneficial ownership will be much more burdensome for the UK than for the majority of the British overseas territories. 

There is a legitimate and mature debate to be had about tax avoidance and transparency but at the moment it is not being had.  Instead we are getting knee jerk reactions and government policy being formed in response to tabloid headlines.  The quality of reporting is woeful - for a great example see http://www.jerseyfinance.je/ceo-blog/yes--we-have-no-bananas#.UcG_rue1x8E and the main protagonists are on the one hand moralising about tax avoidance and on the other hand promoting their own versions of it.  These are complex issues which need a much more informed and thoughtful debate than is currently being permitted.

EC Trust has licence revoked by regulator

EC Trust (Labuan) Bhd, a trust company which was more than 20 years old, has had its licence revoked by the Labuan Financial Services Authority, apparently for failures in the way the businesses was conducted.  Specific details of the failures have not been given.

The firm, which had 5 lawyers on its staff (3 Malaysian and 2 Australian) has had it's licence revoked with effect from 11th June and Peter Kent Searle has personally been disqualified from acting as a director.

KPMG has been appointed to take control of the business and all clients are being asked to make contact with KPMG as soon as possible.

Jersey's finance industry on the up

In what come as a surprise to many given the levels of anti-offshore rhetoric at the present time, it seems that Jersey’s finance industry is buoyant.

Data released yesterday showed that the value of funds under administration have reached a four year high, with the total NAV of funds under administration in Jersey showing a quarterly increase of 6.5%, to stand at £205.3bn. 

Bank deposits also grew for the second consecutive quarter – by £3bn, or 2% – to £155.1bn, although they still remain significantly below the 2007 peak.  It is thought that the Island may have benefited to some extent from the Cypriot banking crisis, with deposit-holders fearing that if they hold deposits in EU member states they could lose their cash in the event of a bank collapse.

Accountant successfully sued for £1.4 million for NOT advising client to avoid tax

I don't often have cause to feel sorry for accountants, but this week I have to express a twinge of sympathy for them.

Over the last couple of years the accountancy profession has been trying to adjust to a “new morality” which seems to be sweeping across the world, which blurs the line between tax avoidance and tax evasion, and increasingly deems both to be morally repugnant.  In the face of this, the use of entirely legal schemes which to keep tax bills to a minimum can result in clients and their advisers being hauled before parliamentary committees to be given a metaphorical public flogging. Given this climate and the impact of the recently enacted GAAR, one might have thought that accountants holding themselves out as advising on tax mitigation would start to become rarer than hen’s teeth.

But just as we were starting to adjust to an apparently new paradigm, a High Court judge has thrown a spanner into the works, by finding that an accountancy firm were negligent for not advising a client how to mitigate his tax bill by using a highly artificial offshore structure.

Hossein Mehjoo is a UK resident “non-dom” who built up a multimillion-pound fashion business in Britain.  After selling his business, he successfully sued his local accountancy firm for £1.4 million for failing to advise him to enter an offshore tax avoidance scheme known as the Bearer Warrant Scheme, which was at the time available (it is no longer) and which enabled non-doms to avoid paying capital gains tax on the sale of companies.

Mr Justice Silber, said that  “The defendants had a contractual duty to advise the claimant that non-dom status carried with it potentially significant tax advantages” and went on to say that if the firm itself did not have the expertise to advise on the scheme, then it should have referred the client to another firm which did, in much the same way as a GP would refer a patient with complex medical needs to a specialist.

Using this logic, an accountant advising a firm on how to structure its intellectual property rights (Google/Amazon etc) would have a duty to advise them that structuring business through somewhere like the Netherlands or Ireland could well save a small fortune in tax.  But then that very same accountancy firm can fully expect to be publicly berated for carrying out his legal duty of care to his client.  It does seem to be something of a no-win situation.

Many directors have been vocal about the fact that they too have a duty to the shareholders of their company to keep the level of tax that they pay to the lowest amount permissible by the law, and that subjective views on what it ethical and what is not cannot override that duty.  It would seem that Mr Justice Silber would agree.

Not surprisingly, yesterday’s judgment has got Richard Murphy et al up in arms, demanding that something must be done to protect accountants who act ethically.  But the whole issue of trying to blur the lines between illegality and immorality is opening up an enormous can of worms.  If governments around the world want to stop certain types of tax avoidance then they need to make it illegal.  Having it as legal, publicly and political unacceptable, and a professional duty all at the same time leaves companies and their advisers in a complete Catch 22 situation – damned if they do, and sued if they don’t!

Sanne Group completes acquisition of State Street's capital markets corporate admin business

Sanne Group's acquisition of State Street Jersey's capital markets corporate administration business (formerly part of the Mourant International Finance Administration business) has completed.

The financial aspects of the deal, which was accomplished with financial backing from Inflexion, which invested in Sanne earlier this year, are not being disclosed. 

The addition of the new staff will take the Sanne Group to over 200 employees in Luxembourg, London, Dublin, Dubai, Hong Kong and Shanghai as well as the Channel Islands, making it one of the larger independent fiduciary businesses.

Sanne Group chief executive Dean Godwin will be very familiar both with the newly acquired business and the 40 staff moving to Sanne, having been managing director at State Street until his move to Sanne last year.

HgCapital sells ATC to Intertrust for €303 million

HgCapital has today announced the sale of ATC to Intertrust (the trust company backed by PE firm Blackstone) for an enterprise value of €303 million.  

This realisation represents an investment multiple of approximately 2.2x original cost and a gross IRR of 37% over the two year investment period - an excellent example of a highly successful collaboration between a PE firm and a fiduciary services business. 

Hg acquired a majority stake in Amsterdam-based ATC in March 2011.  ATC had been independent since 1893 and HgCapital was the first external investor in the business. ATC provides fiduciary, management and administration services to multinational corporations, financial institutions and fund managers.  

The sale of ATC is expected to formally complete in September 2013 following regulatory approval.

Not all Regulators are the same...in assessing risk and compliance you need to understand the nuances

Much of my consultancy work involves advising potential acquirers of fiduciary services and fund administration businesses regarding the risk and compliance aspects of target businesses.  This usually involves, amongst other things, conducting file reviews to ensure that the practice implemented within the business meets best practice and complies with all applicable regulatory requirements. 

In a perfect world, the reviews would reveal no deviations from best practice at all, but we don’t live in a perfect world and keeping these businesses fully compliant is a task akin to painting the Forth Bridge – periodic reviews have to be done on schedule, risk weightings have to be reassessed, corporate governance standards change on a regular basis, identity documents need to be updated when they expire etc – and so there are invariably some weaknesses which need to be remedied at any given point in time. 

But the raw data showing the level of discrepancies that can be found are of surprisingly limited value. The most important thing in my view, is to be able to answer the “so what?” question once the results are in, and clients are often surprised at how much the answer varies from jurisdiction to jurisdiction.  Weaknesses which in some jurisdictions might earn you a gentle admonition from the regulator may in other locations put the entire business at threat of closure.  It is therefore critical that investors understand the subtleties and distinctions of application of regulations in different territories.

Nor are the jurisdictions which take a more “relaxed” approach to regulation necessarily the ones you would expect.  Although the press tend to paint the offshore Islands as the weak link here, the reality is far more complex than that.

A recent point in case can be seen in the Grand Duchy of Luxembourg. In the past week, Luxembourg’s financial regulator, the CSSF, has been under attack for refusing to help a group of investors who lost money in a fund (Petercam’s L Bonds Eur Inflation-Linked fund), despite the fact that the CSSF acknowledges that the fund violated the jurisdiction’s investment laws in a number of different respects including investing in prohibited investments and deficiencies in the Fund’s prospectus.

Luxembourg has in place the panapoly of legislation and regulation that you would expect to see to keep investors safe, but the key issue is whether it is implemented with adequate vigour. There is a suspicion in some circles that the CSSF is wary of taking a hard line with Petercam, for fear of upsetting the many fund managers who structure their business through the territory.  After all, there is big money involved in the industry; Luxembourg has risen to become the second largest centre for investment funds in the world and naturally would not want to kill the golden goose - or to lose business to arch rival Dublin - by gaining a reputation for taking a hard line on regulated businesses.

It might seem an odd notion that regulators can feel the impact of market competition, but they are only human.  If the success of their country depends on keep certain key client sectors happy, then there is a natural tendency to want to play down any issues that may arise.  It takes a brave regulator (and there are some out there) to ignore the pressure and to do the right thing.  Perhaps this explains why the Cayman Island regulator was so apparently slow to step in and take action as the Axiom Legal Financing Fund debacle unfolded.  Nor are onshore locations immune – the FSA, amongst other onshore regulators – was heavily criticised for being too “cosy” with banks and not sufficiently robust to address the risks that they were taking.

But although taking a lax line (which, incidentally, the Luxembourg authorities vehemently deny doing, despite appearances) might be seen as good for business in the sense that it keeps the regulated businesses happy, in the long run it must be a strategy doomed to failure if investors lose confidence in a jurisdiction as a consequence.  That doesn’t appear to have happened in Luxembourg yet, but if there are too many instances like the Petercam one, then it will become a real possibility.

There are some jurisdictions who appear to have taken this threat very seriously, and where the regulators are notoriously tough – Jersey being one example where the regulator is widely viewed as taking a hard line on businesses which fail to meet the required standards.  It is not uncommon in Jersey to see businesses subject to special regulatory supervision or ordered to cease taking new business altogether  if the authorities do not believe that standards are being properly enforced.  By and large, practitioners in the Island applaud this stance, but there are still a reasonable number of those involved in the Island’s finance industry who complain that the JFSC’s approach means that the Island loses business to Guernsey, or to Cayman, both of which are seen as locations where regulatory action is less likely.

Getting the balance right is not an easy one.  All of these places, whether onshore or offshore, want to retain thriving financial services businesses and in order to do that they cannot afford to scare off regulated businesses or their investors.  But a savvy investor (whether a client of a fund manager or a PE house looking to buy a financial services business) will take the time and care to understand the regulatory environment in which they are investing in order to be able properly to evaluate the risks.  And that means doing a lot more due diligence than just reading the regulations.

Ireland becomes first jurisdiction to accept AIFMD applications

Ireland has become the first jurisdiction to begin accepting applications for the authorization of alternative investment fund managers, which will enable them to use the Alternative Investment Fund Managers’ Directive (AIFMD) passport from 22 July of this year.

The Irish Regulator last week published the AIF Rulebook, application forms and a Q&A document which provides guidance on exactly what firms must do by July 2013, what they may do during the transitional period between July 2013 and July 2014 and how they can plan for achieving AIFMD compliance while maintaining the continuity of their business in the interim.

IOM trust company merger reflects Island's ambitions in yachting and shipping

Two Isle of Man trust companies, Vantage Corporate Services Ltd and Corsiom Corporate Services, have merged and joined forces with the Peter Dohle Group to form a new entity to be known as Döhle Corporate and Trust Services Ltd.   

The newly-formed company will offer a range of corporate and private wealth fiduciary services, but with a particular focus on the maritime sector, reflecting the background of Dohle - a Hamburg-based shipping group which reputedly runs a fleet of more than 400 vessels including containerships, bulk carriers and multi-purpose vessels.

The Isle of Man has long been a location for yacht and ship registrations but is looking to further expand its offering in that area.  Last month, the Tynwald made legislative changes to allow the Island's ship registry to accommodate vessels with ownership structures in Monaco or Switzerland.

EFG Private Bank Limited fined £4.2 million by the new Financial Conduct Authority

Just over a month ago the Financial Conduct Authority (FCA) took over the reins from the Financial Services Authority, and practitioners have been waiting with some interest to see what approach the new body will take to regulation.  And first signs are that they will be tough.

On 24^th April, the FCA fined EFG Private Bank Ltd £4.2 million for failing to take reasonable care to manage money laundering (AML) risks. The failings were serious and lasted for more than three years.  The fine would have been £6 million had it not been for an early settlement discount of 30% agreed between the bank and the regulator.

The bank is the UK private banking subsidiary of a global private banking group, based in Switzerland, and as such is a gateway for access to the UK banking system. 

The FSA visited the bank in January 2011 as part of a thematic review of how UK banks were managing money laundering risks.  It considered 99 files of customers identified by EFG as being higher risk customers.  Of these, 54 related to Politically Exposed Persons (PEPs). 36 files which had been opened between 15 December 2007 and 25 January 2011 were reviewed and 17 contained due diligence documents which identified significant risks of money laundering, but failed to document what was done to mitigate those risks.  13 of those 17 files contained allegations of criminal activity including corruption and money laundering. The report found that EFG had not put into practice their own AML policies, had not completed adequate due diligence checks or taken appropriate steps to monitor and mitigate the risks identified.

EFG is not the first bank to be fined for inadequate money laundering processes – Coutts, Habib and Turkish Bank (UK) have all faced similar sanctions in 2012.  But the first action taken by the new regulator (albeit based on a review by its predecessor regulator) will send an important signal to the financial community that breaches will be identified and dealt with in a strong manner.