The challenge to the islands

The UK offshore centres of the Channel Islands and the Isle of Man need to look closely at their competitive position in the current environment. They are no longer operating in a cosy niche, serving the banking and discretionary management requirements of expatriates and retired people.

Competition from other international centres, the globalisation of investment and financial deregulation in the UK and Europe are all matters calling for a response.

All the centres have updated or are in the process of updating their limited partnerships law. Large UK accountancy firms may set a trend for other professionals to migrate to Jersey following a recent move by the states of Jersey to allow offshore firms to form limited liability partnerships.

Jersey has recently moved to include commercial trusts in its range of services. Trusts are a major business for the island and the Jersey trust law of 1984 is seen as an important statute, clearly setting out the scope of the trusts available.

Guernsey is also dealing with the competitive pressures by fine-tuning its own laws. New banking laws have been introduced, giving the Financial Services Commission more control over institutions established on the island. This year, the scope of Guernsey law may be expanded to encompass purpose trusts.

Guernsey's Financial Services Commission has strengthened its team and is looking at tightening its supervisory regime in the interests of investor protection and the overall enhancement of the island's profile as a reputable offshore centre.

Industry and government in the Isle of Man are likely to be working closer together as a result of a strategic review carried out recently. The marketing plan that resulted from this review means a bigger marketing budget for the commercial development division and a clear strategy for raising the levels of awareness of what the island has to offer.

The Isle of Man has introduced a new law on purpose trusts. The Manx Trusts Act of 1995 is a far-reaching piece of legislation with no equivalent in the UK. This departure will be underlined when the Purpose Trusts Bill 1996 is enacted by the Tynwald.

The Act declares that where the settlor has determined that Manx law is to be the governing law of a trust, it will be regarded as conclusive by the courts.

The Isle of Man has prided itself in having a buoyant financial sector backed by firm regulation and the cushion of its own investor protection scheme. The latest initiative was the introduction last month of the Professional Investor Fund (PIF).

PIFs are particularly suited to venture capital funds, management buy-out schemes, property funds and hedge funds. The fund may take a variety of forms and may be set up in any jurisdiction, provided it is administered from the Isle of Man.

Both the Isle of Man and Jersey are working on new laws to provide more protection for people who inform the authorities of suspected cases of malpractice. Market practitioners want to make sure that the islands' laws are sufficient to deal with all instances of money laundering and fraudulent practice.

These and many other measures coming from UK offshore centres are often a direct response to similar moves by centres such as Bermuda or Dublin.

The emergence of Dublin as a credible base for the establishment of a life company to sell products back into the UK and Europe is a serious threat to the future of the life assurance community in the Isle of Man. Dublin's timely updating of its trust laws and innovations in banking and fund management make it an equally dangerous rival for the Channel Islands.

The UK offshore centres are used as a base by many of the best names in investment and tax planning: Rothschilds, Lazards and Coutts, to name a few.

The crucial question for these and other institutions looking to expand is whether they can justify maintaining their presence, especially if they are forced by competitive pressure to set up in Dublin or Luxembourg, or even the UK, in order to build a significant commercial presence in mainland Europe.

The Guernsey Fund Managers Association reports that the industry is currently in a “reasonably healthy” condition, with assets up by almost 12 per cent and the number of new investors rising by 10,000. The fund groups speak of a determination to invest in technology as a means of cutting costs. Jersey fund managers, meanwhile, expect profits to rise in 1996, with plenty of new business still to be had from the UK expatriate market.