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Let’s move now from talking about micro-issues within individual firms to my second topic, about the trust industry more widely.

Involvement of private equity ownership.

1. One issue that always seems to be raised, with some strongly held views on either side of the debate, is the involvement of private equity ownership.
2. From time-to-time we at the Commission are asked for our ‘view’ on private equity. Broadly, we are neutral on ownership structures, so long as they promote good governance, risk management and client outcomes. Those desirables do not appear to necessarily conflict with any particular ownership structure, rather it’s what happens in practice that matters.
3. Some diversity of ownership structures may also of itself be beneficial.
4. This year we have seen the flotation on the main market of the London Stock Exchange of one of our fiduciaries. It is notable that since the flotation, and despite some of the severe market volatility we saw in recent months, the share price of the company concerned has increased by almost 50%. This increase in valuation will not have gone unnoticed by current or potential investors in the industry, and I am sure we will see continued interest while viable and profitable exit routes for such investment are available.
5. Given the strategic importance of the trust industry to the Island, and our Chairman’s commitment to the Commission being a ‘listening regulator’, earlier this year a sub-group of the Commissioners carried out a number of visits to the CEOs and senior management of a selection of entities, as well as JATCO and some referring firms in London, to ask them about their thoughts on trust company business in Jersey currently and in the future.
6. I also attended these visits, and what struck me was, firstly, the heterogeneous nature of the firm population in the Island, and secondly, that there was a highly positive tone about Jersey’s position both now and in the future. The firms involved exhibited a variety of ownership structures and we heard some of those strong views on private equity I just mentioned! These included the benefits of outside investment in designing and putting in place robust systems and control frameworks; while others  argued that key referrers valued independent ownership which, it was argued, inherently allowed a longer-term view to be taken.
7. Regulators generally don’t like to engage in speculation, but I don’t think I’m being particularly controversial in suggesting that it appears difficult to see any future in which there is not further consolidation within the industry. That is consolidation of firm numbers, incidentally, not necessarily of number of employees.
8. What may be more interesting is to consider what the shape of the market overall may be like in five years’ time. One view would be that inevitably ‘small’ firms will have disappeared from the picture, by retirement or sale, leaving only a small number of giants.
9. However, I think it is equally possible to foresee a future where the largest firms are accompanied by a set of smaller boutique or niche providers with good margins, leaving a group of firms which might be described as the ‘squeezed middle’.
10. I would reiterate that the regulator’s interest is in firms having effective and robust risk management, whatever their size or client focus. What does concern me at the moment are trust companies who are attracted to move into the provision of fund services business, given the growth in that sector, but may be underestimating the complexity and thus expertise needed – and consequently not investing an appropriate amount in developing that new business line properly.
11. The entities we visited made clear that one of Jersey’s strengths is our ability to handle complex client structures, with the technical skills of individuals here being a key determining factor.
12. Jersey’s general reputation is also a strong selling point.
13. Of course we also asked about challenges. On the client facing side, firms talked about the increased costs of reaching out to the wider world to gain business, and the way that second and third generations of families expect to be able to deal with them in very different ways technologically than the original, in most cases, paterfamilias.
14. In common with other intermediaries, trust businesses mentioned that some banking facilities are becoming more difficult to obtain, a point that hasn’t gone un-noticed by regulators internationally.
15. For example, only last week the FATF released a statement saying
    1. ‘…institutions should be aimed at managing (not avoiding) risks…. What is not in line with the FATF standards is the wholesale cutting loose of entire countries and classes of   customer, without taking into account, seriously and comprehensively, their level of money laundering and terrorist financing risk and applicable risk mitigation measures for those countries and for customers within a particular sector’.
16. These were free and frank discussions, so costs were also brought up in the context of regulation – and comments were made about the need for compliance staff to be able to take a risk-based approach, a point I will return to later.
17. Participants and the Commissioners agreed this dialogue was useful, so we may look to repeat the exercise; and in the meantime, we are thinking about what we can do as a Commission to deal with any barriers within our gift to address. Of course, we also welcome feedback from firms that weren’t part of the visits.
18. The industry discussion I’ve just mentioned is one way that the Commission interacts with the regulated community. It’s important to remember that the Commission is, and wants to be, an accountable organisation – formally to the States of Jersey, but also in some ways more widely to financial services businesses, their clients and the Island’s wider population.
19. In terms of formal accountability we publish a Business Plan and Annual Report – both available on our website – and this year we held a meeting for States’ members to present our Annual Report to them and answer any questions.

2015 Business Plan.

1. Without stealing my Chairman’s thunder for a future event, I’d like to spend some time now looking at how we have fulfilled the tasks set out in our 2015 Business Plan.
2. In reality, many of these are multi-year pieces of work, but I can give you an indication of where they currently stand.
3. Like most regulators, our objectives – referred to as ‘guiding principles’ – are set out in statute.
4. These principles inform our four strategic priorities, which are:
   1. to develop strong supportive relationships with government, industry and consumers;
   2. to maintain and develop successful relationships with international regulatory bodies;
   3. to foster responsible behaviour and effective risk management within firms; and
   4. to become a more thoughtful, agile regulator
5. Our aim in doing so is to facilitate industry access to markets – crucial; to match international standards, and to meet other legal requirements placed on the Commission.
6. And of course in looking at specific discrete projects, it’s important not to forget what could be described as the ‘ordinary’ day job of supervision and authorisation of entities.
7. We highlighted ten projects for 2015. Some of these I’m going to group together and talk about later when I get on to the subject of change at the Commission.