If the UK votes to get out of the EU, how will this affect offshore jurisdictions with links to Britain such as the Cayman Islands, Gibraltar or Jersey?
The 23 June UK poll on whether the country should stay in the European Union or get out has so far overwhelmingly focused on how any vote will affect the UK and its links with major countries. But the referendum also matters for a group of offshore jurisdictions with links to Britain.
These jurisdictions include Guernsey, Jersey, Isle of Man, the Cayman Islands, Gibraltar and the British Virgin Islands. They fall into two categories: Crown Dependencies (Isle of Man, Guernsey and Jersey) and British Overseas Territories (Caymans, BVI, Bermuda, Falklands and Gibraltar). There are subtle distinctions in their relationships with the UK, which may have some influence on how serious a vote will be for them. One IFC with particular concern is Gibraltar, because of fears an EU exit could encourage Spain, which has had historical designs on Gibraltar, to try and absorb it. Gibraltar yesterday issued a report warning that Brexit could damage its interests.
At stake is whether these international financial centres will be harmed or even benefited by UK voters’ decision. This is a sensitive matter, it seems, because the bodies representing the financial sectors of the BVI and Isle of Man declined to comment.
In broad outline, the IFCs that have been willing to comment think uncertainty ahead of the vote is a potential drag on business and that if there is a Brexit vote, this might affect transactions for the period following the result and the UK’s eventual departure. (A Brexit vote triggers a process under EU treaty law, lasting about two years, for the UK to disentangle itself.)
More positively, uncertainty about the UK’s relations with the European continent, not to mention wider geopolitical tensions in Asia and the Middle East, may paradoxically play into these IFCs’ hands because of their reputation for stability, a number of industry figures said. Another point is that as none of the UK’s offshore “cousins” – with the exception of Gibraltar – are EU members anyway, a Brexit vote wouldn’t dramatically affect them, other than perhaps in subtle ways.
Recent opinion polls in the UK suggest the vote will be close, prompting complaints that those arguing for the UK to stay in the European bloc have been too negative in trying to instil fear among the electorate rather than make a positive case. Business opinion in the UK, at least according to a poll of members by the Confederation of British Industry, found that only 5 per cent of respondents think the UK should leave the EU. Based on evidence of comments emailed to this publication in statements and press releases, most wealth managers hope the UK stays in the EU. (See here.)
“Jersey’s relationship with the UK will remain unchanged: the island has had constitutional, fiscal and judicial autonomy for the last 800 years and will continue to do so,” Richard Corrigan, deputy chief executive of Jersey Finance, the body that promotes the island’s financial industry, told this publication.
“I think that our position is already clear: We promote Jersey as having a legal, tax and regulatory framework which adheres to all the key international standards, and I think that investors and intermediaries are aware of our strengths. We will continue to monitor Brexit, Jersey’s government is liaising closely with the UK government, and whatever the outcome we will remain one of the world’s best-regulated and competitive IFCs,” Corrigan said.
“The business links between the UK, Europe and Jersey are so historic that it is unlikely they will be affected in the short term, whatever the outcome of the referendum. Jersey has a £225 billion [$318 billion] net asset value in funds under administration, and more than half is channelled into assets in the European Union. We add value to the EU and would expect to continue to do so,” he continued.
An early indication that uncertainties about Brexit could be a problem came recently when international rating agency Standard & Poor’s cut its long-term foreign and local sovereign credit ratings for Jersey and Guernsey by one notch from their highest possible level of “AA+” to “AA”. The agency said growing regulatory pressures on IFCs, as well as uncertainties linked to the EU referendum, were factors.
Jersey Finance’s Corrigan is bullish: “This vote is about the relationship between the UK and the EU – not about the relationship between Jersey and the UK. In 1972, Jersey negotiated a deal which governed our formal relationship with the EU. If the UK were to vote to leave the EU, Jersey’s government would have two years to negotiate an agreement which enabled us to remain competitive. I won’t deal in hypothetical scenarios, but what I can say is that Jersey’s industry, regulator and government remain alert to global changes. We have been a leading IFC for the last 50 years, and will continue to adapt in order to remain competitive.
“Markets don’t like uncertainty, but any uncertainty in the lead up to the vote is universal. Our job is to ensure that business is aware that Jersey remains independent and open for business, and that we are ready to adapt – if required – in order to remain competitive,” he added.
Gibraltar is worried
Gibraltar is an interesting case because as well as being a British overseas territory that shares a border with Spain, it is also part of the EU, having joined the European Economic Community (as it was called at the time) under the UK in 1973.
This IFC is worried. Yesterday, the government of Gibraltar, in a report about EU membership and Brexit sent to lawmakers in the UK parliament, noted that in 2013, UK prime minister David Cameron (who is in favour of the UK staying in the EU) had to intervene when Spain imposed heavy border controls between itself and Gibraltar. The risk of Spain exploiting Brexit to seize Gibraltar is a concern.
“It is important that there should be clarity as to the rights the British Government will protect and defend for Gibraltar in the context of its own negotiations if the referendum decides for leaving the EU,” the report said, adding that the UK must guard against attempts by Spain to take advantage of the present situation by advancing its claim to Gibraltar.
“EU membership has been an important factor in the development of Gibraltar’s economy,” Gibraltar’s government said, arguing that Gibraltar has embraced the challenge of complying with EU regulations and directives. It said access to the EU’s single market is important to Gibraltar’s economy and added that commerce in Gibraltar, and indeed in the neighbouring Spanish region, relies on free flow through the border.
Although it is part of the EU, Gibraltar is outside the customs union and VAT area and is exempted from the Common Agricultural Policy. It is also outside the EU’s Schengen Area (in which persons can travel without a passport). Gibraltar's government and parliament are responsible for turning EU law into local law. There is no option for Gibraltar to cancel its EU membership separately from the UK. Gibraltarians count as British nationals for the purposes of Community law.