In the final part of Brian Carey’s ‘private wealth – back to the future’ series, Brian looks into the crystal ball and attempts to spot some of the external forces that may influence the continued success of IFCs around the world.
Last time out we asked a lot of questions of the Crown Dependencies and British Overseas Territories (CDBOTs). There’s a lot to think about but it’s incumbent upon us as professionals in our industry to consider where we are now and try and anticipate where our sector is heading. While we don’t have all the answers, and forces outside of our control may influence some of those answers, it is important to try and understand where we’re going so we can be prepared. One thing we can say with certainty, though, is that regulation (and its compliance) is going to play a huge part in what the future looks like, both within the CDBOTs and elsewhere. It is arguably the decisive factor in the future of the finance industry: the difference between offshore, midshore and onshore jurisdictions. This is the area where the powerful jurisdictions of the future will do something new and innovative that will set their course, and ours.
Ben Franklin’s opinion that “in this world nothing can be said to be certain, except death and taxes” neatly illustrates the difficulty in trying to predict the future. Especially when, in our context, even taxes don’t seem to be certainties anymore. However we can say, with relative certainty, that the Global IFCs will still have their place in the future; their histories, quality of professionals and continued good standing in the eyes of the OECD, the US IRS and other international organisations will see to that.
Furthermore, they remain amazing places to live. Enviable work-life balances are on offer and they continue to attract top-quality wealth management professionals, who in turn attract high-quality clients and work.
One of the reasons that the CDBOTs are held in such high regard to begin with is that they offer safe harbours in the stormy waters of the world’s current geopolitical climate. We simply can’t be sure what a post-Brexit Britain and EU are going to look like; we don’t yet know what the US’s seemingly new direction under President-Elect Bidenwill mean; and China also remains an unknown.
The traditional IFCs have provided a good antidote to this uncertainty so far, but across the next decade and more, the tectonic plates might start to settle and competition will start to arise.
Responses to regulation is most likely, in my view, to characterise the future. How far will it go in those jurisdictions that are striving to be as compliant as possible? And is the level of regulation already overburdensome for some because of the costs? It’s difficult to see where the balance of regulation and confidentiality lies; however it does need to be balanced.
For a bank or private wealth provider to take on a new client, there is a huge amount of work and substantial cost involved, regardless of the client, their requirements or net worth. Can a business substantiate these new client costs going forward?
The US provides a stark contrast to this. Its approach to regulation has been light-touch, and we have to ask whether that is creating a competitive advantage that others, including a post-Brexit UK, will try and replicate.
One instance where replication seems to be working quite well is in the Middle East, where the Abu Dhabi Global Market (ADGM) has adopted England & Wales Law. This has put the ADGM in a strong position for facilitating capital flows and introducing not just private wealth products but also capital markets including funds activities almost immediately. The still-nationalist mindset in the Middle East, broadly speaking, means that there is less of a focus on international regulations, which can be seen as a positive for the ADGM and other (IFCs) within and servicing the region.
Further evidence of the rising importance of the Middle East, and its threat to the traditional IFCs, comes from Saudi Arabia where Crown Prince Mohammed bin Salman has ambitious plans. The expected creation of Neom, “a futuristic mega-city 33 times the size of New York City [built] from scratch” , will create a brand-new IFC that is purpose-built and has its own autonomous legislature. Its strategic positioning could be absolutely pivotal for facilitating capital flows into and out of the Middle East and initial plans frame Neom as a combination of Switzerland and Luxembourg. Developing an offshore IFC in a cash-rich region is as close as you can get to a proven recipe for success.
Neom is quite the prospect and could have a serious impact on the global map of IFCs; we could well be about to witness a total realignment of the world’s finance industry.
The future is full of unknowns, but we can say with some certainty that regulation is going to shape the future of finance. The journey for IFCs, as we’ve seen throughout this series, has been a productive one so far, but their future hinges on their ability to identify threats and opportunities.
That’s not easy, but it starts with asking the right questions and having the right conversations. The best place to start is probably to ascertain what the UK is planning post-Brexit; will it mirror the US’s approach to regulation and become, in its own way, an offshore centre with all the cultural and business cachet that London has? It certainly has the legislation and, without question, the history to do so.
Whatever the outcome of the global unknowns, it’s Benjamin Franklin who again provides the advice for the IFCs: “Look before, or you’ll find yourself behind.”
To read Brian’s first two articles in this series, please use the links below:
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