UK dependencies and territories ride out Brexit worries

Many business leaders who awoke on June 24, 2016 to the news that the UK had voted to leave the EU reported feeling shock and uncertainty. And while that is still true in parts of the country, UK crown dependencies and territories say they are optimistic as their focus turns to opportunities further afield.

The crown dependencies of Isle of Man, Jersey and Guernsey, and the territory of Gibraltar, have all recorded successes in the aftermath of Brexit. “We saw a huge upsurge in investment in Gibraltar after the referendum,” says Fabian Picardo, Gibraltar’s chief minister. “We’ve seen more applications for licences for financial services and online gaming than we have ever seen before in a similar period. We’re also seeing more property sales in Gibraltar than we’ve seen before.

“Additionally, a world trade centre opened in Gibraltar in February and it was turning away clients. They all had Brexit clauses in their leases that allowed them not to complete on their leases if the result of the referendum was to exit the EU, and yet they’ve all completed.”

Upbeat Channel Islands

Dominic Wheatley, chief executive of Guernsey Finance, is similarly upbeat. “In the 10 months since Brexit, we’ve been very successful – 2016 was a record year for us,” he says. “We topped £100bn [$129bn] of private equity assets under management and we’re still attracting new business in quantity in 2017.”

There has also been a positive swing in Jersey. “We were as shocked as everybody, but over time people have got used to the idea and we saw a massive surge of new investment interest from Jersey, principally into Britain but into [Europe] as well,” says Geoff Cook, chief executive of Jersey Finance.

“The shock period lasted eight to 10 weeks, then people adjusted to the new reality, and the combination of the softening in asset pricing and the fall in the pound tempted Asian, Middle Eastern and US investors. All our law firms saw a real surge in investment. That has carried on into 2017,” he adds. “It has moderated a little now, but we had a very buoyant period off the back of it. And quite recently, a major fund went through a global exercise of determining where it should base its location from the point of view of structuring its fund, and it’s been located here in Jersey.”

Investors undeterred

The picture is similar in the Isle of Man. John Spellman, special adviser and director of financial services for the Isle of Man government, says: “The Isle of Man has never been busier in terms of new business enquiries, both to this department and our business sectors. Our business networking exhibition, Islexpo, takes place in June, and that has now generated a record 1527 attendee registrations. Our unemployment is at its lowest for 13 years – 1.1% as of April 2017. And we have a number of Chinese business projects in the pipeline that we have been monitoring and they do not seem to be deterred by the Brexit position.”

The various territories are eyeing new opportunities further afield, although these all hinge on the UK government achieving the trade deals that it has been touting in other parts of the world. “More than half of our business now originates from outside the UK time zone,” says Mr Cook. “But if the UK gets better trade deals and we can join in with those, it might actually accelerate our growth market activities.”

In Gibraltar, whose citizens had a say in last year’s referendum, there’s a surprising level of optimism despite 96% voting to remain. Research by the authorities since last June reveals 90% of its business is with the UK (see page 44), with the remaining 10% spread across Ireland, Malta and Cyprus. If the UK does trade deals with other countries such as Canada, Australia, New Zealand, the US and India, Mr Picardo believes it will open up new markets that share a common language and legal system.

Other opportunities

Mr Spellman reports that while the Isle of Man cannot be certain exactly how Brexit will affect it, it remains fully engaged with industry and UK counterparts. He says: “The Isle of Man has had access for free movement of goods and people under Protocol 3 to the UK’s Treaty of Accession in much the same way as the UK has. Clearly, much will depend on the deal that the UK achieves, as this will most likely include us.”

He also believes the loss of access to EU funding as a consequence of Brexit will result in some businesses looking elsewhere for the money, adding: “The Isle of Man has a strong proposition for businesses in this regard, including the £50m enterprise development scheme.”

Since the crown dependencies have never been part of the EU (although they are part of the customs union), they are highlighting the stability they can offer investors during the transition period.

“The opportunities for Guernsey are the opportunities that come with having an established business model that is not directly affected by Brexit itself, and enable us to carry on trading under our existing relationship with the EU,” says Mr Wheatley. “We have an opportunity of being a stable, established option where people can be certain of what they are getting.”

Mr Cook agrees, saying: “As Britain has to define a relationship and new settlement with Europe, ours stays the same. For financial services and investment, which is our largest industry, we’ve spent many years developing bilateral agreements with European countries.”

Monitoring the risks

The dependencies and territories remain cautious about the risks and impacts associated with Brexit, with some leaders more vocal than others about the risks. Second-order effects being monitored include a general cooling off in investment across Europe and the UK as a result of uncertainty about the outcome of a new settlement.

Worse still would be a fallout between the EU and UK, where neither gets a good agreement, and which would deter international investment. There are also concerns about elements of access to EU markets and freedom of movement that might be compromised.

“To the extent that London’s position as the pre-eminent global finance centre is under any threat, then that might pose a risk,” says Mr Wheatley. “My personal view is that London’s position as the pre-eminent centre will largely continue, so I’m not convinced that this is a major threat.”