Jersey Finance Limited: Grant

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A decision made on 1 October 2012:

Decision Reference: MD-E-2012-0113
Decision Summary Title :	Commissioning research into the strategic opportunities for Jersey as an International Finance Centre		Date of Decision Summary:	September 2012
Decision Summary Author:	Chief Executive Officer		Decision Summary: Public or Exempt? (If exempt State clauses from Code of Practice booklet)	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title :	Commissioning research into the strategic opportunities for Jersey as an International Finance Centre		Date of Written Report:	September 2012
Written Report Author:	Chief Executive Officer		Written Report : Public or Exempt? (State clauses from Code of Practice booklet)	Public
Subject: Jersey Finance Limited – grant The supplementation of the current grant to JFL to enable comprehensive research to be undertaken into what is needed to safeguard the finance industry's contribution to the overall prosperity of the Island, against the background of the many challenges arising from the global financial crisis (see the accompanying Ministerial Report). The supplement is requested in the form a non-recurring budget transfer in 2012 of £990,000 from the Central Reserves (one off) to the Economic Development Department (EDD) revenue head of expenditure, the sum then to be forwarded to Jersey Finance Ltd (JFL) by way of an onward grant governed by the Partnership Agreement in place between JFL and EDD.
Decision(s): The Minister supported the funding request by Jersey Finance Limited for the purposes of commissioning research into the strategic opportunities for Jersey as an International Finance Centre according to the objectives set out in the accompanying documentation; and requested the Minister for Treasury and Resources to make funds available from Central Reserves for the project as agreed by the Council of Ministers.
Reason(s) for Decision: The finance sector is critical to Jersey’s economy and our ability to maintain the standard of public services that people expect. It has undergone significant challenges over the last four years and whilst having maintained a strong position it has still suffered significant reductions in profitability. The global economic conditions alongside the changing regulatory environment – in particular the potential implications of the Independent Commission on Banking (‘ICB’) recommendations – put the sector at further risk unless it takes proactive action to adapt to the new global financial environment. The Finance and External Affairs Advisory Group (FERAG) comprising of the Chief Minister, Economic Development Minister, Treasury and Resources Minister and the Assistant Chief Minister and the Financial Services Advisory Board (FSAB) comprising representatives of Government, JFSC and Industry have been investigating options to undertake significant research to determine Jersey’s response to the ICB recommendations. This research will: - Create transparency on the current status of Jersey as a financial centre – including a benchmark with comparable financial centres - Understand the political implications for the Island of changing global, European, and UK regulation and other discontinuities - Identify potential opportunities and strategic options that Jersey’s finance industry can pursue to maintain and improve its competitiveness - Obtain stakeholder agreement on preferred options and strategy to define a long term vision - Define and set out implementation actions - Place particular emphasis on any impact on employment and tax income Following a formal tender process and consideration by FERAG and FSAB, the proposal by McKinsey was considered to be the strongest option. As such, it is recommended that the funding request for this research is approved and funds be made available by the Minister for Treasury and Resources from Central Reserves.
Resource Implications: The project will cost £990,000. The cost will be met from Central Reserves, as agreed by the Council of Ministers.
Action required: To request that the Treasury and Resources Minister transfers the necessary funding from Central Reserves as agreed by the Council of Ministers to the Economic Development Department to enable the project to be commissioned.
Signature: Senator AJH Maclean		Position: Economic Development Minister
Date Signed:		Date of Decision (If different from Date Signed):

Jersey Finance Limited: Grant

Commissioning research into the strategic opportunities for Jersey as an International Finance Centre

Issue and recommendation

The finance sector is critical to Jersey’s economy and our ability to maintain the standard of public services that people expect. It has undergone significant challenges over the last four years and whilst having maintained a strong position it has still suffered significant reductions in profitability. The global economic conditions alongside the changing regulatory environment – in particular the potential implications of the Independent Commission on Banking (‘ICB’) recommendations – put the sector at further risk unless it takes proactive action to adapt to the new global financial environment.

- Create transparency on the current status of Jersey as a financial centre – including a benchmark with comparable financial centres

- Understand the political implications for the Island of changing global, European, and UK regulation and other discontinuities

- Identify potential opportunities and strategic options that Jersey’s finance industry can pursue to maintain and improve its competitiveness

- Obtain stakeholder agreement on preferred options and strategy to define a long term vision

- Define and set out implementation actions

- Place particular emphasis on any impact on employment and tax income

Following a formal tender process and consideration by FERAG and FSAB, the proposal by McKinsey was considered to be the strongest option. As such, it is recommended that the funding request for this research is approved and funds be made available by the Minister for Treasury and Resources from Central Reserves, as agreed by the Council of Ministers.

Background

The finance sector is critical to Jersey’s economy, providing 40% of GVA and around 25% of the Island’s employment. Taxes generated from the industry amount over half of all taxes raised and amount to more than the entire budget needed for education, health and social services put together. That is why one of the four key aims of the Economic Growth and Diversification Strategy (P55/2012) is to grow and diversify financial services.

The sector is now at a critical juncture following four years of global economic turmoil; the continuing Eurozone instability; an unprecedented raft of increasing regulation and supervision on a global scale. The banking sector in particular is under significant scrutiny from politicians, the media and the general public in terms of not only the role they played in precipitating the global financial crisis, but also most recently the LIBOR fixing scandal. Consequently the UK is looking to address some of these issues through its implementation of a number of the recommendations suggested by the Independent Commission on Banking (‘ICB recommendations’).

A flourishing and secure banking sector is essential to maintaining Jersey’s position as a leading international finance centre. The Islands banking sector underpins the success of the wider finance industry and also has a significant impact on the resources available to the States of Jersey through its contribution to tax revenues. It also provides employment for 10% of the current working population. Whilst Jersey has maintained a relatively strong position, ranked as the top offshore finance jurisdiction in the in the Global Finance Centres Index and the only off-shore centre to feature in the world’s top ten for private banking and wealth management; it has seen a significant decline in profitability. Since 2007, its GVA has declined by almost 30% in real terms. Should this trend continue, there would have to be a significant reduction in the quality and quantity of public services on offer and/or significant tax rises.

With the imminent appointment of a Director of Financial Services, who will have the high priority task of helping to prepare a financial services strategy, it is most timely and relevant for the fundamental changes occurring in the global business environment and their impact on the Island to be fully researched.

Proposal

The Finance and External Affairs Advisory Group (FERAG) comprising of the Chief Minister, Economic Development Minister, Treasury and Resources Minister and the Assistant Chief Minister and the Financial Services Advisory Board (FSAB) comprising representatives of Government, JFSC and Industry have been investigating options to undertake significant research to determine Jersey’s response to the ICB recommendations. As few are equipped to carry out this task and the necessary knowledge and experience is not available within government, it is appropriate that JFL should be proposing to engage consultants, with government support, to undertake research including high level interviews with business leaders.

The objectives of the research would be to:

- Create transparency on the current status of Jersey as a financial centre – including a benchmark with comparable financial centres

- Understand the political implications for the Island of changing global, European, and UK regulation and other discontinuities

- Identify potential opportunities and strategic options that Jersey’s finance industry can pursue to maintain and improve its competitiveness

- Obtain stakeholder agreement on preferred options and strategy to define a long term vision

- Define and set out implementation actions

- Place particular emphasis on any impact on employment and tax income

The rationale, content, and competing proposals for the research have been discussed in detail at FERAG and FSAB. The conclusion has been reached that McKinsey’s proposal provides the most substantive and valuable product that will generate the most beneficial and reliable outcomes.

Resource implications

The cost associated is £990,000. This is requested in the form a non-recurring budget transfer in 2012 of £990,000 from the Central Reserves (one off) to the Economic Development Department (EDD) revenue head of expenditure, the sum then to be forwarded to Jersey Finance Ltd (JFL) by way of an onward grant governed by the partnership agreement in place between JFL and EDD.

Recommendation

It is recommended that the Minister supports the commissioning of this research by JFL and a request is made to the Minister for Treasury and Resources to make funds available from Central Reserves for the project, as agreed by the Council of Ministers.

Author: Chief Executive Officer, Economic Development Department

Date: 20th September 2012