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Kroll managing directors Ed Shorrock and Malin Nilsson tell Emily Moore why the finance industry needs to adopt a “growth mindset” to increase its competitiveness on the global stage
WHETHER you are a staunch supporter of the finance industry or believe that the Island should have a more diversified economy, there can be no doubt that financial services is the bedrock of Jersey’s economy.
Indeed, with 40% of Islanders working in the industry and the sector contributing around 60% of the government’s tax revenues, it is difficult to imagine how different life in Jersey would be without financial services.
But as Kroll managing director Malin Nilsson points out, external pressures mean it is vital for the Island to act “at pace” to increase its competitiveness on the global stage.
“The recent launch of the Government of Jersey’s Time To Win strategy, one of the outputs of its Financial Services Competitiveness Programme, released following one of the most comprehensive reviews of the Island’s financial and professional services sector, focuses on the need for a ‘growth mindset’,” she said.
“This is vital as the world is a volatile and uncertain place. Regulatory costs are rising, technology is disrupting the status quo and we are facing a lot more competition from other jurisdictions. If we stand still, we will move backwards, and I think we are at risk of falling behind at the moment as other jurisdictions are moving faster than we are.
“That’s why adopting this growth mindset and reducing regulatory complexity is key to maintaining productivity, driving innovation and allowing the Island to grow at pace.”
Echoing that view, fellow Kroll managing director Ed Shorrock added: “There have been concerns recently regarding the fact that our productivity growth hasn’t been as high as it should have been and that real wages are stagnating, which makes it timely to review this key industry and Jersey’s positioning internationally.”
But far from just looking at technical aspects of the industry, Ed says that Time To Win promotes the need for a “cultural mind shift” and openness to new streams of business.
“Jersey has done very well from its past activity, which has centred around a traditional private wealth background, accompanied by the banking sector and ancillary professional services, but it cannot afford to rest on its laurels,” he stressed. “More recent moves into funds and private equity have been very successful but we have also missed the boat on certain areas such as captive insurance.”
But while certain ships may have already sailed, Ed says that Jersey’s record shows its potential to expand into other areas.
“When the Island focuses on an area and commits resources to it – as it did in the case of the Jersey Private Fund regime – it does really well. However, we have a tendency to look inwards too much. We need to be more expansive and look at what other jurisdictions are doing to ensure that we keep up with market developments internationally.”
While acknowledging that expanding the product and service offer will bring new risks and compliance considerations to the Island, Malin added that this was not a reason to avoid change.
“Recruitment will be key to this,” she said. “While some people may worry that reducing regulatory complexity could dilute standards, that is not the case in my view. In fact, reducing complexity creates certainty and stability, two pillars on which our reputation as an international finance centre has been built.
“Now, as we enter that cultural shift and adopt more of a growth mindset, it is essential that compliance professionals embrace not just the technical elements of their role but also the ability to think commercially and strategically. And that should be a key consideration when firms decide to hire in the next few years.”
Agreeing that skills and recruitment would be fundamental to supporting this shift, Ed said that firms also needed to invest in technology.
“A lot of firms in the Island are owned by large private-equity houses and they need to start committing real capital to the kind of regulatory technology that will enable the development of their staff, product service lines, governance structures and data security,” he said. “This will be critical to avoid a scenario in which we just retreat into a mentality of ‘this is the way we’ve always done things’.”
Underlining the need to apply a “different attitude towards risk”, Ed added: “Jersey operates on a principles-based regime, which has grown and grown over the years. While regulation is key, having an intelligently applied risk-based approach will be key to growth. And, just as importantly, the regulator needs to come on that journey to understand how firms are applying their own risk models to the different clients and products that will shape this new environment.”
But while some changes to the regulatory framework may be required, Malin and Ed are both adamant that these should be evolutionary, rather than revolutionary.
“Throwing the baby out with the bath water is definitely the wrong thing to do,” said Ed. “Before the financial crash, no one thought that a bank would fail but the fate of Bear Stearns shows just how vital political, economic and fiscal stability is. That is a bedrock that Jersey has and should build upon, so while we need to explore new avenues, we are not entering a Wild West era of finance. However, unless we take some risks, we won’t have any rewards.”
Stressing the need for a “balanced approach”, Ed said that while organisations needed to acknowledge that a “growth mindset” would probably lead to more risk, that risk also needed to be managed appropriately.
“To do that requires skills,” he reiterated. “We shouldn’t avoid risk or pretend that it doesn’t exist but we need to take the appropriate measures to mitigate it. In the past, there may have been a slight disincentive or unwillingness for people to get out of their comfort zones and take on those risks but, as part of this cultural shift, organisations need to invest in technology and skills training to meet that challenge.
“That needs to come from the top. Boards need to start thinking about their commercial strategy, as it that strategy which will drive the Island’s risk appetite. As the government, regulator and industry come together to drive this shift, that change needs to come from the top of all three of those parties.”
With investment in technology key to achieving this change, both of the regulatory consultancy practice’s managing directors say there is huge potential to digitise certain areas.
“Without digitisation I don’t think we can achieve the targets of Time To Win,” said Malin. “Onboarding is a key area where digitisation can make a huge difference, as faster onboarding delivers more effective client experiences and competitive advantages for both individual firms and the jurisdiction.
“Another positive of better onboarding is that it enables you to obtain better data about your clients, which, in turn, allows you to be more targeted in your business development.”
Building on that, Ed said that digitisation could enhance the client experience by reducing the number of times data had to be submitted and removing some of the “friction” from the onboarding process.
“If we can find a way of sharing the right information in the right ways, so that people don’t have to go through multiple gateways, that could be hugely beneficial,” he said. “But while that could enhance the relationship clients have with the Island, data governance and security are absolutely critical. And, again, that requires a top-down approach, with the government and regulator setting the protocols rather than relying on institutions to develop their own ecosystems.”
Indeed, this regulatory involvement, says Malin, is critical in ensuring that any changes in regulatory complexity do not attract poor-quality business to the Island.
“We have travelled to several jurisdictions and the ones that tend to attract bad-quality business are the ones where there is weak enforcement from the regulator,” she reflected. “Therefore, while I’m not saying that we need to have lots of enforcement, we need to have quality supervision and enforcement because otherwise there is a risk that firms will reduce their standards.
“We can take on potentially riskier business if we do it well but maintaining our standards is crucial to ensure that we retain our reputation as a stable and credible international finance centre.”
