Businesslife Magazine, Issue 78, June/July 2022 by BL Magazine

GLOBAL BUSINESS: A VIEW FROM THE CHANNEL ISLANDS

BUSINESSLIFE

JUNE/ JULY 2022

• Private wealth • Dangers of techwashing • Hybrid funds • The rise of the DAO • Digitising compliance

BUSINESSLIFE

whiteknuckle ride What turbulent times mean for the future of finance ISSUE 78 JUNE/JULY 2022

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Welcome

Relentless march WHILE MOST SECTORS are experiencing some form of digital transformation, the financial services industry in particular appears to be undergoing an unrivalled and relentless technological advance. Powered not just by technology’s ability to make things faster and more efficient – but also leveraging the opportunities created by open banking and big data – financial services are fast becoming more tailored to individuals’ needs, as well as cheaper, faster and easier to access. The result is a better – and more relevant – experience for customers; new and more accessible investment opportunities for all; and vast appeal for institutions and vendors looking to meet that customer demand or enter new markets. In this ‘Future of financial services’ edition of Businesslife, we explore a number of the ways in which technology is driving change in the sector. Our interview with Enhance Group CEO Tom Wiseman, for example (page 16), gives a first-hand account from a Channel Islandsbased fintech of how technology is automating and informing safe and secure investing – and with plenty of room for growth remaining. Our article on the digitalisation of compliance (page 54) looks at the positive role technology is playing in keeping the cyber attackers at bay. And our feature on Central Bank Digital Currencies (page 30) explores how various nations are progressing in their journeys to implementing a central digital coin. These are all progressive moves – and all moving at considerable pace.

RESPONDING TO CHALLENGES However, the financial services sector is not without its challenges, including here in the islands.

Continued talk of tax harmonisation, for example, poses a potential risk to jurisdictions that have traditionally built their appeal on suites of tax-neutral products – although as our feature starting on page 24 finds, the good news is that for the superwealthy, certainty and reputation trump low taxes. The sector in the islands is also responding to a potential skills challenge – as the rising cost of living threatens the ability to attract staff from other jurisdictions. The good news here is that firms and the islands’ policymakers are responding with a number of initiatives that mean the islands are likely to continue to thrive as a financial centre of choice. Elsewhere, we look at a new risk arising from technology’s advance – ‘techwashing’, whereby firms become guilty of over-selling the digital and automated capabilities of their products and services. While that might sound like something out of a science-fiction book, like tech’s rapid advance, it’s very real indeed. Finally, I just want to congratulate one of our magazine’s founders, Carl Methven, for signing up for his own challenge this year – by agreeing to run the 2022 TCS London Marathon in aid of cancer support charity Maggie’s Centres. Businesslife is as much a community as it is a magazine, and I would be extremely grateful to any of our readers who are able to spare even a few pounds to support Carl. You can do so by visiting: www.justgiving.com/fundraising/carl-methven Good luck, Carl! n

Financial services are fast being tailored to individuals’ needs, and becoming cheaper, faster and easier to access

Jon Watkins is Editor-in-Chief of Businesslife

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June/July 2022 3

Financial Services Compliance and Regulation Kroll’s global team of recognized experts provides financial services clients with end-to-end compliance and regulatory services, working alongside you to minimize risks, drive efficiencies, and ensure compliance. Kroll provides proprietary data, technology and insights to help our clients stay ahead of complex demands related to risk, governance and growth. Our solutions deliver a powerful competitive advantage, enabling faster, smarter and more sustainable decisions. With 5,000 experts around the world, we create value and impact for our clients and communities. To learn more, visit www.kroll.com. Contact 3rd Floor (North Suite), 7 Esplanade St. Helier, Jersey JE2 3QA Channel Islands +44 1534 603130

Contents

INSIDE

BUSINESSLIFE

Businesslife is published quarterly by Chameleon Group, with special editions covering the City, Middle East and Asia +44 (0) 7377 866779 www.blglobal.co.uk

CEO, CHAMELEON GROUP Carl Methven carl.methven@blglobal.co.uk EDITOR-IN-CHIEF Jon Watkins ART DIRECTOR Angela Lyons

8 News

24 private wealth

Recent developments in Jersey and Guernsey

For the super-rich, tax takes second place to the certainty and solid reputation of the Channel Islands

12 Appointments Top-level job moves in the Channel Islands

16 interview Tom Wiseman, CEO of Enhance Group, on emerging trends in the financial services and fintech sectors

SUB EDITOR Kate Wheal

30 digital currency The rise of crypto has left many central banks playing catch-up – we weigh up the pros and cons of an emerging area

36 technology As digital transformation takes hold and firms race to prove their systems’ speed and reliability, beware techwashing

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40 sector growth

NEWS AND EDITORIAL news@blglobal.co.uk

Are costly locations such as the Channel Islands set to lose the talent so

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essential for financial firms or is there still room for growth?

46 investing Digital investing and crowdsourcing has led to the growth of DAOs – decentralised autonomous organisations – but is this a short-term fad?

50 strategy Investors and fund managers are looking to hybrid funds as a route to stability, liquidity and higher yields

54 compliance As cyber criminals raise their game, digitalising risk and compliance is set to be a game-changer

59 The knowledge Veganism, Nassim Nicholas Taleb and Starlink 550 are among the topics under the spotlight

contributors The BL Global Discussion Forum

Follow us @blglobalnews Office: 7 Castle Street, St Helier, Jersey, JE2 3BT © Chameleon Group Limited, all rights reserved. Reproduction in whole or in part without written permission is prohibited. Views expressed by our contributors are their own and do not necessarily represent the views or policies of Chameleon Group. While every effort is made to achieve total accuracy, Chameleon Group cannot be held responsible for any errors or omissions.

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DAVID BURROWS

As the advance of tech and automation continues unabated, David explores whether risk and compliance are the next big functions to benefit from digitalisation.

SOPHIE McCARTHY

With the world of crypto rocked by yet more volatility, Sophie examines the progress various countries’ central banks are making in launching their own digital currencies.

DAVID STIRLING

David, meanwhile, finds that investors and fund managers are increasingly looking towards hybrid funds as a route to stability, liquidity and higher yields during these uncertain times.

ALEXANDER GARRETT

Alex explains how the parallel rise of digital investing and crowdsourcing has fuelled the growth of DAOs – communities raising funds for high-value investments.

june/july 2022 7

in the NEWS

Robert Hurworth / Shutterstock

• The mean price of twobedroom flats and threebedroom houses rose compared with the previous quarter. • The mean price of all other property types decreased or did not change from Q4 2021. The turnover of properties was 5% higher than in Q1 2021 and 31% lower than in the previous quarter. Overall housing market activity, on a rolling four-quarter basis, was 4% higher than in Q4 2021 and 39% higher than in the corresponding quarter of 2021. On a rolling four-quarter basis, advertised private sector rents were 3% higher during the year ending Q1 2022 compared with the year ending Q4 2021. TISE ADDS GREEN BOND The International Stock Exchange (TISE) has added the UK vehicle leasing sector’s largest green bond to its sustainable market segment, TISE Sustainable. Zenith Finco has issued £475,000,000 6.500% Green Senior Secured Notes due 2027,

8 JUNE/JULy 2022

which has been listed on TISE’s Qualified Investor Bond Market (QIBM) and admitted to TISE Sustainable. Zenith Finco is a wholly owned subsidiary of leasing, fleet management and vehicle outsourcing group Zenith Automotive Holdings. In the next two years, Leedsbased Zenith Group intends to spend in excess of the gross proceeds of the offering on financing or refinancing eligible green projects, including battery electric vehicles. Anthony Byrne, Head of Bond Markets at TISE, said: “It’s hugely rewarding to see our offering at TISE prove attractive for listing issuances aimed at making such a significant positive impact on our environment.” Zenith Group’s green bond issuance has been made in accordance with its Green Financing Framework, which has received a second-party opinion from Sustainalytics as being aligned with the International Capital Market Association Green Bond Principles 2021 and the Loan Market Association Green Loan Principles 2021. VIRTUAL ASSETS REVIEW The Government of Jersey has published its first National Risk Overview of the virtual assets sector in Jersey. The key points of the report are that: • Jersey is not currently aligned to the FATF standards with respect to virtual assets and their service providers. When in force, the Proceeds of Crime (Amendment No. 6) (Jersey) Law 202- (Amendment No. 6) will address this by bringing them fully within scope of antimoney laundering and counter terrorist financing obligations. • The virtual assets sector in Jersey is small – only three

Done Deals Bedell Cristin in Guernsey has advised the Stonewood Wealth Management group on the registration of one of its Guernsey open-ended registered collective investment schemes as a Route 3 private investment fund (PIF). The registration involves an existing PIF converting from a Route 1 (POI Licensed Manager) PIF to a Route 3 (Family Relationship) PIF by simultaneous deregistration and registration. The PIF will continue to be managed by the Stonewood Wealth Management group, with the conversion allowing the management role to be transferred to its UK-based Stonewood Wealth Management. Bedell Cristin Partner Richard Sharp and Associate Mariam Mansoor advised on all aspects of the legal and regulatory process for the conversion. RBS International has delivered an asset-backed facility to BGF (Business Growth Fund), a UK-domiciled fund that provides longterm growth capital to SMEs across the UK and Ireland. RBS International, acting as documentation and sustainability coordinator, agent and security trustee, has provided a £33.3m hold in the new £100m, three-year, asset-backed facility. The facility will provide a bridge between investments and exit proceeds and allow further support for UK SMEs. BGF, founded in 2011 following the global economic crisis, has 16 offices in the UK and Ireland and has invested £3bn in more than 450 SMEs. Carey Olsen in Jersey has advised European private equity investor Nordic Capital on its exit of video production software business Vizrt Group to a new Nordic Capital-led consortium comprising secondary acquisition vehicles and other Nordic Capital investment vehicles. The secondary acquisition vehicles, part of the new Nordic Capital-led acquiring consortium, were established with investment vehicles managed or advised by Goldman Sachs Asset Management’s Vintage funds Pantheon and Coller Capital. Working with legal counsel Kirkland & Ellis, the Carey Olsen team advising on all Jersey-related legal and regulatory aspects of the transaction, including the establishment and regulatory applications relating to the relevant Jersey vehicles, comprised Partner Daniel O’Connor, Counsel Andrea Steel and Senior Associates Arindam Madhuryya and Mark Slater. Walkers lawyers in Jersey have advised Allianz Real Estate on its part in the £400m financing to support the ‘ultra-sustainable’ development of 105 Victoria Street, London. The 500,000 sq ft mixed-use development has been designed to surpass all current sustainability benchmarks, with community spaces focused on user experience and wellbeing. The project will include 400,000 sq ft of workspace and 30,000 sq ft of greenspace and terracing. The Walkers Banking and Finance team advised on the Jersey law aspects of the financing and was led by Group Partner Tristan Maultby, with assistance from Senior Counsel Elaine Kelly and Associate Rebecca Lever. n

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JERSEY Q1 HOUSE PRICES Jersey’s house price report for Q1 2022 shows that on a rolling four-quarter basis, the mix-adjusted average price of dwellings sold in the year ending Q1 2022 was 4% up on Q4 2021. On a quarterly basis: • The seasonally adjusted mixadjusted average price was essentially unchanged compared with the previous quarter and 16% up on the corresponding quarter of 2021 (Q1 2021).

Savills Jersey 01534 722227 savills.je

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Spring IM team (l-r): Carmen Tyler, Alfie Greenway, Carl Corbel and CEO Simon O’Donoghue

MERGERS AND ACQUISITIONS Zedra has acquired UK professional pension trustee business Caledonian Trustees, founded in 2006. The acquisition follows those of UK firms Inside Pensions and PTL last year. Caledonian will operate alongside and report through PTL until both are fully integrated into Zedra this year. Sovereign Group, which has offices in Guernsey, has bought Middle East corporate services provider PRO Partner Group (PPG). PPG operates in the UAE, Qatar, Oman and Saudi Arabia providing local knowledge to firms looking to set up in the Gulf Cooperation Council. PPG staff will continue to operate under the PPG brand, except in Saudi Arabia, where PPG and Sovereign will co-brand. Apex Group is to buy the fund services and third-party management company business operations of Maitland International Holdings. Maitland, based in the UK, Guernsey, South Africa and Luxembourg, offers administration, transfer agency and management company services. TEAM Asset Management is to acquire Jersey-based financial planning and investment consultancy Concentric. An initial consideration of £1.7m is payable in cash, plus up to £0.8m in new shares in TEAM. The deal is due to complete this autumn. Suntera Global has acquired US business Socium Funds Services, giving Suntera its first US outlet. Founded in 2016, Socium has its headquarters in New Jersey and offices in California and Arizona. It provides fund administration services to private equity, private credit, venture capital and real estate-focused fund managers. JT IoT has acquired Danish IoT and connectivity management provider NextM2M. The company partners with telecom providers such as Vodafone and JT to power IoT solutions, ranging from smart sensors to industrial automation. Insurance broker Howden has acquired UK and Guernsey-based mortgage broker SPF Private Clients. The deal will extend Howden’s offer to mortgage broking, while enhancing its general insurance and wealth management businesses. SPF will join Howden’s UK and Ireland business, with Mark Harris still its CEO. Smith & Williamson International has completed its acquisition of the trust and private client book of Seven Investment Management (7IM) Jersey. 7IM will continue to provide services to its platform clients in Jersey. Grant Hamilton, Director at 7IM Jersey, will join Smith & Williamson International in St Helier. n

10 JUNE/JULy 2022

entities are registered for servicing virtual assets – so the risks relating to money laundering and terrorist financing are seen as limited in terms of size and impact. • There is some indirect exposure where business is carried on with entities that deal with virtual assets directly. • Virtual assets and their service providers are global in nature and frequently operate across several jurisdictions. Cross-border transactions are riskier and can have a lack of clarity over which jurisdiction is responsible for regulating, licensing and supervising entities, and which persons are subject to AML/CFT measures. • Jersey’s conservative approach to virtual assets has served as a mitigating factor but has also discouraged authorities and firms from developing a deeper understanding of the sector. • It is anticipated that the sector will grow, perhaps significantly. JERSEY INVESTMENT LAUNCH Jersey investment manager Spring IM is launching a digital investment platform to make investment opportunities more accessible for all islanders. Founders Simon O‘Donoghue and Alfie Greenway established Spring IM late last year to support islanders who want to invest but wouldn’t qualify in terms of wealth with existing on-island wealth management firms. The Spring IM client platform gives islanders access to their money at any time, while also enabling users to look at how their portfolio is performing and to see any other linked investment

accounts they may also hold with Spring IM. The client platform also enables parents to set up accounts that can be designated to their children. Spring IM is licensed by the Jersey Financial Services Commission to conduct investment business and its portfolios include: • Nine models across three risk profiles • Multiple currency options of GBP, USD and EUR • Three additional passive models in GBP • Five-year performance record • Tax-efficient investing for international clients, excluding any exposure to UK, US and French situs assets • All funds held have HMRC reporting status. FLAGSTONE OPENS BUSINESS UK fintech firm Flagstone has gained approval from the Jersey Financial Services Commission for a new business on the island, Flagstone International. The cash deposit platform of Flagstone, based in London, enables clients to move money between the deposit products of multiple banks after a single onboarding journey. Its new business, which will open offices in Jersey this year, will initially launch to clients of Intertrust Group (Jersey) before expanding to other clients and jurisdictions. Flagstone International has partnered with HSBC Channel Islands and Isle of Man, which will provide operational services and support for the new business. n

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Back to the future Warren Sanders, Co-Founder and Director of digital banking specialist EWG, helps untangle the industry’s toughest issues and explores how fintech and digital transformation strategies are rapidly changing financial services for the better FIRMS IN THE financial services industry continue to grapple with disconnected legacy systems and manual processes, while meeting the increasing complexities of their business, regulators and clients. Equally, inaccurate budgeting and forecasting, a lack of business insights and real-time information remain issues. These challenges demonstrate that such platforms can no longer support agile businesses operating in today’s financial ecosystem. Digital banking is now spearheading the industry’s development through technology, collaboration and integration. It is time for finance to be client and digital first. Fintech and regtech are playing a pivotal role in this fast-moving transformation. They offer numerous benefits by helping businesses work smarter and quicker, reduce errors and operate more efficiently by optimising resources and processes. A key element is banking as a service, or BaaS, which deploys the latest technology via cloud-based dashboard interfaces and API (application programming interface). In BaaS, licensed banks integrate their digital banking services directly into the products of other non-bank businesses. EWG is the go-to specialist digital banking partner for the fiduciary, corporate and fund services sectors, offering a cloudbased dashboard interface that enables third-party business software to communicate directly with EWG and share data securely in real time.

EWG has an ambitious technology development roadmap focused on the end-user and client experience

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This democratisation of data creates greater transparency, improves the client experience and puts data in the hands of clients. EWG services more than 200 jurisdictions and plays its part in reshaping the global financial services landscape. Digital banking used to appeal to a generation of young, tech-savvy users. These days, the digitisation of services is more broadly adopted and persuasive. A greater number of companies are migrating to cloud-based services, giving them scalability to make it easier to keep up with the increasing demands of clients. They are secure and cheaper to implement than existing legacy systems and help businesses meet their ESG commitments, notably in terms of decarbonisation and sustainability.

DISRUPTIVE EDGE The other notable change is the disruption of the status quo. Fintech businesses are able to compete effectively with traditional players in the finance sector as a result of the levelling of the playing field through digital transformation. There is a recognised, growing dependence on technology to gain an edge over the competition. Evolving client expectations are driving innovation towards prioritising speed, decentralised models and frictionless transactions. The pandemic has fuelled significant growth of digital commerce and record payment volumes, which presents challenges for traditional providers to maintain the same levels of profitability using legacy infrastructures. The main driver of change is the wholesale shift to real-time payments and a cashless world. Others include ‘embedded finance’, the seamless integration of financial services adopted by non-financial companies. By unlocking the full potential of payment data through leveraging powerful artificial intelligence and money laundering tools, EWG is able to offer efficient, effective, tailored products in a secure, protected environment. Within these developments is the understanding that the professional trust, funds and corporate sectors are highly specialised.

This dictates that the digital banking provider of choice is equally specialist in and has a thorough understanding of their business challenges and how to solve them, using the latest technology. EWG has pioneered a new approach, deploying a cloud-based, simple-to-use dashboard user interface, or alternatively its API, that allows third-party software to communicate with EWG and share data in a real-time and secure way. Direct connectivity also drives significant efficiencies including the provision of reliable data and insights.

EWG LABS In the fast-moving world of financial services, a business that stands still means it is going backwards. Recognising the pace of change, EWG has launched a new technology venture – EWG Labs – to support the development of our range of products and applications. The new business will drive all in-house technological innovation and development in relation to the EWG Client App, the EWG API and client-side integrations. Behind all of this sits a team of exceptionally talented people, together with a collaborative approach that takes time to understand our clients’ needs, forges strong relationships and creates real value. EWG has an ambitious and exciting technology development roadmap, which is focused on the end-user and client experience in a hypergrowth technology sector. We forecast this will enable our clients to grow even faster and drive an exciting future for the company. As far as the Channel Islands are concerned, EWG also foresees a bright future. Jersey is a top-rated international finance centre, with an excellent record of innovation and a pedigree underpinning constant growth, particularly in the non-banking subsectors of fiduciary and funds. It, and EWG, are well positioned to lead this charge. n

FURTHER INFORMATION

Contact Warren Sanders, Co-Founder/ Director of EWG Tel: 01534 608022 Email: warren.sanders@ewggroup.com

June/July 2022 11

News

Appointments Voisin Law has appointed Kylie Young as Head of Probate. Kylie has been a probate professional in Jersey for more than 20 years, focusing on domestic and international clients and managing the testamentary and successional affairs of Jersey-based assets. She has acted as a probate and wills manager for Bedell Cristin and BoisBois Lawyers, advising on all areas of Jersey probate including the preparation of wills and codicils. Kylie has experience working with dispute resolution lawyers on contentious matters. In her new role, she will help the private client team with lasting powers of attorney and other matters.

Sure Business has hired Iain Davidson as Head of Enterprise Products to lead the development of products and solutions for business clients. Iain’s background is in security and IT. He started his career in logistics, focusing on the movement of staff and equipment for the British Army. After 24 years with the Army, he moved to Guernsey’s financial services sector and has spent 18 years with Utmost (formerly Generali), most recently as IT Infrastructure Operations Manager. In his new role, Iain will oversee the delivery of products and solutions to Sure’s business clients. He will also monitor developments in IT to meet client needs.

Stonehage Fleming has promoted Richard Stride (pictured) to Head of Family Office Jersey and recruited Bruce Sinclair as Trustee Director in the Jersey family office division. Richard advises wealthy international families. For the past 14 years, he has assisted in their day-to-day needs on succession, governance and complex wealth requirements. He joined Stonehage Fleming in 2007 and was Head of the Family Office Division in Johannesburg before moving to Jersey in 2017. Bruce has 12 years’ legal experience, joining from Standard Bank, where he was Head of Legal for the trust and fiduciary services offshore division.

Highvern has appointed Phil Godley as a Non-Executive Director on its senior group holding company board. Phil is a Chartered Accountant with wide-ranging governance experience from more than 20 years working in finance and professional services. He previously spent 13 years with Sanne Group, latterly as Senior Managing Director in the Luxembourg office. He has also served as Financial Controller for Equity Trust in the UK, Channel Islands and Switzerland, after an early career with PwC and Deutsche Bank. Phil is also a former NED of Colmore and currently serves as a Director of corporate advisory firm Native.

Walkers has appointed two Partners in Guernsey – private client specialist David Cooney (pictured) and funds lawyer Craig Cordle. David joins the Private Capital and Trusts team as a Group Partner. He has spent the past two years in Collas Crill’s Guernsey office, having been a Partner with Charles Russell Speechlys in Zurich and Ogier in Cayman. Craig joins Walkers’ Investment Funds and Corporate team bringing 14 years’ experience with City law firms Herbert Smith Freehills and Norton Rose Fulbright. A Guernsey Advocate, he has practised in Guernsey with Ogier since 2016.

Alexforbes Offshore has named Timothy Townsend as Head of Wealth Management and Corporate Consulting. Tim brings with him more than 14 years’ experience in international wealth planning and investments. He joins Alexforbes from Standard Bank, where he has served as Senior Business Development Manager, International Fiduciary Investment Solutions, for the past four years. Prior to that, he held an executive role with Ashburton Investments in Jersey, having previously worked for Lloyds Banking Group in Jersey and South Africa.

12 march/april 2017

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News

JT Group has appointed Daragh McDermott as its new Chief Executive Officer, taking over from Interim CEO John Diamond. Daragh has worked at the telecomms business for more than 22 years, most recently serving as its Managing Director since 2019. He started his career with KPMG in Ireland, moving to PwC in London before relocating to Jersey in 2000 to join JT. Daragh’s career on the island has also included oversight roles with Jersey Post and the States of Jersey. In addition, he is a Non-Executive Director of Jersey Water, Chair of La Moye Golf Club and a Trustee of Autism Jersey.

Jill Britton has been confirmed as the Director General of the Jersey Financial Services Commission, having held the interim role since September 2021. Jill has led the organisation in its three-year strategy, unveiled in November 2021, to achieve sustainable regulatory effectiveness while increasing the island’s capability to combat financial crime. Prior to the interim role, Jill served as Director of Supervision at the JFSC since 2016, overseeing the regulation of financial services and other sectors for anti-money laundering and terrorist financing. Her 25-year career has covered Jersey, the UK and Asia.

The States of Guernsey has named Stuart King as a Commissioner, following the retirement of Cees Schrauwers. Stuart is a Non-Executive Director of UK pensions annuity specialist Pension Corporation and a consultant. He has served as Group Compliance Director at Aviva and MD at Promontory Financial Group, a consultancy in strategy, risk and governance issues. Stuart has also worked at the Bank of England and IMF and at the Financial Services Authority, where he was Head of UK Banks Regulation, Head of Retail Intelligence and Regulatory Themes, and Head of Major Insurance Groups Regulation.

Oak Group has appointed James Tracey as Managing Director of the firm’s Guernsey Funds business. He takes over from Paul Schreibke, who is moving to Mauritius to take up a new role with the firm. James, whose career in finance spans more than 20 years, has worked in Guernsey since 2001 and has acted as a Director at companies including Kleinwort Benson. He joins Oak from JTC Group, where he has served as Managing Director since 2018, having joined the firm in 2017. James has also been an Executive Committee Member of the Guernsey Investment and Funds Association for the past three years.

JTC has appointed Wendy Holley as its first Chief Sustainability Officer, sitting on JTC’s Plc and Group Holding boards, but continuing in her existing position as Chief Operating Officer. In her new role, Wendy will oversee JTC’s obligations as a London Stock Exchange-listed business to develop its ESG strategy. Wendy joined JTC in 2008, initially managing the HR function before becoming COO in 2012. She previously spent 12 years with Mourant Services, latterly as Senior Human Resources Manager. She has also worked for Coopers & Lybrand (now PwC) in Jersey.

IQ-EQ has recruited Briony Sun as a dedicated Chinese Family Office Executive, based in Jersey. Briony will be part of the firm’s Private Wealth team in Jersey but will work with the UK team. She will be responsible for promoting IQ-EQ’s family office services to Chinese-speaking clients, particularly those originally from Hong Kong and the Chinese mainland. With a background in teaching and business development, Briony founded Jersey’s first Chinese school in 2016. She has also served as a business development and client coordinator for Bedell Cristin.

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march/april 2017 13

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Interview

As the chief executive of Enhance Group, the fintech-based investment monitoring and advisory boutique for fiduciaries, family offices and charities, Tom Wiseman has a clear view of the emerging trends across both the technology and financial services sectors. He tells us how tech is powering the business to further growth and his expectations for the future of financial services

Words: Jon Watkins Images: John Liot

16 June/July 2022

parties to run their own portfolios and IFAs to invest their clients’ monies. I thought that was an incredibly interesting, powerful way to distribute an investment service. I was on the investment management side, but so much of our distribution came through a platform, came through technology. And what really spoke to me was the way in which technology was integrated with third parties, in particular IFA software. The concept of looking after an IFA in Scotland that could open up an account and invest money with me, almost at the touch of a button, through slick, straight-through processing was, I thought, remarkable. That was the first time I guess I really saw the potential and excitement of technology – of fintech – and I stayed there for about seven years until the business was sold to Caledonia Investment Trust. How did the move to Enhance Group materialise? As an investment manager at 7IM, I had been working very closely with investment consultants, including Enhance, running portfolios for investment consultants and their clients. And what I really liked about investment consultancy and investment oversight more generally was the pure independence of it all. I always felt that it was a great position to be in – an investment consultant

can choose any investment solution on the market for their clients, accessing best-of-breed opportunities and a range of investment philosophies. That was naturally intellectually interesting. And, when I was leaving 7IM, an opportunity arose to join Enhance. So I took on a role that was initially focused on setting up a regulated business in London, providing investment consultancy – manager selection and strategic advice to ultra-high-net-worth individuals and family offices. So, at the end of 2015, I established what Enhance now calls ‘Consultancy’, with my colleague Dr Ruzhen Li, who heads up that particular service line. How did that role lead you to the Channel Islands? We started building up the practice in London and we were gaining quite a lot of momentum. But what we found was that most of the clients that we were interacting with – by nature of the fact that they were family offices or UHNW individuals – tended to have their investments offshore, as per Enhance’s core business. We were increasingly being asked whether we could contract out of Jersey as opposed to London, so it made sense for us to consolidate what we were doing in Jersey. I moved over to Jersey in the second half of 2017 and, when I did so, I invested in the business and took on the CEO role

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Tell us about your background and your early career… I’m not from the Channel Islands originally. I was born and raised in Winchester before going to university in Sheffield, where I studied law. I undertook that course because I wasn’t really sure what I wanted to do and I thought that, with a generalist academic subject at a red brick university, I could go and enjoy myself and work out what I wanted to do afterwards. Shortly after finishing my degree I joined the graduate scheme at UKbased stockbrokerage Charles Stanley. There, I spent the first couple of years on a rotational scheme working across different departments in, ultimately, a very substantial wealth management and stockbroking business. I enjoyed it, but I felt at that time – and this has very much changed now in that business – that it was a fairly old-fashioned way of going about managing money. So I jumped off the graduate scheme there and I joined a business called Seven Investment Management (7IM), based in London. What I liked about 7IM was that it was very small at the time – 25 to 30 people when I joined in 2009 – and it was fairly innovative and unconventional in that it blended together technology and investment management. The business had – and still has – its own intermediary platform that enabled third

Interview

The

interview Tom Wiseman www.blglobal.co.uk

June/July 2022 17

Interview

Navigate Disruption To survive and thrive, leaders should determine how to maintain a competitive advantage in a way that doesn’t just withstand change but embraces it to generate new strategic possibilities. From cloud computing and robotic process automation to analytics, cognitive technologies and blockchain, a new class of digital disruptors is transforming how work gets done. At Deloitte our approach combines insight and innovation across multiple disciplines with business and industry knowledge to help your organisation excel. Contacts: Advisory & Assurance – Adam Cichocki acichocki@deloitte.co.uk Audit – Theo Brennand tbrennand@deloitte.co.uk Tax – Martin Rowley mrowley@deloitte.co.uk

18 June/July 2022

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How has the business evolved since then? What we’ve been doing over the nearly five years since is looking at Enhance’s business, refocusing it to being purely an investment oversight services provider to the fiduciary space. The nature of the business has gone from being purely people and service-led – of course, we still have good people and we’re still very hot on client service – to everything that we do being underpinned by proprietary technology that we have built on-island. When I looked at the business, I saw that Enhance as a group was doing quite a lot of different things back in 2017. It had a treasury function, it had an indexing business, it had an IFA arm – and my view was that there was the risk of becoming a Jack of all trades and master of none. As a relatively small company, you can’t do everything well – so I decided it was better to think what the core of what we do is and what the market requires. And there’s quite clearly a shift in regulation in the fiduciary space, whereby

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fiduciaries are under increasing pressure or obligation to evidence that they are appropriately investing and reviewing their clients’ monies. That goes one of two ways. They either hire a team internally – and there are some benefits and there are some challenges associated with doing that – or they go to an outsource provider, which is where a company like Enhance comes in. So what we’ve been doing slowly but surely is refining the proposition down to three core service lines. On the website now, you’ll see just three services – monitoring, portfolio and consultancy. Can you talk us through those three core services – and how they work? We typically provide investment monitoring, which is a low-cost independent review of investment assets to a trust company en masse. An example of a client is JTC. We monitor all of JTC’s wealth portfolios across all of its offices. So, essentially, they’re coming to us to get an independent sense-check on whether or not the third parties that their trustees have selected to run their clients’ money are doing what they’re supposed to be doing. We provide them with independent reports and management information – and that’s a quasi-assurance and compliance function in many respects.

what we’ve been doing slowly but surely is refining the proposition down to three core service lines – Monitoring, Portfolio, Consultancy

That’s the first port of call when we start working with a trust company – a monitoring engagement across all of their accounts. Then, when the monitoring service identifies that there is an issue in any investment portfolio, we give the trustees direction on how to manage that with the third party they’ve employed. What we’ve tried to do with our portfolio and our consultancy service is be there as a regulated investment adviser to help them with that next step as well. So, breaking that down, we have our portfolio service designed for ‘smaller’ trust accounts, which is really a structure

June/July 2022 19

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and mobilised additional private equity investment. It’s a minority stake, but we are 38% owned by the Financial Services Opportunities Investment Fund, which is listed on TISE – that’s the same fund that invests in PraxisIFM and Oak Trust company.

Interview that has up to about £20m to invest in a wealth portfolio. And then we have our consultancy service, which is designed to be much more of a multi-family office, handholding, small number of clients, hightouch service at the top. The idea is that we can help to get an entire client book in order through our monitoring service – and where there are issues, we’ve got a solution that we can work with the trustees and can help them out on a regulated basis. What does the client list and scale of the business look like now – and where does the fintech element come in? We currently work with around 65 trust company groups and, although we’re only a business of 30, purely based in Jersey, we cover every global jurisdiction. So we’re a small business with a global reach – and this is really where the importance of technology comes in, as without an efficient platform it’s just not possible to service the number of trust companies and underlying accounts we monitor or advise on. The number of accounts that go through our system is roughly 4,500 each quarter. It’s a significant number of wealth portfolios that we’re either advising on or monitoring. And the assets under oversight, which is probably the best way of quoting it, exceeds $40bn. About 60% of our group’s revenue comes through the monitoring service for the core low-cost proposition. We have a significant amount of data volume to deal with, in lots of different places, which is why building out our platform – Mosaic – was such an incredibly important strategic decision for the

business. We’ve now got a web-based application with public cloud architecture – and we used a Jersey-based consultancy practice to build the foundations of it. How exactly does the ‘tech’ element of the fintech offering deliver value? Two things really stand out in terms of what the technology is enabling us to do. One is to build data feeds with the wealth management community. Historically, we would simply receive a PDF or sometimes paper valuations for clients’ portfolios and then have to somehow screen-scrape or manually key all of that data into our system. What we’re doing now is going out and offering an open API and setting up really any type of data feed that we can get from the wealth

We’ve all had challenging call centre experiences, so it’s important we avoid that. The right balance is human and technology combined

managers, who are sending investment data directly into our system. That’s very important because it means we can ask for more data and we can ingest more data into our system than we’d ever be able to process manually or scrape. On the other side of the platform, we’ve set up a client portal that is effectively a portal for trustees to access. It’s a secure multi-factor authentication online portal that has customisable permissions – where appropriate people in trust companies can log in and see information on their clients. That enables more interactive access for the trustees with the data and the analytics that we’re producing for them. They can see the charts and they can also go back over time and do some calculations to look at different ratios and so on. Your tagline is ‘augmenting fintech with people to create value’, and you mentioned earlier that the balance of human and machine was what appealed to you in your previous role. Does that remain important? I think the efficiencies of technology need to be embraced and adopted – and certainly what we find in the fiduciary space is that everybody is under time constraints and budgetary constraints. Everybody’s looking for efficiency in some shape or form, and the way to deliver efficiency has to be via slick technology and integration. But people ultimately want to deal with people. They want to be able to pick up the phone – ideally to the same person or people. We’ve all had call centre experiences with the likes of the online banks that are challenging – so it’s important we avoid that. The right balance is human and technology combined. Growth in the fintech sector has been fuelled by customers demanding convenience, efficiency for businesses, speed of transactions, access to real-time information and data. Do you see those demands continuing and the fintech sector growing as a result? Yes, absolutely. Those drivers, combined with the opportunities created by the open banking revolution – which still has so far to go – mean there remains plenty of room for growth in this sector. If you have a bank account with Barclays, for example, you can download a really nice app and you can actually do quite a lot through it – you can manage your bills, you can make payments, you can bring up your statements, and that’s just for a simple bank account. But what’s always been surprising to me is the level of transparency on investment assets. The level of access to information for people on their wealth is often very poor, certainly in the offshore space. Onshore, in places such as the UK and the US, there seems to be more embedded

20 June/July 2022

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Interview technology, and therefore transparency and integration already in place. But because the offshore world is typically so fragmented and comes from a background of utmost discretion, there really hasn’t been the same embracing of technology seen elsewhere. So, I think the spirit of open banking – of integration of data exchange – has a long way to go in our broader space. The reality is that technology brings efficiency and it brings cost efficiency. It’s a very competitive professional services landscape globally, and technology, by making things more efficient, helps keep down costs that would otherwise just continue to increase if we were working more manually. How will that continued evolution of fintech impact the financial services landscape in future? I think there’s going to be increasing disintermediation of certain aspects of traditional financial services. At the moment, typically what happens is that, if you have a certain amount of money, you will get in touch with a private bank or with a wealth manager, you will meet somebody personally and they will set up accounts for you – and you’ll probably have some sort of online access or receive quarterly reports. But it will be very disjointed – separated from your bank accounts and any loans and mortgages that you might have, for example. And the reality is it’s not really that helpful, because somebody’s picture of wealth is generally quite broad – assets and liabilities. I think the next generation simply won’t tolerate operating in that way. We’ll see more and more people with more significant wealth going down that online services route in future. Currently, there’s a disconnect there and I think that trend of disintermediating or disruption with traditional financial services models is absolutely going to happen.

because the offshore world is typically so fragmented, there hasn’t been the same embracing of technology seen elsewhere

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FACT FILE Born: Winchester, UK Studied: Sheffield Lives: I split my time between England and Jersey now Family: Married; and we have eight-year-old twins who keep us on our toes Hobbies: I’m a big Southampton FC fan. My son is Arsenal, so I take an interest in them, too Other interests: I’m also a big boxing fan

Probably the banks are in the best place in some respects because they have already invested heavily in technology. Once you’ve got that foundation in place, it’s easy to add on other things – whereas I think the more traditional fund managers and wealth managers will have some catching up to do. One of the well-documented challenges around the fintech space is the battle for talent. Is that a challenge you are witnessing – and what other issues does the sector face right now? I think that is a challenge on the island, despite some of the really good initiatives taking place – Digital Jersey has increased in prominence and Jersey Finance has the fintech desk now, for example. All those things are really good initiatives. We participated in Fintech Demo Day in October, which had hundreds of people

involved and was a great event put on by Jersey Finance for businesses like ours. But there just aren’t that many software developers available on the island and I think that over time we are probably going to have to look off-island for some roles – and software development is probably one of those areas. What’s your growth trajectory from here? For the foreseeable future, the next three to five years, we’ll remain very specialist in our core offerings – investment oversight to the fiduciary community. Although we work with a large number of trust companies or trust company groups, in many instances we’re just working with one office or providing one service. So our biggest opportunity, certainly in the short term and within our existing client base, is doing more for firms we’ve been servicing for some time, whether that’s simply monitoring more accounts or providing advice services too. We’re focused on growing organically. We wouldn’t ever discount the possibility of acquiring businesses, but it’s just quite difficult to see which we would acquire in the market at the moment. So we’ll be focusing on organic growth but keeping an open mind. n

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Women and investing John Pipon, Client Advisor at UBS Jersey, discusses how wealth managers will need to reimagine advice to meet the growing demand from female investors UBS WROTE ITS first publication on women and investing in 20171. Since then, we have seen an increase in the number of women interested in taking control of their finances. However, the arrival of Covid-19 has been a challenge for women, given the higher unemployment rates experienced during the recent ‘she-cession’ and the added burden of childcare responsibilities many undertook as a result of school closures and lockdowns. But the pandemic has also had a silver lining. Increased precaution has led women to take more action. It has prompted many to review their financial situation and seek control of their destiny. Based on research from Fidelity in 2021, the number of

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women in the US who say they are more interested in investing has risen by 50% since the start of the pandemic2. The survey also found that 67% of women are investing outside their retirement plans (44% in 2018), with young women taking more action2. Specifically, 71% of millennial women versus 62% of baby boomers are investing outside their retirement plan. This trend was also captured in a 2021 Nutmeg survey, where one in five women said they felt more confident dealing with money matters in light of the pandemic.3 However, the current advisory process experienced by women often does not meet their needs. How can wealth managers

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INVESTMENT PLAN IN THE CONTEXT OF GOALS AND NEEDS

The next three to five years

Liquidity Cash flow for short-term expenses

reimagine their advisory process, and what are the key ingredients to help women achieve their goals? In our view, wealth managers need to reimagine their value propositions – see diagram above. The impact of the gender pay gap and longer lifespans on women’s wealth can be reduced by: ● Accounting for individual circumstances, including financial goals ●D efining and recommending portfolios that maximise the likelihood of achieving these goals ●H elping women feel more confident about investing and understanding the relationship between risk and return. Personalised and relevant investment advice delivered in a systematic way is key. We believe the advisory process should be based on a purpose-driven framework. One example of such a framework is the UBS Wealth Way approach, which helps

Now beyond your lifetime

Five years lifetime

Legacy

Longevity

For needs that go beyond your own

For longer-term needs

investors develop an investment strategy optimised for their goals and objectives. Using such a framework, women can define investment strategies that help them clearly understand where their money is and why, and as a result invest with confidence.

invest the remaining wealth in a Legacy strategy. The objective of this strategy is the wealth transfer over the generations as well as having a positive impact on society. As outlined above, these goals tend to be particularly important for women.

LIQUIDITY STRATEGY

Using this framework, investments are positioned as solutions to needs and specific problems solved in the context of each investor’s circumstances. Such an approach should provide the necessary confidence and clarity that women are looking for to help them gain control. n

The Liquidity strategy consists of resources needed to meet a family’s short-term cash flow needs, including regular income from employment or a pension, safe borrowing capacity and investment assets earmarked for this purpose. The aim of the Liquidity strategy is to provide enough capital to give an investor the flexibility for greater riskreturn potential in other portfolios. The strategy helps manage cash flow for near-term spending needs, usually for the next three years. This strategy can help women (and investors in general) with cash management and with making sure that budgeting concerns do not affect investment decisions.

LONGEVITY STRATEGY

the pandemic has been a challenge for women, but it has had a silver lining. Increased precaution has led women to take more action

The Longevity strategy focuses on helping investors meet their goals over their lifetime. Its aim is to ensure they’re invested in such a way that they have a high probability of meeting those objectives. The risk here is measured in terms of shortfall risk – the possibility of not meeting investment goals. Such strategies should help women connect their investment portfolio to their objective, particularly addressing concerns around retirement planning. Looking at risk as the probability of not meeting a goal versus volatility allows for investors to measure success in terms of what matters to them.

LEGACY STRATEGY Once Liquidity and Longevity strategies are adequately funded, investors can

If you are interested in finding out more about how UBS can help support your investment goals, please contact John Pipon for more information. John Pipon, Client Advisor, UBS AG, Jersey Branch 1, IFC St Helier, Jersey JE2 3BX Tel: 01534 701185 Email: john.pipon@ubs.com Taking Action, Women and Investing, How women can best protect and grow their wealth, 2017, UBS Wealth Management 2 Women and Investing Study, Fidelity Investments, 2021 3 Are women changing the way they think about investing, Nutmeg, Mann Kat, 2021, visit: tinyurl.com/yc2t72uc 1

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June/July 2022 23

Private wealth

Winning hearts and minds With tax harmonisation well on its way, where does that leave the Channel Islands – a jurisdiction that has built its success on a suite of tax-neutral products? For the super-wealthy, certainty and reputation trump low taxes Words: Steve Falla

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Private wealth

and evolved as international finance centres, tax planning has become less important to clients – they are placing greater value on the stability and experience that the islands’ service providers can offer. And that will be welcome relief to the jurisdiction, as tax harmonisation threatens to erode the advantage of regions that have staked their chips on being tax havens. While facing the challenges of the rising costs of regulation and compliance alongside a declining workforce, the industry is confident that it can stay accessible and relevant to future generations of families and entrepreneurs seeking a safe harbour to protect and enhance their wealth.

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Despite tax harmonisation, practitioners believe that there are numerous reasons why the islands will remain the go-to centres for the wealthy. For Ian Rumens, Head of Private Client at Ocorian in Jersey, reputation is everything. “Clients who come to see

us today are looking for an investment platform that provides a solid governance framework through which they can invest to enhance their wealth in a compliant, sustainable and ethical way,” he says. “The distinction these days between onshore, offshore and midshore has blurred. People are looking for a cocktail of all three to achieve a return on investments.”

EYE-WATERING INCOME “Tech entrepreneurs are making an eyewatering amount of money and ESG and reputation are very important for these new clients, for example,” Rumens adds. “They are not focused on minimising paying tax if they are making good returns.”

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AS JERSEY AND Guernsey have matured

The distinction between onshore, offshore and midshore has blurred. People are looking for a cocktail of all three

Private wealth

affairs, to be replaced by more of a level playing field – and the Channel Islands is better positioned in that regard,” she says. “The future looks bright for the islands and we will come out as jurisdictions of choice. Our professional services industry has a history of reinventing itself and adapting to changing legislative and regulatory environments.”

COMPLIANCE’S FINE LINE

The regulator must keep things as simple as possible – it would be useful to road-test technology changes with end users

Robert Moore, UK Director at Jersey Finance, agrees. “There’s strong evidence that tax mitigation among private clients and families is less of a driver in terms of structuring now than it used to be. “In our Asia’s Great Wealth Transfer white paper, 86% of advisers to families in Asia said that wealth preservation and the maintenance of family harmony were the two key objectives for wealthy families in organising more structured legacy and succession planning. Tax mitigation ranked low on their priorities,” he adds. “The concept of tax neutrality is simple: by not imposing additional layers of tax, decisions can be made on their economic merits alone. “Tax continues to be paid by the beneficial owners in their home jurisdiction and, where applicable, by the underlying investment in its home jurisdiction. “So, the use of a tax-neutral international finance centre such as the Channel Islands should result in no more or less tax being payable.”

SHIFTING LANDSCAPE Sarajane Kempster, Director of RBC Wealth Management’s fiduciary specialist team, can also see positives in the shifting landscape. “What it will mean is the removal of the jurisdictional tax arbitrage we currently have over where clients wish to base their

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A further challenging factor pushing up the cost of servicing wealthy clients is compliance – something of a curate’s egg for the industry. Paul Carney, Client Services Director at FCM, says: “Compliance is a standard part of the cost of doing business in any sector. In the context of the islands’ financial services sector, this is also part of the substance required and increasingly understood by our high-net-worth families. “However, it’s key for the regulator to keep things as simple as possible. It would be useful to road-test technology changes with end users over a period of time before implementing them. “The regulator and government have worked well to develop representation with industry bodies. However, the best understanding of, and access to, information is inevitably within industry. Perhaps a stronger commitment to secondments into the regulator, similar to the Jersey Finance secondees, would be beneficial in the future.” Rumens is pragmatic about the role of compliance in financial services. “The compliance and regulatory environment in which we live is ‘business as usual’ – it doesn’t make much difference whether you are onshore or offshore. All international finance centres have to adhere to the same level of standards.” However, Kempster cautions that compliance must be kept in check. “We must ensure it doesn’t get out of control and rise to the degree where it’s a huge barrier of entry to coming to the Channel lslands,” she says. “It’s a fine line. We want to be gold standard jurisdictions and that comes with an associated cost. I wouldn’t like to see ourselves priced out of the private wealth industry.” There’s a consensus that the smart use of technology and innovation will offset the impact of compliance. This has led to the emergence of highquality, industry-standard off-the-shelf packages that have streamlined the process to some extent. And it is technology and digital systems that are seen as a key factor that will continue to attract the growing number of high-net-worth families and entrepreneurs

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Private wealth

monitor it – don’t rush in to adapt but be ready to adapt,” he says. Having the right people in place is also important, according to Kempster. “What we need to do is invest in our people and skill or upskill the workforce. Across both the islands, there needs to be a dialogue between industry, government and regulator as to how the industry resources itself. “We need to ensure that our younger people come back to the islands once qualified. Lifestyle plays a part, but it’s about making the industry attractive in the same way that the tech and investment industry are attractive for the younger qualified population. “Engagement with our industry representatives is key in terms of making sure that the population of qualified people know what’s available in the industry, see it as attractive to work in and that they can have a sophisticated career in the Channel Islands not too dissimilar to London.”

TRACKING TALENT to the Channel Islands as a base for managing their wealth. It’s been widely reported that the world’s 10 richest people doubled their wealth during the pandemic and that in 2021, the 500 wealthiest added more than $1trn to their combined fortunes. The Knight Frank Wealth Report also stated that the number of high-net-worth individuals globally grew by 9.3% between 2020 and 2021. There’s been a significant growth in family offices in recent years and there’s an ongoing explosion of new wealth in the tech entrepreneurial space. To continue to attract high-net-worth clients, says Rumens, the islands must adapt to their requirements. He cites the islands’ private fund regimes as being beneficiaries of the change to the way in which wealthy families manage their assets. “There’s a huge amount of money held by a small percentage of the world’s population,” he says. “Many of these individuals have established professional family offices with people who have come out of industry – generally big American investment banks – who have moved away from traditional trust structures in favour of using more quasi-corporate and institutional vehicles such as the Jersey Private Fund.”

INVESTMENT BATTLEGROUND Rumens continues: “The new battleground for offshore service providers and the wealth management industry is going to be the client’s digital experience.

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“That’s one of the key areas that the younger generation and tech-savvy will be drawn to. The digital interface still needs to be backed up by first-class, quality client services if you are going to remain relevant in the long term.” Carney believes the islands need to maintain visibility in the right circles – with trusted advisers and those who influence entrepreneurs. They must also stick to simplistic tax rules and remain technologically agile. “It’s important to keep up the investment in technology. High-net-worth families expect that and it moves and changes at an increasing pace. “Another point is being able to adapt products – we want to keep them relatively simple. If rules change in other countries,

Rumens adds that employer flexibility and innovative working practices will play a part in ensuring the islands maximise their available talent. There’s a view that, as long as a balanced approach to regulation and compliance and investment in digital solutions and human resources are in place, there is every reason for the islands’ industry to survive and continue to grow. Carney says: “There’s an increasing desire towards family offices at the higher end of the wealth spectrum and there will be another level, where there is a good market, just below family offices. “Having a range of service providers is going to be useful. The cost of running a family office may be prohibitive to certain clients, but if they can get an independent to look after them providing a bespoke service that’s agile, there will be a continued demand for that.” There’s plenty to play for, says Kempster, “There will be fewer new private wealth structures around, but they will be of higher value, more complex. We need a professional workforce that can deal with that kind of work – that’s the key to survival. “We have extremely high standards of legal firms and tax advisory practices in the Channel Islands and gold-star fiduciary service providers.” Moore concludes: “HNWI clients seek certainty – tax is no longer the unique driver. They want assurance that their interests remain safe and Jersey positions itself well with a strong track record and recognised reputation as an international finance centre of excellence.” n

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Accelerated disruption in financial services There has been a headwind of digital change disrupting the financial services sector for some years. However, says Simeon Moss, Director, Islands & Gibraltar Advisory at Deloitte, two of the most significant innovations are now rapidly evolving and converging to present the next wave of disruptive challenge – decentralised finance MATURING BLOCKCHAIN TECHNOLOGY and the proliferation of digital asset classes are combining with rapidly emerging decentralised finance (DeFi) business models to present both a challenge and opportunity for new entrants and traditional operators in the financial services sector.

WHAT IS DEFI AND WHY SHOULD WE BE INTERESTED?

Decentralised finance can facilitate transactions for digital assets and cryptocurrencies

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DeFi has its roots in utilising the decentralised foundations of blockchain technology and is the collection of financial services that utilise this. For example, it can facilitate transactions for digital assets and cryptocurrencies. The distinction is that transactions are undertaken in an open, permissionless and largely interoperable technology stack, built on smart contract platforms. Transactions can be executed securely and in a verifiable way with agreements enforced by code existing on a public blockchain. This, at face value, then provides a highly accessible and immutable financial system offering equal access rights, transparency and reduced need for intermediaries.

While DeFi has many layers to its architecture, the types of use cases at the application layer range from payments, borrowing and lending, asset management and insurance through to derivatives and decentralised exchanges. These are supported through publicly viewable smart contracts, which execute and govern how transactions take place for the respective DeFi product. These sit on an asset layer that can either be fungible tokens – for example, ether or stable coins – or nonfungible tokens such as images and video and supported by blockchain distributed ledgers at the settlement layer. The reason why these are different is that these are decentralised with no central authority, legal system or external enforcement mechanism required, resulting in new levels of transparency. Coupled with the emerging ‘metaverse’ and the diversification of crypto assets, this offers opportunities for new growth and innovation. This protocol, delivered through smart contracts, provides a high degree of trust, with changes verifiable independently by any actor along the chain, minimising the risk of any manipulation.

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REGULATORY FOCUS At present, there is a low alignment with existing regulatory defined factors across compliance, liquidity and governance, but a strong alignment to concepts of customer accessibility and transparency. Regulators globally are turning their attention to DeFi alongside crypto more broadly. They will need to balance protection of consumers and investors with market integrity and prevention of financial crime. But these are early days, with some regulators stressing the riskiness of DeFi platforms, particularly with the absence of any legal protections offered for traditional financial products and services. We have also seen non-governmental industry bodies such as the Financial Action Task Force (FATF) updating guidance to virtual assets and virtual asset service providers, highlighting DeFi considerations that may fall under FATF requirements and definitions. Collectively, regulators, watchdogs and international oversight bodies will be considering the following themes: • The ability to provide timely regulatory responses to rapidly emerging DeFi products and services • The ability to undertake supervisory and/ or examination activities in the absence of centralised governance mechanisms • Defining the roles that each specific regulator and body will play. Jersey is already seeing a market for fintech-focused growth and investment, with crypto recognised as a separate asset class and the licensing of the world’s first crypto regulated fund. The Jersey Financial

Services Commission has published guidance on initial coin offerings (ICOs), which draws a distinction between security and utility tokens. And while there is currently no specific legislation, the introduction of a virtual asset service provider (VASP) regime will provide a framework for the regulation and oversight of VASPs. Any financial services currently being provided are regulated within Jersey’s financial services regime. Guernsey is also very active in this area having launched its first crypto fund, a Bitcoin exchange-traded fund (ETF) in late 2021, regulated by the Guernsey Financial Services Commission, one of a handful of Bitcoin ETFs globally. So, while the DeFi ecosystem remains largely unregulated, this is likely to change, and organisations should build this into

the DeFi ecosystem is largely unregulated, but this is likely to change and organisations should build this into their risk models

their strategy and own risk models. The importance of obtaining independent assurance over the control environment in these organisations cannot be overstated, particularly relating to AML and CFT, which the VASP regimes seek to address. Regulators locally and globally also continue to stress the inherent risks to retail customers in the investment space.

TAX IMPLICATIONS What are the tax implications for DeFi and crypto? At present there is no specific legislation on the taxation of cryptocurrencies or digital assets. But in Jersey, there is guidance on the tax treatment of transactions in cryptocurrency from both an income tax and goods and services tax perspective, confirming that they will be taxed in accordance with principles of taxation. Similarly, in the UK, the view of HMRC is that holding crypto assets should be subject to the same treatment as any other investment, being subject among other things to tax on capital gains. Furthermore, different crypto assets are treated as separate assets for tax purposes and therefore there may be gains when one crypto asset is traded for another despite no underlying currency value being received. Normal income tax rules are also applicable to crypto mining where validation of blockchain transactions occurs, typically through the receipt of further digital tokens (how the system is governed and self-regulating). The historic fluctuation in value of any given token may cause challenges for valuations at a given point. This is also an emerging landscape from a tax perspective.

WHERE NEXT? DeFi introduces both opportunities and risks, but what is clear is that organisations will be required to manage crossorganisational challenges and market opportunities with emerging regulatory definitions. As a minimum, organisations should include DeFi for review in their strategic horizon. As a market leader in digital assets, blockchain technology, business model optimisation, regulatory strategy and operations, Deloitte is uniquely positioned to assist organisations in navigating the complexities of this innovative space. n

FURTHER INFORMATION

Simeon Moss is Director, Islands & Gibraltar Advisory, at Deloitte Email: stmoss@deloitte.co.uk

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June/July 2022 29

Digital currency

Rise of the CBDCs Despite their recent extreme fluctuations, The rapid rise of cryptocurrencies has left many of the world’s central banks scurrying to set the record straight on their interest in creating their own digital currency. Some are more committed than others – so what are the pros and cons, and will we really see countries swapping their currency for crypto? Words: Sophie McCarthy

30 June/July 2022

IN AUGUST 2021, Chinese archaeologists

announced that they had discovered the world’s oldest known and securely dated coin-minting site. It’s thought that it was here, in Guanzhuang, that the first standardised metal coinage was produced sometime around 640BC. Money has, in some form or another, been part of human history for at least the past 5,000 years. And during that time, we’ve seen the system metamorphosise from metal to paper and to plastic. But what does the future hold? As we increasingly pay digitally and shop using tech, we rely less on cash, with our wallets gradually moving from our pockets to our smartphones and other electronic devices. These changes are, of course, having profound implications for the nature of money itself, raising the question of whether central banks should issue digital currencies for retail use. Central bank digital currencies (CBDCs) are digital tokens, similar to cryptocurrency, issued by a central bank. Like traditional fiat currencies, CBDCs give

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Digital currency

SNOWBALLING INTEREST In March this year, 87 countries were considering issuing a CBDC. Of those, nine – the Bahamas, Nigeria and seven in the Eastern Caribbean Currency Union – have already launched a centrally governed digital currency. Two years ago, however, a mere 35 countries were thinking of issuing a CBDC. So, what has prompted so many to start taking them seriously? There are two main drivers: fears over private companies outstripping regulators’ powers; and geopolitical concerns. The former is linked to stablecoins, which have seen a huge surge in popularity over the past few years. Stablecoins are a form of digital currency that bridges the worlds of crypto and everyday fiat

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China was among the first nations to explore CBDC s , so it could start to shape the standards that govern it

currency. Their prices are pegged to a reserve asset, such as the US dollar or gold, which means that when compared with the likes of Bitcoin, they are much less volatile. But regulators are uneasy about stablecoins. Speaking at the annual European Central Bank Forum on Central Banking last year, US Federal Reserve Chair Jerome Powell said stablecoins could represent a certain threat to the financial system because they “exist mostly outside of the regulatory perimeter”. He added that the tokens are a source of concern for monetary policymakers. In terms of geopolitics, China was among the first nations to explore CBDCs, starting more than a decade ago. As such, it could start to shape the standards that govern this financial transformation, which could have huge implications for the likes of data privacy and security.

PERKS AND PITFALLS Many people are of the opinion that an effective CBDC could reduce consumers’ desire to rely on stablecoins. Advocates also believe they would provide a more resilient

June/July 2022 31

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holders a direct claim on the central bank, allowing businesses and individuals to make electronic payments and transfers. They bring some of the apparent upsides of private digital currencies to the world of public money, and should therefore be safe in times of financial crisis.

Digital currency

CBDC progress around the world US

In March, US President Joe Biden issued his highly anticipated executive order on digital assets, a space in which he wants the US to lead. “The United States must maintain technological leadership in this rapidly growing space, supporting innovation while mitigating the risks for consumers, businesses, the broader financial system and the climate,” the White House said.

BAHAMAS

The Bahamas became a global leader when it launched one of the world’s first central bank digital currencies – the Sand Dollar. The Sand Dollar holds the same legal status as the standard currency, is issued by authorised financial institutions, and can be used for a variety of transactions. Part of its purpose was to help improve financial inclusion – 20% of the population is estimated to not have a bank account owing to a lack of physical banks – and strengthen security against money laundering and other illicit economic activities.

payments landscape, support radical competition to the big tech monopoly, ensure access to legal tender if cash is unavailable and offer faster and stronger cross-border payments. Crucially, CBDCs almost always work in favour of financial inclusion by allowing easy access to a system that is low in cost yet efficient. There are, however, apprehensions around CBDCs. One worry is how CBDC adoption could impact traditional financial institutions. If CBDCs are safe havens in

32 June/July 2022

CHINA

Despite still being in the pilot phase, the digital yuan – officially known as the e-CNY – has been tested in around a dozen regions and by late 2021 had around 140 million individual users – about one-tenth of the population. More than 1.5 million merchants accept the e-CNY, too. Its goal is to allow more people in rural areas to enjoy digital payments, to provide a backup to private platforms and make the payment system more efficient. China is taking a measured approach in its promotion, however, and still faces overseas scrutiny and criticism over the possibility that the government may track users’ transactions.

EUROPE

In July 2021, the European Central Bank announced plans for a 24-month investigation phase towards a digital euro project, which commenced in October and will include design and distribution options, impact on markets, and required changes to EU regulations. Subsequently, work on the prototype is likely to begin at the end of 2023. Meanwhile, in the UK, the Bank of England and the Treasury set up a joint CBDC taskforce in April 2021 to work with other UK authorities in reviewing the potential for a digital pound. But at present, there isn’t huge amounts of enthusiasm behind the notion.

times of economic instability, people could quickly remove funds from traditional banks, thus creating runs.

QUESTION OF CONTROL Control is another area of concern. Critics voiced fears that the deployment of China’s digital yuan project (e-CNY) would allow the Chinese government to block shoppers from using the coin at stores that fell foul of their policies. Mass surveillance could be another problem. Some people disagree with the idea that

INDIA

India’s CBDC project was announced in February and is looking to launch in the 2022/23 fiscal year. According to Finance Minister Nirmala Sitharaman, an electronic representation of India’s legal tender will give a big boost to its digital economy. Some have suggested, however, that the digital rupee needs more thought and less haste.

CBDCs will promote financial inclusion, arguing they may remain out of reach for those with dated or no devices, further depriving those already on the margins of society such as the elderly or vulnerable. Progress is being made in this space, and it looks inevitable that despite concerns, and owing to their success in certain parts of the world, CBDCs are set to be an integral part of our financial future. Not least, this is because consumers will likely demand it. And consumers inevitably get what they want. n

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negotiating a vuca world Greg Powell and Tim Sanders, two of the Founders and Senior Investment Directors at TMGA Wealth Management, discuss the current challenges in the financial markets and why experience is key to guiding investors through turbulent times ONCE AGAIN, THE financial markets are in turmoil. The impact of the pandemic, the tightening of monetary policy and the situation in Ukraine are all fuelling already elevated inflation and supply chain issues, contributing to levels of market uncertainty that we’ve not experienced in recent times… Or have we?

will impact the geopolitical landscape. We are seeing complexity, with de-globalisation and technology having positive and negative impacts. We are also witnessing ambiguity – conflicting views, analysis paralysis and emotional investing, which can lead to panic buying and selling by some market participants.”

IT’S A VUCA WORLD

GUIDANCE IN TURBULENT TIMES

“Turmoil in the markets is certainly not a new phenomenon – though it may seem like that, given what we’ve experienced over the past decade or so, with moderate economic growth, low inflation and low interest rates,” says Greg. “However, when we look back, we can chart a constant course of market turbulence – from the Mexican crisis in 1994/95, the dotcom boom and bust of 1999/2000, the Iraq war in 2003, to the global financial crisis of 2007/08. If there’s one thing we can be sure of, it’s that we’ve seen these levels of elevated market instability before and we will, without doubt, see them again.” Tim adds: “When trying to make sense of the current macro events and understanding the impact from an investment perspective, it’s useful to look at it through the lens of the VUCA principle.” VUCA describes a situation, event or environment that is Volatile, Uncertain, Complex and Ambiguous – four distinct challenges present simultaneously, the effect of which can seem overwhelming, often causing disruption and confusion.

So how does TMGA respond to this? “The simple answer is, we embrace market volatility and look for suitable opportunities, as sectors reprice relative to one another,” says Tim. Each Senior Investment Director at TMGA has extensive experience in the investment management industry and, having lived through several of the financial crises of recent years, accept volatility, uncertainty, complexity and ambiguity in the markets as the norm. “Instead of trying to manage elements outside our control, we harness our collective knowledge and experience, adopting a ‘keep calm and carry on’ attitude,” says Greg. “We have confidence in our philosophy – it’s based on patience with a disciplined investment approach. Our objective is clear: to deliver positive, risk-adjusted returns that meet our clients’ long-term financial objectives. Therefore, we don’t subscribe to short-term trends and market noise – it’s all about sustainability in the long term and investing for the future. “We are experienced long-term investment managers, analysing and evaluating the investment landscape to identify emerging trends, new business cycles and global themes – this shapes our strategic, top-down view. “We also use rigorous bottom-up research disciplines to inform and validate these views, implementing them across our core investment strategies and ensuring there is sufficient diversification and ballast, from both an asset allocation and portfolio construction perspective.” Tim adds: “The result for our clients? Exposure to different regions, themes and

IMPLICATIONS ON FINANCIAL MARKETS “There is certainly a correlation between today’s VUCA environment and what we are seeing in the dislocation of financial markets,” says Greg. “There is volatility. The values of certain investments are fluctuating in response to macro-economic influences. The Nasdaq has fallen around 20% year to date, as investors have reduced excessive exposure to growth stocks in order to correct underweight positioning in value stocks. “There is uncertainty – in terms of what’s going to happen next and how it

sectors with reduced concentration risk, liquidity and minimised portfolio volatility. We build an investment portfolio like we’d build a house – with strong foundations, a good roof and sturdy walls, so it’s in a robust position to weather storms. “Our clients understand and value our approach, as it provides reassurance in uncertain times. We develop long-term personal relationships built on trust, transparency and confidence. “Respectful of this trust, we continue to use our collective skills and combined knowledge and experience, blending it to achieve the very best outcomes for our clients, in all market situations.” n

FURTHER INFORMATION

TMGA Wealth Management is an independent and dynamic wealth management business that delivers investment management solutions via its flagship Discretionary Portfolio Management service. Tim and Greg each have more than 30 years’ experience in wealth management and investments, working closely with a wide range of clients, including private clients, trustees and intermediaries. To find out how TMGA Wealth Management can support you, please contact our Senior Investment Directors: Email: tim.sanders@tmgawealth.com greg.powell@tmgawealth.com michael.caetano@tmgawealth.com Tel: 01534 748740 tmgawealth.com

TMGA Wealth Management Limited (Registered Number: 132402) is authorised and regulated in Jersey by the Jersey Financial Services Commission for the conduct of investment business. Please note, the value of investments and the income derived from them may fluctuate from time to time.

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June/July 2022 33

Stand out from the crowd in Businesslife magazine Here’s our publishing schedule for 2022 – get your business noticed ISSUE

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GLOBAL BUSINESS: A VIEW FROM THE CHANNEL ISLANDS

BUSINESSLIFE

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• Public/private partnerships • Virtual leadership • Future of work • Surveillance economy

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June/July 2022 35

Technology

Playing dirty As digital transformation increasingly takes hold of the financial services sector, firms are racing to demonstrate that their systems are faster and more automated than their competitors’. But over-promisers should be on their guard about the perils of techwashing

Words: Marco De Novellis

36 June/July 2022

WHEN AMERICAN DRINKS company Long Island Iced Tea changed its name to Long Blockchain Corp, its stock price skyrocketed. But the switch to a blockchain-based business model had come out of the blue and the company had no existing business tied to blockchain; neither did it have any experience with the cutting-edge technology. As a result, Long Blockchain Corp has fallen foul of ‘techwashing’ – a phrase that was coined by Chris Clark, CEO and founder of Jersey-based technology consultancy Prosperity 24/7, to describe when a company creates a false impression about its own profitability by leveraging modern technology. Long Blockchain Corp was ultimately accused of deceiving investors and delisted from the Nasdaq stock exchange. In July 2021, the US Securities and Exchange Commission charged three individuals with

insider trading on allegations that they bought shares in the company ahead of the bogus name change. As tech companies continue to attract multibillion-pound valuations, and buzzwords such as artificial intelligence (AI) and blockchain gild the surface of marketing campaigns and business plans, investors must be on their guard for the signs and dangers of techwashing.

IN THE HEADLINES For Clark, who has decades of experience implementing digital transformation within organisations, the logic behind techwashing is clear: tech firms are more attractive to investors. “If you are a tech-enabled business, you should be more efficient and more effective, and generate more profits and higher exits,” he says. Healthtech company Theranos, for example, raised more than $700m in

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investment and achieved a $10bn valuation before false claims about its blood-testing technology were exposed. Theranos founder Elizabeth Holmes was convicted of defrauding investors in January this year. Another example is WeWork. When the co-working-space provider attempted to go public, it was valued at $47bn. Its CEO, Adam Neumann, talked up the company’s tech credentials. But because of concerns over its business model, WeWork’s IPO failed, its value dropped to $10bn and Neumann resigned. According to a recent Harvard Business Review article, academics argue that WeWork fails to meet any of the qualifications that enable a tech company such as Uber or Amazon to achieve exponential growth and profits. These include a scalable virtual model that can be grown with little additional cost, ecosystems that boost expansion (think Uber’s use of its platform to introduce Uber Eats), and minimal physical assets such as land and property. But techwashing isn’t always nefarious and there’s a fine line between puff advertising and fraud. “In today’s everincreasing competitive market, companies dressing up legacy software to make it seem more innovative are becoming more prevalent,” explains Simon Florance, Counsel in Carey Olsen’s Guernsey dispute resolution and litigation team. When companies use trendy labels to make what they do sound more innovative, that’s techwashing, he adds. But when firms such as Theranos make claims that go beyond the capability of their existing tech, that’s a more sinister fraud. What drives companies into techwashing, says Florance, is the prevalence of technology and the competitive, unregulated environment of the tech industry. “You have start-ups and SMEs competing for clients and investors in an industry dominated by mega-giants such as

Amazon, Apple and Microsoft,” he says. “As the pie is a lot smaller than it once was, people are scrambling for a bite of it, and you don’t always have the oversight of regulators in relation to the technology that companies are selling.” Clark argues that the impact of the Covid pandemic and the shift to remote working has been the likely cause of even greater techwashing. “Companies may be innocent but unconsciously incompetent. There’s a perception that if you work remotely and use Zoom and Teams, you’ve gone through digital transformation.” That, Clark explains, does not constitute a tech business. Implementing digital transformation, he says, isn’t a tick-box activity, but something holistic, constant and requiring significant investment. The Government of Jersey, for example, is spending more than £60m upgrading its digital systems.

TECH CREDENTIALS To recognise techwashing, investors must first establish whether a company is fundamentally a tech business – one that builds the technology itself – or a techenabled business, which doesn’t create technology but uses it in an innovative way. Tech businesses are techwashing if they misrepresent their own product. To identify whether tech-enabled companies are techwashing or not, Clark points to the balance sheet. When doing due diligence, he says, investors should look for markers of longterm investment in three areas: people, technology infrastructure and security. “The first red flag is if there’s been no investment in training or engaging staff, because you can’t do digital transformation without driving cultural change,” he says. “Then, if an organisation hasn’t invested in its IT or cyber security, alarm bells should be ringing.”

Five things ‘real’ tech companies have in common 1. Low variable costs Scalable virtual models that can be grown with little additional cost 2. Low capital investments Tech firms are asset light because of low requirements for land, buildings and warehouses 3. A lot of customer data and customer intimacy Data enables targeted ads and the sale of tailormade products 4. Network effects The bigger the network, the more valuable the company 5. Ecosystems that boost expansion with little cost Tech firms leverage what they know about their customers’ tastes and preferences to deliver more services. Source: Harvard Business Review

With a tech-enabled business, investors should expect to see a correlation between these investments and productivity and profitability. If those indicators aren’t visible, you may have a case of techwashing. Martin Keelagher, CEO of Agile Automations, which provides AIdriven automation services to financial organisations, recognises that the phenomenon is a challenge for investors without a tech background. “The reality is that techwashing can be seen in some of the largest listings of late as businesses attempt to increase valuations and align themselves with other high-growth propositions in the sector,” he says.

Famous tech disputes

WeWork WeWork promoted itself as an innovative tech firm in the lead-up to its failed IPO, but the co-working-space provider fails to meet the core qualifications for a tech company.

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Theranos Theranos lied about the capabilities of its blood-testing technology, ultimately defrauding investors out of millions of dollars.

Deliveroo Deliveroo listed itself as a tech stock when it went public, but the food delivery firm’s app-based logistics technology isn’t unique, nor is it created in-house. A disastrous IPO saw Deliveroo shares slump by 30%.

Tesla Tesla says it develops advanced AI, but experts claim the carmaker simply adds smart elements to existing pieces of software to make them AI-enabled. The tech looks trendy, but at its core is an established technology that’s not unique to Tesla, critics claim.

Meta In a case of reversetechwashing, Meta has been accused of saying its technology doesn’t do something that is actually does, playing down how powerful its algorithms are in connecting customer data.

June/July 2022 37

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Images: Matt Rakowski, mundissima, nrqemi, skarim, Blue Planet Studio / Shutterstock.com

Technology

Q&A Shelley de Klerk, Associate, Appleby Shelley de Klerk is an Associate in Appleby’s Corporate and Dispute Resolution team in Guernsey. She’s worked on commercial disputes covering administrative, commercial, banking and data privacy issues and supported multinational companies, focusing on data protection, commercial contracting, cyber and TMT law. How is techwashing allowed to happen? Tech advancement has two drastically opposing parts. The technical side is made up of objective certainties, but practical implementation is filled with vague, subjective interpretations. Whereas one entity might consider tech capability to be the latest version of a messaging app, its rival could interpret it as investment in a purpose-built, powerful platform running algorithms to improve efficiency and reduce cost. Where there is a grey area, there is space to fib. What questions should investors ask before investing in a tech firm? You need to look at what they’re actually producing. Where do they hold their intellectual property? Who is building it? What market are they aiming for and do they operate efficiently in that market? For techenabled businesses, ask: are profit-generating functions supported by technology? How exactly is that technology used? What is the tech strategy for business-critical operations? How often does the business review its tech standing in the market and update it? How regularly and efficiently does it test its tech security? Where’s the documented budget for tech and innovation? How regularly does it assess its practices against best industry standard? If a company uses buzzwords but has no clearly documented continuous culture to understand and stay on top of technology, and there’s no indication in the budgets and financials that the company is doing so, the chances of techwashing go through the roof. Can investors protect themselves against techwashing? The number-one general protection is to do your homework, dig past the marketing jargon and find the objective certainties behind the prospectus. Some protections are found in regulation, and limited relief can be found in traditional legal remedies. But these were not designed with techwashing in mind – there are no express legal protections against techwashing specifically. Practically, investors’ best legal protections are found in the fine print. Most protection comes down to clauses governing dispute resolution, warranties, indemnities, liability, insurance, representations and undertakings. Given the nature of tech, the chance of something going wrong is high. Many investors don’t pay enough attention to tech, cyber and data protection in their due diligence and are taken in by sales language, agreeing to terms (warranty and liability clauses) that don’t cover them effectively for harm arising out of techwashing, data and cyber security breaches, as well as the related reputational harm. What’s the most common misconception about techwashing? Techwashing can also be about saying technology doesn’t do something it actually does – potentially a bigger issue. Governments in unregulated nations use fancy tech such as tracking bracelets to monitor the spread of Covid-19 but, ultimately, the data is used for more than that. It can be difficult or even impossible for the average person to know what’s really happening with their data. People can unknowingly give up their liberties, without due consideration, simply by using the latest tech.

38 June/July 2022

Keelagher recommends investors work with specialist investment teams who have a knowledge of the tech industry, as well as getting independent advice from third parties. Investors can use tech to fight techwashing, Keelagher explains. “AI tools can look at a sector, analyse the available data, create a benchmark and, by spotting a deviation from the norm in an investment proposition, assess the likelihood that the proposed data is accurate or not.” Although AI is only as effective as the data it pulls in, quantitative investing – using analytics and computer modelling to construct investment portfolios – can be especially useful when it comes to techwashing. “It’s not fool-proof, but it’s an objective way of approaching investing, which relies less on your personal reaction to companies that big-up a product,” Florance says. “As AI gets more sophisticated, it will do this investigatory work at lightening speed and offer greater protection.”

LEGAL PROTECTION There are legal protections for investors, regulation covering funds and advisers, warranties, and insurance on transactions. Certifications – ISO 27001, an international standard related to data security, or ISO 9001, focused on quality management – can provide a level of reassurance. However, to wipe out techwashing completely will be a challenge. In extreme cases, investors lose millions. Where ‘light’ techwashing occurs, Clark explains, more investment is often required to develop the organisation’s technology. Even when an investment opportunity is rejected, the cost of due diligence alone is substantial. “That’s where money is lost that could impact the performance of a fund, but it’s seen as opportunity cost and likely wouldn’t end in litigation,” Clark notes. One solution would be to fully regulate the tech sector. “But that would be a massive undertaking by governments worldwide and difficult to draft given how fast technology is evolving,” Florance argues. “Tech by its nature is multi-jurisdictional and that makes it very difficult to regulate. With techwashing – like fraud – it’s difficult to introduce rules that cover all possible scenarios. And once you do, you always have people trying to work around them.” Investors can take steps to recognise signs of techwashing, but some form of ‘washing’— whether it’s greenwashing, cloudwashing or techwashing – is here to stay. “Investors are always looking for the next big thing,” Keelagher explains. “If you’re a business looking to secure an investment, how do you stand out in a crowded market? You simply throw in the buzzwords of the moment.” n

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Reimagining your workspace Emma Baker, Advocate at BCR Law, on the impact of changing working practices THE 2020S HAVE been transformational for office work. A proportion of the workforce still find themselves working at home at least some of the week, while others have fully embraced the return to office life. This shift towards a more hybrid way of working has resulted in many employers embracing imaginative ways to reinvent their workspaces, with a focus on employees’ health, wellbeing, satisfaction and performance. Here, we set out some of the questions we have recently been asked when advising landlord clients about the steps they should take before allowing a tenant to make changes to office space. My tenant has asked to make alterations to their office space. What do I do? The first step is to check the lease to see what the tenant is entitled to do and the extent of your obligations. Typical wording will provide an absolute bar on alterations; permit alterations subject to your consent; or permit alterations subject to your consent, which cannot be unreasonably withheld or delayed. The majority of leases will allow a tenant to make non-structural alterations with your consent. A Licence for Alterations formally documents your consent and the extent of the proposed works. Whether or not one is necessary will depend on how much work the tenant is proposing to carry out, as well as what the lease itself says. Why do I need a Licence for Alterations? As the landlord, your primary aim is to ensure the works are carried out to an

adequate standard and that the rest of the building is safeguarded (if the tenant is only renting part of your building). A Licence for Alterations expressly obliges the tenant to carry out its proposed works in a particular manner. A breach of a Licence for Alterations is effectively a breach of the lease. What should a Licence for Alterations contain? It should contain the following: • A description of the proposed works Plans and specifications should be requested from the tenant. You should ensure the plans/specifications do accurately represent the work the tenant will carry out. • A timescale to start and complete the works You don’t want the works to take an unreasonably long length of time but any timescale should be realistic. A three-month or six-month window to begin with is about right. • The tenant’s obligations before the works are carried out Before the works start, you should have the tenant seek consent from the building insurer and obtain any other consents, such as planning permission or building regulations. • The tenant’s obligations during the works You will want to ensure that the works are carried out correctly. There will usually be obligations for the works to be carried out in accordance with the agreed plans/specification; all relevant statutes and laws; good and workmanlike procedures; as well as good building practice.

• The tenant’s obligations after the works The tenant should be asked to provide written notice of completion and, depending on the nature and extent of the works, as built drawings. • A reinstatement clause Before approving any alterations, you should be clear as to whether or not the tenant will be required to return the premises to how they were prior to the works being carried out when their lease expires. The tenant may be required to do so automatically or upon receipt of notice from you to do so. • An acknowledgement about future rent reviews The tenant will want to avoid paying a higher rent on a future market rent review if the increase has come about due to works it has carried out. There is usually an acknowledgment in the licence that any effect on the rent will be disregarded for the purposes of rent review. • A costs clause A lease typically requires the tenant to cover your legal and professional costs in the preparation, negotiation and completion of the licence. Provisions can also be included to cover any costs you incur in connection with inspecting or monitoring the works. In cases involving substantial structural works, you may also consider requesting security from the tenant, allowing you to either complete the works or remove the works and reinstate the premises, should the tenant fail to complete the works for any reason.

HOW WE CAN HELP Our Property team at BCR Law works closely with a number of prominent local landlords, managing companies and developers, advising on a range of commercial property matters, including the sale, purchase and lease of land, development, investment and leasehold management. n

FURTHER INFORMATION

This article does not constitute legal advice. For advice or further information, please contact Emma Baker, Advocate, BCR Law. Tel: +44 (0) 1534 760 868 Email: emma.baker@bcrlawllp.com

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June/July 2022 39

Sector growth

Rising to the challenge With the cost of living increasing dramatically, there is concern that people may leave expensive places to live – such as the Channel Islands – taking with them the expertise and talent needed to protect the islands’ thriving financial sector. So has the Channel Islands financial sector peaked or is there still room for growth?

THE MOUNTING PRESSURE on household budgets is clear. More than four out of five adults in the UK have reported an increase in the cost of living since the turn of the year. The Russia/Ukraine conflict, escalating inflation – which has reached its highest level since 1992 – an ongoing energy crisis and spiralling food prices, all mean household budgets are under increasing pressure. For residents of the Channel Islands – which is consistently ranked by cost of living database Numbeo as being in the top 15 most expensive places to live in the world – the challenges are acute. In March, the Jersey Consumer Council (JCC) sent an open letter to the Chief Minister, Senator John Le Fondré, requesting temporary

40 June/July 2022

measures be put in place to help residents who are struggling to cope. In April, however, Senator Le Fondré rejected the JCC’s requests – a move that could have serious consequences not only for personal finances but also for the financial services industry, which relies on the people living in the islands. Jersey Finance reports that 13,500 people work in the financial sector, while 22% of Guernsey’s working population are engaged in financial or legal activities related to the sector. If it becomes unaffordable for people to live on the islands, a mass exodus would be catastrophic for financial services. Joe Moynihan, Chief Executive Officer at Jersey Finance, says: “From economic

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Words: Gill Wadsworth

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Sector growth

We make it our business to know your business We understand the opportunities and challenges for Jersey businesses in today’s fast-moving world. Our corporate team are locally focussed, commercially aware and provide clear, pragmatic and top quality legal advice in a friendly and cost-effective manner. If you have any questions on how we can support your business, please get in touch.

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Corporate Law

Sector growth

There will always be questions as to whether the industry is a force for good, moreso with recent sanctions of Russian interests

growth and employment to connectivity and community support, the finance industry makes a significant contribution to the prosperity and wellbeing of our island. Its value to Jersey is clear.” It is for this reason that in April, Jersey Finance published a manifesto – Working Together for a Better Future – setting out expectations for Jersey’s new Assembly, which came to power in June, and demanding it protects and enhances the financial sector (see boxout overleaf).

ATTRACT AND RETAIN Guarin Clayton, Client Services Director at private wealth company FCM, welcomes the Jersey Finance initiative, adding that the islands have long faced a challenge in attracting and retaining the right people to service the financial sector. “It is a perennial problem, just as it was when I came to the islands in 1988,” he says. “Primarily, you need an extensive and capable well-educated workforce with the ability to earn enough to live here. The educational needs of those anticipating

working in financial services, or indeed those already in the industry, is key.” David Bailey, Chief Operating Officer of RBC Wealth Management, accepts that managing the cost of living presents challenges for the financial sector, but believes the story is the same in most western democracies. “Is the cost of living a problem in Jersey? Absolutely. It is also a problem in Guernsey – but that is the same for almost every Western developed society,” he says. “We see time and again people who have moved away from the Channel Islands because they want to build a career elsewhere, returning when they are making a decision about family life. It is at this point that the Channel Islands become attractive again.” Gail McCourt, Head of Private Client Fiduciary Services, also at RBC Wealth Management, adds that the Channel Islands is “lucky in terms of the skill sets and the talent pool”. She notes that policymakers have supported local schools in nurturing the appropriate talent to ensure a good supply of human resource to Jersey’s and Guernsey’s financial sector. However, according to Jersey Finance, “home-grown talent will not always fill market gaps, or in the numbers needed, and that migration allows for fresh ideas and diversity”. As a result, the organisation says the incoming Assembly must “ensure the ongoing supply-demand dialogue with the industry to understand talent shortages and requirements and allow employers to access and relocate to the island specialist expertise that complements local skills”.

BUILDING A REPUTATION

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If the Channel Islands is to secure its position as a centre of growth for financial services, it will need to build on its reputation as a secure, stable and safe place to do business. However, Clayton warns of the need to balance a well-regulated infrastructure – which comes at a cost – with the risk of losing business to cheaper and less reputable jurisdictions. He points out: “A concern would be if the Channel Islands were priced out of the market. The cost of doing business here and the maintenance of top-tier status is a huge pricing factor. “The reputation of Channel Islands services is paramount and there will always be questions as to whether the industry is a force for good, moreso with recent sanctions relating to Russian clients and their interests. How is that perceived, and does it outweigh the considerable good that comes of a well-regulated industry?” For some entities, a robust reputation is a significant motivational factor for locating to the islands.

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June/July 2022 43

Sector growth

The islands have shifted their USP from an offshore jurisdiction known for secrecy to one renowned for transparency and regulation

How policymakers can protect the financial sector Jersey Finance’s Working Together for a Better Future manifesto sets out the following expectations of policymakers: • Driving vital innovation • Making the right connections • Taking a clear path to sustainability • Projecting a positive image • Providing stability and certainty • Focusing on health and wellbeing • Supporting access to talent • Developing skills for the future • Maintaining the islands’ reputation as an award-winning jurisdiction • Working together on tax and transparency.

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Butterfield set up a banking office in Jersey in 2018 and is expanding its operations in Guernsey. Noel McLaughlin, Managing Director of Butterfield in Jersey, says: “We are pushing against the tide; as some banks are leaving, we see the Channel Islands as a premier finance centre that is well regulated and has a lot of stability.” This elevated level of regulation also influences the types of business and clients preferred by institutions operating out of the Channel Islands. Ed Shorrock, Director of the financial services compliance and regulation business at Kroll, says: “The future is ultra-highnet-worth individuals and family offices. We have seen a big shift towards business getting out of private wealth and instead focusing on corporates running pension funds. It can be too problematic to deal with the risk that sometimes comes from private wealth clients.” This adaptation, Shorrock says, is nothing new. He argues that there has long been a propensity for institutions on the islands to adapt to changing circumstances and shape their services accordingly. “One thing the Channel Islands is good at is having the ability to transform and adapt to whatever challenges they face. They have shifted their unique selling point from an offshore jurisdiction known for not sharing information and for secrecy, to one that is renowned for high levels of transparency and regulation.” Clayton agrees, noting that trust businesses rethought their structures in the wake of legislative change. “There isn’t a particular area in [financial services] that doesn’t have a sustainable future,” he says. “For decades trust structures minded to invest in UK residential property typically established an underlying company to hold such property and yet legislative developments in recent years virtually changed that overnight. Many predicated

a rapid decline as a consequence, but the industry approach was to adapt.” Shorrock notes that the islands are also a breeding ground for private equity and fintech companies. “They have been able to use a low cost base and attract business,” he says. “But equally they’ve not needed a large footprint – those start-ups were quite successful at leveraging technology.”

DIGITAL TRANSFORMATION Despite that, for tech-focused financial companies to continue to set up shop on the islands, Jersey Finance says there must be a growth in digital services and expertise to support them. “Jersey is a jurisdiction of choice, not necessity. Our ability to stay connected and remain ahead depends on the Assembly’s commitment to both investing in technology and innovation, and enabling the environment to facilitate it, as well as demonstrating courage and openmindedness,” the manifesto states. Clayton says Jersey is already able to demonstrate its digital expertise and that the response during the global pandemic, when so many companies were forced to switch to homeworking, was positive. “From cyber security to platform connectivity, to infrastructure and beyond, without that and the resources and commitment to develop, Jersey’s status would diminish,” he says. “When you look at the workingfrom-home directions and guidance imposed throughout the pandemic, it was remarkable how the finance industry adapted, from a Channel Islands perspective, and the industry remains the force that it is.” RBC’s McCourt agrees that Jersey is embracing digital innovation, noting that the jurisdiction had the world’s fastest internet speed in 2021. “While we’re not Silicon Valley, we are uniquely placed to be very agile and nimble in terms of how agencies work together across the digital space,” she says. “We meet some interesting and inspirational entrepreneurial individuals who could be anywhere in the world, but they’ve chosen to be here. “It’s important that the community in Jersey listens to them, uses their insights and thinks about how we can connect with them as we move forward.” At the time of writing, Jersey voters were heading to the polls to select a new Assembly. While it appears the winning party will inherit a thriving rather than declining financial services sector, it will be incumbent upon them to continue driving the industry forward. As Jersey Finance says: “With an Assembly that provides the right support, Jersey’s reputation as one of the world’s most stable and successful IFCs will stand firm for decades to come.” n

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Jersey introduces taxation for enveloped property transactions Katharine Marshall, Partner, Property Law, at Ogier, explains the significance of the closing of a property loophole HISTORICALLY, THE PURCHASE of immovable property located in Jersey through the acquisition of the share capital of a property-owning company (wherever domiciled) was exempt from stamp duty. However, the States of Jersey recently implemented legislation to impose a tax equivalent to stamp duty on such a sale, effectively closing the loophole. Other jurisdictions had previously taken similar steps. The UK introduced its Annual Tax on Enveloped Dwellings (ATED) on 1 April 2013 for properties worth more than £2m. Since then, the threshold has been steadily reduced and the tax now applies to all property worth more than £500,000. Guernsey introduced such a measure back in November 2017 in a law that reflects much of the same language as that now in force in Jersey. On 8 February 2022, Jersey adopted the Taxation (Enveloped Property Transactions) (Jersey) 2022 law, which came into effect on 4 April. While a number of limited exemptions are included, virtually all sales of propertyholding companies are now subject to tax. The issue, transfer or redemption of units in a collective investment fund as defined in Article 3 of the Income Tax (Jersey) Law 1961 are excluded transactions under the law, as is the transfer of shares from a nominee to the beneficial owner of the company or to another nominee holding for their beneficial owner. All non-excluded “relevant” transactions involving Jersey property, whether commercial or residential, that is owned by or let under a contract lease (a lease for a term of more than nine years registered before the Royal Court of Jersey) are subject to the new law. The law defines a “relevant transaction” as a transfer to a person of a significant interest (more than 50%) in an entity (generally, this will be the acquisition of shares in a company or of a beneficial

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interest in any other body or company), which owns enveloped property in Jersey. This will only apply where the market value of the enveloped property exceeds: • £500,000 in the case of domestic properties • £700,000 in the case of non-domestic properties. The law provides that the Minister for Treasury and Resources may make an order to change these thresholds as required. The market value of a contract lease will be determined by multiplying the annual rental (or market rent where a nominal rent is paid) payable under the lease by the number of years remaining in the term of the lease at the time of the transaction (capped at 21 years). There are three different rates – one for domestic properties, one for nondomestic properties, and one for leasehold properties. The rates are calculated on a sliding scale depending on the market value for the enveloped property. In all cases, there will be an additional £80 registration fee payable on top of the calculated rate. Where the law applies, the person who acquires the significant interest as a result

of the “relevant transaction” has 28 days to deliver a statement containing details of the transaction and attesting to the accuracy of the statement. This is similar to current law relating to land transaction tax. The owner of the enveloped property subject to the “relevant transaction”, if it is registered or established or has a place of business in Jersey, must deliver a similar statement to the Comptroller within 28 days of the transaction unless the acquiring entity has already delivered such a statement. Late payments incur a surcharge of 10%. Failure to deliver a statement as required can incur a penalty of up to £3,000. If a person delivers a statement and/or supporting documents that it knows to be false or misleading, then they can be liable for imprisonment for 12 months and to a fine of level three on the standard scale. n

FURTHER INFORMATION

For more information about the proposed new law or its implications, please contact any member of the Ogier commercial property team.

June/July 2022 45

Investing

D-A-O-verload?

The parallel rise of digital investing and crowdsourcing has fuelled the growth of DAO s – the coming together of a community to raise money for a high-value purchase or investment. But are DAO s really democratising the market or is it a short-term fad?

Words: Alexander Garrett

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BACK IN 2016, a group of software

developers got together and created the DAO – a decentralised autonomous organisation. The idea was simple: it would provide a kind of venture capital fund in which investors around the world would be able to stake their Ethereum cryptocurrency tokens and then vote on potential investment projects, making collective decisions through an automated system. The idea quickly caught imaginations and raised a staggering $150m from a crowdfunding campaign. But then things took a wrong turn. Hackers exploited a vulnerability in the project’s open-source code and siphoned off a third of its funds. Although action was quickly taken to recover most of that money, the DAO itself didn’t recover. Nevertheless, the idea certainly did, and there’s growing interest in DAOs as a generic concept around the world.

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Investing

Last year, a group calling itself Constitution DAO came together to buy one of the original copies of the United States Constitution at an auction at Sotheby’s. The group raised $47m of cryptocurrency in a few days and, although it was pipped to the prize at auction, the group’s ability to raise such funds demonstrates its pulling power. Meanwhile, PleasrDAO pooled funds to buy the only existing copy of the album Once Upon a Time in Shaolin by the Wu-Tang Clan for $4m, which it added to a portfolio of other rare collectables, including the original Doge NFT (nonfungible token). The Doge meme depicted a Shiba Inu dog called Kabosu and inspired the cryptocurrency dogecoin – just in case you haven’t been paying attention. For some, DAOs are a kind of investment club with smart software – known as the smart contract – attached, which is used

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to govern the way decisions are made. Members buy their stake with cryptocurrency, usually Ethereum, which grants them crypto tokens that enable them to vote, and all decisions and transactions are recorded on the blockchain.

GROUP THINKING In fact, DAOs are not always about financial investment, points out Rupert Morris, Partner at Guernsey legal firm Walkers. “The key thing is the decentralised nature,” he explains. “They are founded on democratic principles, which is a kind of mission statement. And they are often started by a small group of people who have a specific project in mind. “But that could be to help build protocols, to promote a particular title or to create a game. And it effectively creates a mechanism to reward people for their participation.”

One non-financial example is the Water DAO, which is dedicated to bringing clean drinking water to more than 50 million people in the next 10 years. The HerStory DAO, meanwhile, collects and funds projects by black women and non-binary artists. Another, called the FriendsWithBenefits DAO, is effectively a big social club that throws parties and events. Much of the interest in DAOs, though, does focus on money-making opportunities of one sort or another. Earlier this year, one such group, the Terra DAO, partnered with the Washington Nationals baseball team in a five-year $38.1m deal that includes: a sponsorship package; the rebranding of the Nationals Club to Terra Club; a digital series for the club’s social media platforms; and plans to enable the DAO’s proprietary coin, TerraUSD (UST), to be used throughout

June/July 2022 47

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For some, DAO s are a kind of investment club with smart software used to govern the way decisions are made

Investing executives, which is incompatible with the spirit of DAOs. The US state of Wyoming has perhaps gone furthest down this road. It passed legislation allowing DAOs to incorporate in the state and be founded as limited liability companies (LLCs). This approach is designed to dispel some of the doubts regarding the legal responsibility of DAOs.

CALL FOR TRANSPARENCY

Nationals Park, home stadium of the Nationals. Walkers was brought in to advise on the creation of a Guernsey Purpose Trust that could be used to carry out transactions in the real world. As Morris explains: “A DAO is really a group of people who come together through an agreed set of governance principles, but it doesn’t have a legal personality in its own right. “Some are centred around an entity such as a foundation company, but others aren’t. In that case, the purpose trust sits alongside the DAO and allows the trustees to execute projects in the real world.” That could be a question of buying and owning a piece of real estate or some intellectual property, for example.

GUERNSEY PURPOSE Tim Clipstone, Funds Partner at Ogier in Guernsey, also sees the Guernsey Purpose Trust as an ideal vehicle to ‘bridge the gap’ between the real and virtual worlds. “You just need a computer programme, a smart contract, a group of people who sign up to some contractual terms to do something in a certain way, and you can operate really well on that basis,” he says. “But the problem comes with how you hold assets. A contract is not an entity, it’s simply an agreement to do something.” In time, Clipstone believes that ‘legal personality’ may become enshrined in the DAO itself. “There’s clearly a potential there to create a new legal structure, called a DAO, that gives some element of legal personality,

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One of the key questions is how DAO s can be compatible with anti-money laundering legislation

such as a structure that enables it to do things in its own name, and hold things in its own name – and, of course, even to be sued in its own name.” Like most jurisdictions, Guernsey’s Financial Services Commission is looking at virtual assets and how Virtual Asset Service Providers (VASPs) could be licensed and regulated in future, with some expecting a new regime to be in place by the end of the year. Some have already provided limited recognition to DAOs. In Switzerland, the canton of Zug, for example, has reportedly initiated the use of DAOs for voting on municipal matters. Meanwhile, Malta has become the first country to legalise DAOs – although critics point out that its legislation places too much responsibility on individual

Nevertheless, doubts about DAOs remain. One of the key questions is how they can be compatible with anti-money laundering (AML) legislation, if there is no legal entity and the individuals who are members and owners of the DAO are anonymous. “That’s exactly what the VASPs regulations will be looking at,” says Clipstone. “The way that you trade virtual assets is different to the way you trade non-virtual assets. “When you have a devolved ownership structure with no entity controlling ownership – so there’s no board of directors controlling it, and no general partner controlling who the limited partners are – how do you know who actually owns these things?” A huge amount of transparency will be required to make DAOs acceptable to regulators, he believes. A separate issue is that of the risk that individual investors take when participating in a DAO. Everyone who does so has to take responsibility for making decisions, as there is no executive to delegate that role to. As Clipstone puts it: “What you’re doing is taking away the whole agency, the concept of the board of directors and their delegation of obligation. And you’re also taking away the whole fiduciary obligations of the board.” In some cases, this can go spectacularly wrong. In January, a group called Spice DAO announced that it had paid €2.6m to buy a rare art book by Alexander Jodorowsky called Dune, about his attempts to make a film of the sci-fi classic Dune back in 1974. The members of the DAO intended to convert the book into NFTs, burn the physical copy, and adapt the story into an animated series. But what they didn’t realise was that they hadn’t bought any copyright, just a single book. Rupert Morris says it is still early days for DAOs, and although it is hard to see exactly how they will evolve, there is an exciting future ahead as people turn increasingly to digital assets. “I think there’s a great chance to make Guernsey and Jersey real centres of excellence for this type of work,” says Morris. “One of the great sellers for these islands is the fact that we have a goldplated regulatory regime.” n

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Why managing cyber security risks is essential for financial services companies Paul Acton, Chief Business Officer at Sure, on the bespoke challenges facing the financial sector THE BOARDROOM IS where cyber security risks are now on the agenda due to the importance of protecting client information, regulatory compliance and the risk of reputational damage. As a result, it’s been quite some time since cyber security was a concern solely for IT departments. In fact, every business professional needs to be aware of the extensive risk factors that come with operating in an increasingly digital world. For the Crown Dependencies’ thriving financial services industry, hackers and other cyber criminals remain a persistent threat to the security of personal and corporate data, sensitive financial information and other digital assets. Fortunately, Sure Business offers financial services clients a bespoke cyber security service built on three core tenants.

AN IT SOLUTION PARTNER YOU CAN TRUST WITH YOUR DATA The financial services sector has historically been reluctant to move away from on-premises, in-house technology platforms to run its cyber security protection. However, the evolving practices of cyber criminals have seen companies in the industry recognise the value of specialist, external support when it comes to a matter as serious and complex as cyber security. Sure Business works as a partner for many clients, keeping their data safe and secure, protected by a robust infrastructure that is unmatched within the Crown Dependencies. Sure maintains advanced local data centres and offshore private and public cloud platforms to ensure that corporate data is kept in the most secure environment possible.

A RANGE OF SOLUTIONS Data has found that 75% of cyber security attacks start via email, as cyber criminals have grown smarter in their efforts to outwit products designed to stop them in their tracks. Leveraging the lack of knowledge of an unsuspecting financial services worker has become an increasingly prolific tactic for

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Sure Business also provides a range of modern workplace solutions, such as Microsoft Teams and Archive for Microsoft Teams, which enable regulatory compliance. The Microsoft Teams platform is particularly useful for financial services clients, because it allows firms to see a complete back-up of chat history and other data within the service, meaning any vital lost information can be quickly restored or revisited.

A KNOWLEDGEABLE TEAM OF CYBER SECURITY EXPERTS

We ensure clients’ data, which may be in various international locations, remains safe and secure

cyber criminals, so appropriate defences must be in place to protect the individual and the business. That’s why Sure Business recommends that financial services clients of all sizes use our Mimecast suite of products and solutions. Mimecast is a leading cyber security provider that we work closely with. The business uses multiple detection engines, innovative applications and intelligence feeds to protect clients against malware, phishing, ransomware, malicious URLs and data leaks.

Sure Business prides itself on its highly engaged professional team, each with diverse skills to cater to the various needs of our clients. That is why we often recruit IT experts with a background in financial services, to ensure that our team knows exactly what our clients need and how to deliver the best bespoke service possible. Our team recognises the need for extensive support that doesn’t stop at the Crown Dependencies: we ensure that clients’ data, which may be in various international locations, remains safe and secure. Members of our professional services team offer accredited skills across a broad range of technologies – from cloud and modern workplace solutions to cyber security. All of these are underpinned by our 24/7 Managed Service capability, offering our clients an unmatched end-to-end service perfectly catered to meet the vast needs of the islands’ many businesses. We at Sure Business recognise the immense value the financial services sector brings to our island economy, and we’re proud to offer a full range of ICT services to enable them to continue to work safely and productively. n

FURTHER INFORMATION

Get in touch today to see how we can help your business. Email: contactus@sure.com

June/July 2022 49

Investment strategies

Investors and fund managers are increasingly looking to hybrid funds as a route to stability, liquidity and higher yields in these times of economic uncertainty

Liquid gold? Words: David Stirling

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arising from the pandemic and the war in Ukraine is helping drive investor interest in one particular investment strategy – hybrid alternative asset funds. Amid the uncertain outlook and the growing external pressures, hybrid funds – which are a combination of hedge funds and private equity – are providing investors with the stability they need during these times of crisis. Mirek Gruna, IQ-EQ’s Chief Commercial Officer for Jersey, says “going hybrid” with a mix of liquid and illiquid investments can offer the “best of both worlds” for institutional investors previously glued to separate investment vehicles for each strategy. Investing solely in closed-ended private equity (PE) funds locks up these investors’ capital for the long term. However, through a hybrid structure – either open or partially open-ended – investors can redeem (take out their capital) or add more cash at specified intervals. For an open-ended investor, the attraction of gaining more exposure to traditionally higher-return PE funds and more deal-hungry businesses postpandemic is also obvious. Equally, hedge fund-focused managers can be less exposed to potentially disorderly redemption rates by investing in more illiquid assets. “Hybrid funds started their rise in the 2008 financial crisis, as the chase for yields increased. When the macro situation gets tougher, as we are seeing now postpandemic and with the Ukraine war, PE investors get more open-minded about hybrid funds,” says Gruna. “They want something they can liquidate without being locked up for a number of years.”

Indeed, a key driver behind the rise of hybrid funds is investors wanting access to the higher risk-adjusted returns generated by private market assets in a time of inflation, rising interest rates and the less attractive fixed bond market. Managers of open-ended and closedended funds have also continued to turn to hybrid funds as a way of tapping into a growing investor base looking for more diversity and flexibility than hedge or private equity funds can offer by themselves. “When I first started seeing the hedge fund and PE combination back in 2005, it was often driven by hedge fund strategies that had topped out,” explains Tim Clipstone, Partner at Ogier in Guernsey. “They had reached maximum capacity but had more people wanting to invest with them. If they wanted to carry on raising money, an option was to go into less liquid investments. Managers want to provide the liquidity of open-ended funds and the longer-term higher returns you get from PE. “We could be seeing those factors arise again, especially with a limited pool of closed-ended assets on the market. Perhaps a hybrid combination makes sense again as a deliberate strategy.”

ADDED FLEXIBILITY In terms of flexibility, Gruna says hybrid funds also offer customised risk exposure, varying liquidity and a range of fee terms that can be adjusted to meet investor needs and the pool of available investors. Fund managers also benefit from this flexibility, being able to “customise their products and better align with the fund’s underlying investments and their LPs’ preferences”, he says.

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ECONOMIC AND SOCIAL uncertainty

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Investment strategies

PE investors are more open-minded about hybrid funds. They want something they can liquidate without being locked up for years

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June/July 2022 51

Investment strategies

With hybrids, striking a reliable and accurate monthly NAV can be an arduous undertaking

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Despite this rising trend, there are challenges. Having a hybrid fund means holding different types of assets with their differing fee structures and custodians. That in turn means complexity and calls for a level of expertise needed to manage them that is not often found in open-ended or closed-ended focused fund managers. Hedge fund managers, for example, need to be au fait with how to value PE investments and assets, while PE fund managers will have to get used to the trading of listed assets. The managers must also comply with the additional accounting and reporting requirements of the different investments, while still consolidating at the fund or portfolio level. In a report for the Alternative Investment Management Association (AIMA) last March, Ian Holden, Head of European Hedge Fund Services at fund administrator SS&C, wrote: “With a mix of publicly listed securities and private, illiquid or hard-to-value assets, hybrids entail complex accounting methods. “Striking a reliable and accurate monthly NAV can be an arduous undertaking. Investor accounting and profit and loss allocations are also more complex than with a straightforward hedge or private equity fund.” Clipstone believes there are inherent conflicts in a hybrid fund. “You can see the attraction of a hybrid fund. You can redeem your cash out if you don’t like the change in strategy or direction,” he says. “But how do you give people the chance to realise their liquid assets without causing such a run on the fund that you have to also realise those longer-term and higherreturn PE investments?”

IQ-EQ’s Gruna agrees, warning that matching cash flows from new and existing investors with underlying cash flows from investments can be a “delicate operation”. One answer to that delicate challenge is to ensure that distribution options can be tailored to the liquidity profiles of the underlying investments. In addition, Gruna says, expenses and fund overheads must be carefully allocated between different classes, side pockets and entities. As an example, costs attached to specific portfolios should be allocated only to participating investors. All allocations must be clearly documented.

USE OF SIDE POCKETS Clipstone expands on the potential benefits of side pockets. “Side pockets – or designated investments – in the structure mean that some of the return would be locked up and you limit your redemptions to the liquid portion,” he says. “You could also limit redemptions to 50% of the holdings. There are many ways to skin it by creating separate cells within the same entity.” These side pockets would hold illiquid or hard-to-value assets. It has been reported that they could be abused by fund managers hiving off their poorly performing assets to make the overall performance of the fund look better. But others believe it is a fair solution to having illiquid assets in a supposedly liquid fund.

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Investment strategies

What is a hybrid fund? Hybrid funds are investment vehicles that include attributes of more than one asset class or fund structure – for example, hedge funds, private equity, real estate and infrastructure. Hedge funds combined with private equity is one option finding favour with investors. The main advantage is that they combine liquid and illiquid investments, offering investors access to returns of alternative investments combined with the liquidity of listed instruments.

Gruna says the complexity around these funds is why many fund managers are looking to Jersey and Guernsey for structural solutions. “It needs fund administration expertise to get these funds right. It needs strong administration and auditing, and a rigorous reporting environment. You need expert legal advice and tax advisers,” he states. “The Channel Islands gives fund managers a good opportunity to structure these funds well. Such funds fit the excellent compliance and regulatory environment here.” What they are probably not willing to give a green light to are hybrid funds for retail investors. Clipstone says he has not seen such a fund and believes it is unlikely. “It would be quite difficult as these are specialist fund structures,” he explains. “The regulators in Guernsey and Jersey would have some difficulty saying yes to a retail hybrid strategy as they would want to categorise it as open-ended or closed-ended.”

HANDLING HYBRIDS Institutional investors, he argues, are big, tough and experienced enough to understand and live with the risks of a hybrid fund, as long as these are properly disclosed to them and the regulator. Indeed, the offering documents of these funds should be clear and concise, explaining how the funds work, the side pockets, fees, redemptions – and how the

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different classes will function together. With more traditional funds, interested investors can easily follow the performance of, say, Japanese equities or real-estate-focused vehicles before making a decision on whether it is right for them or not. But it can be hard for investors to track hedge funds in action in the same way. Industry analyst Preqin, according to a recent AIMA report, is tracking 186 hybrid funds and 261 hybrid hedge funds. This means they are classified as either PE or hedge fund depending on the strategy used or the previous experience and background of the manager. Even when invested in a hybrid fund, it can also be difficult to find the clarity that most investors take for granted nowadays. Gruna says hybrid fund managers need to respond to the increased expectations of service from investors resulting from the digital revolution. In short, they need real-time reporting technologies, which they are used to with their liquid investments, to also better keep track of their illiquid investments. “If you have an ETF fund, you can look up on your phone any time to see how it is performing. It is difficult to do that with a PE fund,” he says. “But investors are now demanding a similar user experience with hybrid funds. As long as providers can offer these AI-driven solutions on reporting and consolidation, then the rise of and appetite for hybrid funds will only increase.” n

Institutional investors are big, tough and experienced enough to understand and live with the risks of a hybrid fund

June/July 2022 53

Compliance and risk

Digital detectors As the world of financial services becomes increasingly digital, cyber criminals are raising their game. But could digitalisation of risk and compliance be the game-changer – as firms turn to tech to protect their businesses? Words: David Burrows

54 June/July 2022

ONE OF THE headline stories of the

pandemic period has been the role that technology has played as a huge enabler for consumers – ensuring they can continue to buy, sell and invest during periods of limited movement. But the pandemic hasn’t been the sole driver of technology’s advance – from internet banking to money transfers and playing global stock markets, technology has for a long time been driving consumer convenience, so all financial services can be accessed by the touch of a screen or click of a mouse. But there is a trade-off. Alongside the rise of technology, criminals have been working to exploit technology – and the entry points it creates – to devastating effect. According to a recent research paper from the House of Commons, Economic crime in the UK: A multi-billion pound problem, it is impossible to estimate the precise scale of economic crime in the UK. But it likely runs to tens or even hundreds of billions of pounds per year.

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Compliance and risk

TECH LEADS THE WAY The financial services sector is having to invest vast amounts of time and money to combat criminal activity and reduce risk. For most, that means an increased

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focus on digitisation in the risk and compliance process. Lindsay Fox, Managing Director, Platinum Compliance in Guernsey, says technology is not just a nice-to-have; it’s an essential game-changer. “One of the key areas of focus for risk and compliance functions now is ensuring sufficient evidence is held,” Fox says. “By using manual systems to undertake such functions, there is a risk that data will easily be deleted or lost for good. “For example, Excel spreadsheets are commonly used to undertake compliance monitoring programmes, which do not tend to provide an effective audit trail. Where technology is involved, this normally includes a full audit trail to provide an efficient record of changes.” Stuart Esslemont, Global Head of Compliance at Zedra, agrees that digitising compliance, either via bots or artificial intelligence (AI), is crucial for financial services companies. There is resistance from some companies to digitise, he says – because they don’t understand or trust the software being offered – but on the whole, most firms are well down the track in terms of investment and implementation. Technology is clearly growing in importance as a means of enhancing

Technology is not just a nice-to-have; it’s an essential game-changer

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The grim reality is that financial crime remains one of the key risks faced by both the financial services sector and society. So, is enough being invested in detection, prevention and deterrence capabilities? Martin Keelagher, Chief Executive Officer of Agile Automations, says it is hard to specify the amount of investment required by firms, but they must be alert to the complex nature of fraudsters’ ever-evolving activities. “It is a difficult sum to quantify,” he says. “But what I would say is that the level of prevention undertaken by an organisation, or indeed individual, should be both prudent and appropriate to the level of sophistication of the adversary.” As the incidents and sophistication of financial crime continue to escalate, Keelagher says governance and risk are perhaps the fastest growing areas within regulated services in the past decade. “The reality is that we will need to continue to invest in this essential area to keep pace with the criminals that continue to adapt their own processes and methods.”

June/July 2022 55

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Compliance and risk compliance. But Malin Nilsson, Managing Director of Kroll’s compliance and regulation division, says that to effectively gauge whether digitisation will be a gamechanger for risk and compliance, we need to take a step back and ask why regulatory failure occurs in firms in the first place. “Regulatory failure can typically be divided into two broad themes: cultural issues such as governance or risk awareness; and systems and procedural issues such as inadequate processes, non-adherence to such procedures, inadequate data and over-reliance on poor systems,” she says. “In our view, digitisation can assist with both of these – but care should be taken in viewing digitisation as the panacea to all regulatory woes.” She adds: “Can the client lifecycle be digitised and automated? Yes, of course it can. However, technology cannot create proper regulatory outcomes without proper adoption by the business. “Firms need to demonstrate to their regulators that there is embedding of compliance requirements in the technology solutions developed and a culture of compliance when using those solutions. “This means compliance must be involved in the technology development process to ensure it is compliant with regulatory requirements and also includes controls to help ensure that their requirements are met.”

BENEFITS OF CONSISTENCY Keelagher believes the benefits of digitisation are increasingly valued by businesses. “Automation has a huge role to play in enhancing risk, governance and compliance,” he says. “The ability to have a robotic workforce, strolling and analysing data 24 hours a day, every day, with the same consistency of approach and with human error removed, is incredibly powerful, and something we are continuing to see demand for.” A robotic workforce performs at the same level on a Monday morning at 9am as it does on a Friday at 5pm, he says – without mistakes and ambiguity. “This is also incredibly important from a regulator aspect, as they can take comfort that a consistency of approach is maintained throughout,” Keelagher adds. “Quality of training or indeed CPD doesn’t come into it. “In addition, it allows you to unleash the true potential of your workforce. Rather than having your risk and governance teams scanning data for anomalies, a bot is able to send them a simplified exception report to work through, making far better use of their time and skills and freeing them up to concentrate on cases that really require their knowledge and skills.” Despite the benefits of automation and digitalisation, Fox believes that caution

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should be exercised around just how ‘automated’ systems become – they should never fully replace human intervention. “The human element ensures a riskbased approach is taken along with the skills, knowledge and experience of the individual,” she says. “There is also a risk that fully automated technology will not quite deliver on expectations, so users must be cognisant of realistic targets.” No two businesses or clients are the same, Fox stresses, and they shouldn’t be treated as such. “Systems with a bespoke offering are key to providing the right requirements,” she says. “With the added pressure of personal liability through holding prescribed positions, coupled with the need to engage and build strong relationships with the board of directors and ensure effective governance, face-toface meetings will continue to play an important part, too.” Developing good relationships with regulators in different jurisdictions is also important, according to Esslemont at

Digitisation is a means to an end – it does not replace individuals’ responsibilities, but it should complement them

Zedra. “There are different regulatory expectations in different jurisdictions,” he says. “It might be lighter touch in the UK but different in Jersey, Guernsey or Malta. “Recently, we had to swiftly turn around a huge data request from the regulator in Malta. It was quite a challenge and digitisation was key to us being able to fulfil the request.”

CHALLENGES OF COMPLEXITY Digitising compliance and regtech ultimately needs individuals who understand both the expectations of a regulator as well as technical expertise to translate the process into an automated one. That brings its own challenges. Fox says it is of utmost importance not to reduce regulatory standards that are set by the regulator. However, one of the main challenges with technology is that it can be far too complex and uses algorithms that aren’t fully understood by the user. “Individuals in the governance, risk and compliance arena have different skill sets – and their knowledge, skills and experience are of utmost importance when automating a process,” she says. “Where systems are too structured and where they are not adaptable to the client, they can cause errors that are not always identified. She continues: “Imagine having to implement a manual monitoring programme just to monitor the technology itself, to ensure that it does what it is supposed to. That completely defeats the object of a platform.” Neil Goradia, Managing Director at Kroll’s data insights and forensics division, echoes the point around skill sets. “The alignment of appropriate stakeholders – compliance, technology, operations – with senior-management buy-in is key. “Such functions need to work together as a team, striving for a common goal. And firms should remember that digitisation is a means to an end – it does not replace individuals’ responsibilities. Rather, it should complement and support them.” n

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The

Knowledge Brain food for the busy business professional

The Knowledge is compiled by Alexander Garrett Rainbow nation

Moving on

Talking

points Driving change

A congestion charge is the most effective single measure to drive car use out of city centres, according to research from Lund University in Sweden. That’s followed by parking and traffic controls – such as car-free streets and bike lanes – and limited traffic zones, which restrict car access to certain times of the day. The congestion charge in London has reduced traffic in central London by 33% since it was introduced in 2003, says the university, with the added bonus that the 80% of the revenues raised are used for public transport investment. Congestion charges have also been introduced in Milan, Stockholm and Gothenburg.

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Women are still experiencing high levels of burnout in the workplace, in spite of increased use of flexible and hybrid working, a new report from Deloitte has concluded. Women@Work 2022: A Global Outlook canvassed the views of 5,000 women in 10 countries, and found that although almost 60% were working in hybrid models, some 53% said their stress levels were higher than a year ago. Meanwhile, more than half plan to leave their job in the next two years, with many citing burnout as the reason. Only 10% of those surveyed said they plan to stay with their employer for more than five years.

Austin in Texas is the city that has the most same-sex marriages, while San Francisco – traditional home of the gay movement – is in fourth position. That’s the finding of a study by Namechk.com, which analysed data from the US Census Bureau. The researchers ranked metro areas according to the percentage of married couple households that are same sex, as well as other related data. In Austin, they found 2.6% of all married couples are same sex, with females slightly outnumbering males. Second was Riverside San Bernardino in California, and in third place was Palm Bay, Florida. The data showed the number of same-sex marriages is significantly lower in the Midwest.

Joint account

Mine’s a rosé

Pink drinks can help you run faster and longer. That’s the conclusion of experimental research at the University of Westminster. Its Centre for Nutraceuticals asked participants to run on a treadmill for 30 minutes at a self-selected speed, and were given either a pink artificially sweetened drink or a clear equivalent. Those with the pink drink ran an average 212 metres further at a mean speed 4.4% faster. They also reported enhanced feelings of pleasure. The researchers chose pink as it is associated with perceived sweetness and therefore increases expectations of sugar and carbohydrate intake.

Couples who pool their money are more likely to stay together, says new research. A study from Cornell University, Pooling Finances and Relationship Satisfaction, discovered that couples with pooled financial accounts – as opposed to those who kept their money separate – tended to exhibit a better connection, and their interactions were more positive, stable and safe. This was particularly true for low-income couples. The evidence was stronger from data in the US and the UK than from Japan. The researchers concluded this was because the first two are more individualistic societies, where a greater benefit was gained by sharing financial decisions.

JUNE/JULY 2022 59

THE KNOWLEDGE

New in… BOOKS

inside tory

nazi legacy

Chums: How a Tiny Caste of Oxford Tories Took Over the UK by Simon Kuper (Profile Books, £16.99, hardback) Billed as “a searing critique of the British ruling class and its ‘chumocracy’”, author Simon Kuper lifts the lid on how the UK has been taken over by the narrow talent pool emanating from just one university. That includes 11 of the 15 prime ministers who have been elected since the second world war and a vast number of cabinet ministers. Among the recent cohort are Boris Johnson, Michael Gove, David Cameron, George Osborne, Theresa May, Dominic Cummings, Daniel Hannan and Jacob Rees-Mogg. Kuper was there himself and came across many of them, albeit at a distance. His thesis is that if you want to understand British politics today, this is where you start – and probably finish.

Nazi Billionaires: The Dark History of Germany’s Wealthiest Dynasties by David de Jong, (William Collins, £16.99, paperback) This is the story of the German tycoons who made vast fortunes from the Third Reich and World War II, many of whose families still benefit today. Take Gunther Quandt, an associate of Joseph Goebbels, who joined the Nazi party in 1933 and began producing armaments with the help of slave labourers. Using their accrued wealth, the Quandt family became the controlling dynasty behind BMW. The families that control Porsche and Volkswagen have similar stories to tell. De Jong’s point is that each of these families preserved their wealth in spite of the Third Reich’s defeat, and none of them have truly made a reckoning with their past.

fashion icon

world leaders

Anna: The Biography by Amy Odell (Allen & Unwin, £20, hardback) This portrait of the unchallenged queen of fashion, Anna Wintour, starts with her childhood as a tomboy in London. It charts her rise through journalism, moving to New York and becoming editor in chief of Vogue. Wintour eventually became the subject of a movie The Devil Wears Prada, in which she was unflatteringly portrayed by Meryl Streep as the character Miranda Priestly. In her pomp, Wintour was certainly the most important woman in fashion, and arguably in New York too. The author has carried out extensive interviews with Wintour’s closest friends and collaborators and documents how she became the dominant figure in Condé Nast and an icon in her own right.

Leadership: Six Studies in World Strategy by Henry Kissinger (Allen Lane, £25, hardback) Just two years short of his 100th birthday, President Nixon’s secretary of state during the Vietnam War still has something to say on a topic in which he should be well versed. In this book, Kissinger focuses on six leaders who played a part in re-inventing the world in the second half of the 20th century. They are Konrad Adenauer, Charles de Gaulle, Richard Nixon, Anwar Sadat, Lee Kuan Yew and Margaret Thatcher. The inclusion of Nixon would be questioned by some – although Kissinger argues he played a key role in establishing the US advantage during the Cold War, before his disgrace. He knew all six of them personally and they have been selected to show the very special challenges that are faced by those who make a lasting impact on the world.

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The Knowledge

In numbers: veganism RESOURCES

629,000 Number of people who signed up for Veganuary in January 2022, up from 582,000 in 2021 Source: The Vegan Society

health to wealth Hotel group Accor is behind this podcast series on wellbeing, its impact on the economy and society and the transformative culture it offers. Presenter Anni Hood of Well Intelligence meets guests including cold water and breathing therapist Wim Hof; food-sharing app OLIO’s founder, Saasha Celestial-One; and neurologist Olaf Blanke. shows.acast.com/health-to-wealth

$3.1bn Amount invested in alternative proteins – plant-based meat, egg and dairy – in 2020 Source: Good Food Institute

dittolo Twin brothers Guy and Duncan Robertson have created a platform to help companies reduce the impact of poor mental health in the workplace. Dittolo offers insights so firms can track, manage and mitigate the impact of mental health in the business while connecting staff with lived experiences. It is part of NatWest’s Purpose-Led Accelerator project in the North East. dittolo.com

42%

Vegans who choose the diet for health reasons – next is animal protection, then environment

Source: Vegan Trade Journal

Ai toolkit The UK Information Commissioner’s Office has launched an artificial intelligence and data protection toolkit. Downloadable as an Excel file, it helps organisations comply with data protection regulations and win public trust in the use of AI. It takes users through a series of risk areas during different stages of a project, providing guidance on the controls to be carried out followed by a series of practical steps to reduce the risk. ico.org.uk/for-organisations/guide-to-data-protection/key-dp-themes/ guidance-on-ai-and-data-protection/ai-and-data-protection-risk-toolkit/

1944 The year the term ‘vegan’ was coined by Donald Watson, co-founder of the Vegan Society Source: The VOU

guernsey venture challenge The Digital Greenhouse has launched its own Dragons’ Den where new businesses in Guernsey can win early-stage funding from investors to help them grow. The initiative is delivered in partnership with venture builder Blenheim Chalcot, with £65,000 available. The top prize is £40,000, with £20,000 investment for second place and £5,000 for an entrepreneur aged under 25. Each prize also includes a six-month business mentorship. digitalgreenhouse.gg/startup-hub/guernsey-venture-challenge

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16,439 Products awarded the vegan trademark in 2021 Source: The Vegan Society

JUNE/JULY 2022 61

THE KNOWLEDGE

GURU

WATCH

Nassim Nicholas Taleb

f there’s one idea particularly associated with Nassim He’s described himself as an “epistemologist of randomness” Nicholas Taleb, it’s the black swan – as captured in his and one of his big arguments has been that you cannot shoehorn 2007 book, The Black Swan: The Impact of the Highly the world’s uncertainty into simplistic explanatory systems. He has Improbable. Coming out a year before the financial crisis, it even called for the Nobel Prize for Economics to be abolished, on espoused a theory of unexpected significant events that could not the grounds that top-down economics theories when implemented have been readily predicted, but once they occurred have a major can have devastating effects on society – for example, in the impact on the world. financial crisis. Recently, many of Taleb’s public utterances have His argument, targeted to some extent at financial been focused on his scepticism about cryptocurrencies, institutions, was that although you may not be able to which he had earlier lauded as ‘an insurance policy’ “Bitcoin is worth predict this specific event, you can develop a degree against government controls over currency. of resilience by identifying vulnerabilities and taking In a paper last year, he completely reversed exactly zero... steps to reduce them. The book, which was part of a that stance, arguing that bitcoin has failed as a and non-fungible five-volume series called Incerto, went on to sell three government-free currency, as a hedge against inflation tokens are starting million copies and stayed on the New York Times and as a safe haven investment. Bitcoin, he said, is to burst” bestseller list for 36 months. worth “exactly zero” and he compared it unfavourably Taleb, one of whose day jobs is co-editor of the with gold and other precious metals. journal Risk and Decision Analysis, has been at times a His latest salvo has been against non-fungible tokens, financial trader, risk analyst, statistician and hedge fund manager. which, he has tweeted, are “starting to burst”. He’s had a spat with After growing up in Lebanon, he studied in France and the US, Elon Musk about his takeover of Twitter and he’s taken a hawkish and developed expertise in the mathematical aspects of financial view on Russia’s war in Ukraine. Above al, Taleb refuses to be trading before turning his attention to the problem of uncertainty. pigeon-holed and maintains his independence zealously.

H2H

You’ve heard of business to business (B2B); you’ve probably heard of business to consumer (B2C); and you may have come across direct to consumer (D2C). Well, brace yourself for a new style of marketing: human to human or H2H. As one definition breathlessly puts it: “H2H marketing represents the concept that behind every business, consumer, non-profit or government body, there is a living, breathing human being who is making decisions about your company.” Some see it as the convergence of B2B and B2C; others question whether it is actually a thing at all or just an acknowledgement of common sense. In any case, implementing the new approach to marketing need not be confused with either rocket-science or brain surgery. Tip number 1 from a leading authority on H2H is: “Talk like an actual person.” If you struggle to do that, role-playing exercises can apparently be helpful. Coming soon: DTT – direct to trash marketing.

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Punch a puppy Do something detestable but good for the business

Strategic staircase Just call it a business plan

BUZZWORDS…

JARGON BUSTER

ALSO NEW IN THE WORLD OF

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The Knowledge

Top tech Starlink 550 ELON MUSK HAS BEEN IN THE HEADLINES FOR HIS BID TO CONTROL TWITTER, BUT ANOTHER OF HIS BUSINESSES IS ARGUABLY OF MUCH GREATER INTEREST TO INVESTORS – AS WELL AS ASSISTING IN THE WAR IN UKRAINE

Starlink is the satellite-based internet service that’s operated by Musk’s SpaceX space flight company. It was announced in 2015 as a way to meet low-cost broadband capabilities around the world, especially providing internet to areas with low or no coverage. The first 60 satellites were launched in 2019, and by February 2022 some 2091 satellites had been launched and the service has moved from beta-testing to effectively being live, albeit still under development. Like other satellite internet services, Starlink works by beaming the internet signal up from ground-based gateway stations to each satellite. The user has a dish that also connects with the satellite and so the broadband signal is transmitted via the satellite between individual dishes and the gateway. The obvious advantage of this is that it provides an alternative to fixed telecom and terrestrial mobile-based services, which can offer very fast speeds – downloads of up to 200Mbps with a latency (delay) of just 20 milliseconds – and reaches the places other internet services can’t reach. In the UK, you can order the service today – you pay £529 for the hardware, £50 for shipping and handling, and a monthly service fee of £89. Meanwhile, in Ukraine, it has become clear that Starlink is being deployed as an important tool to back up the country’s telecoms infrastructure when it is knocked out by the invading Russian army. Some 10,000 dishes, or terminals, have been shipped to Ukraine, with at

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least some of that paid for by the US government. It is providing internet to an estimated 150,000 people, and it’s widely conjectured that SpaceX is not charging for the internet service provided. Beyond war zones, Starlink is the most advanced player in a technology that has enormous commercial potential worldwide. SpaceX is planning to launch 30,000 or more Starlink satellites in total to provide its full coverage, and in February 2021, Morgan Stanley estimated its value following an expected IPO at $81bn, based on achieving 364 million subscribers by 2040. Others have put the value even higher, at $100bn. Musk has even fuelled speculation that Starlink will be used to fund his ambition of launching a mission to Mars. Starlink also has another ace up its sleeve. At the moment, anybody taking out a contract with the company has to keep their satellite dish and their service at one fixed location, but it’s only a matter of time before the service becomes fully mobile. As Musk tweeted last April: “Yeah, should be fully mobile later this year, so you can move it anywhere or use it on an RV or truck in motion.” That’s not available as yet, but would be a boon to those driving in remote areas, or even travelling on boats, and there’s a good deal of conjecture that Starlink will eventually have its own satellite-based mobile phone service. It’s hardly surprising that other big tech players are eyeing this space with great interest. Amazon is planning to launch its first Project Kuiper internet satellites later this year.

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Directory To advertise in the directory in print or online contact Carl Methven on carl.methven@blglobal.co.uk

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Deloitte is the leading provider of Audit & Assurance, Tax & Legal, Consulting, Financial Advisory and Risk Advisory services. More than 345,000 professionals across 150+ countries and territories at Deloitte deliver measurable, lasting results. We reinforce public trust in capital markets, enable clients to transform and thrive, and lead the way towards a stronger economy, a more equitable society and a sustainable world.

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Jo Huxtable - Tax Partner, Guernsey D: +44 1481 703 308 jhuxtable@deloitte.co.uk

To find out how Agile Automations could automate your business, please do not hesitate to contact our CEO Martin Keelagher Email: rpa@agileautomations.co.uk Website: www.agileautomations.co.uk Twitter: twitter.com/AAutomations LinkedIn: www.linkedin.com/company/ agile-automations/ Facebook: www.facebook.com/ AgileAutomations/

64 june/july 2022

Adam Cichocki - Advisory Partner, Jersey D: +44 1534 824 393 acichocki@deloitte.co.uk

KPMG in the Crown Dependencies is a leading professional firm that delivers audit, tax and advisory services. Operating across the islands of Guernsey, Jersey and the Isle of Man, it is a standalone, locally led partnership with over 450 members of staff. The combined practice forms a core part of the KPMG Islands Group, made up of International Financial Centres and Overseas Territories spanning a sub-region which extends from Malta to the Caribbean. This grouping works closely with other KPMG practices in major global financial centres such as London and New York, ensuring that clients can benefit from an optimal blend of local and global expertise from KPMG’s network. KPMG is a global organisation of independent professional services firms providing Audit, Tax and Advisory services. It operates in 146 countries and territories with over 220,000 people working in member firms around the world. Find out more at https://home.kpmg/cds Contact details: Neale Jehan Senior Partner KPMG in the Crown Dependencies E: njehan@kpmg.com T: +44 (0) 1481 721000

Theo Brennand - Audit Partner, Jersey D: +44 1534 824 396 tbrennand@deloitte.co.uk

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To find out more visit www.trustquay.com, follow @trustquay on LinkedIn or email us:

Greg Powell, Senior Investment Director Email: greg.powell@tmgawealth.com Call: +44 (0)1534 748745

jersey@trustquay.com guernsey@trustquay.com

Visit: www.tmgawealth.com Follow: www.linkedin.com/company/tmgawealth-management TMGA Wealth Management Limited (Registered Number: 132402) is authorised and regulated in Jersey by the Jersey Financial Services Commission for the conduct of Investment Business. Please note the value of investments and the income derived from them may fluctuate from time to time.

june/july 2022 65

➔

Data focus

Open to opportunity

Open banking dominates digital transformation trends in financial services

Open banking/APIs/ embedded finance

75%

AI/ML and big data analytics

48% 33%

Cloud

25%

Cryptocurrency Buy now, pay later

24%

Cybersecurity/ biometrics

24%

Self-service technology/chatbots Distributed ledger technology (DLT)

18% 16%

Open access in the form of APIs will be the biggest gamechanger in financial services over the next five years, cited by 75% of respondents to a recent report by FinTech Futures. Many industry commentators feel open banking – which enables third-party developers to build applications and services around financial institutions through greater access to data and financial transparency – has yet to really fuel change in the sector. However, findings from the Digital transformation and trends in financial services report, which was published earlier this year, show that the vast majority of respondents Source: Digital transformation and trends in financial technology, FinTech Futures

believe open banking is finally about to fulfil its potential. The report states: “As non-bank companies increasingly offer financial products, such as checking accounts or wallets, payments and lending, or insurance at point of sale, the services are seamlessly embedded into nonfinancial processes providing customers with financial products, advice and services that are likely to be the most relevant at that moment.” Interestingly, only 25% of respondents said cryptocurrency technologies will be the biggest gamechanger over the next five years.

BUSINESS LIFE

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The point of change. We know there is no one-size-fits-all. This is why our sustainable investment and legal experts provide clients with a bespoke approach to identifying and achieving ESG and impact goals across the investment spectrum.

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Businesslife Magazine, Issue 78, June/July 2022

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