THE significance of the finance industry to Jersey’s economy is not in doubt; however, its future prosperity is.
It is why the last government spent a lot of time, money and effort to come up with ‘Time to Win’ – a strategy to make the industry more competitive in the face of rising costs, shifting demands and new kids on the block wanting a cut of the offshore market.
With many of the key political figures still in place, including the Chief Minister and External Relations Minister, it is clear that this work will continue. Its aim: to reposition the Island’s primary industry from one perceived to have become rather complacent with age to one that is hungry for new business: nimble, innovative and affordable.
In the Time to Win report, which was released in March alongside a ‘no-punches-pulled’ assessment of the current landscape by City grandee Sir Howard Davies, five ‘imperatives’ were listed: a handful of key things that Jersey has to do to retain its competitiveness and grow the industry.
Some repeat well-rehearsed mantras such as “we must reduce regulatory cost and complexity” and “we must invest in Jersey’s attractiveness as an international finance centre”, but one stands out as novel and, probably, in need of a bit more explanation “we should lead in tokenisation”.
Tokenisation? It presumably involves a token which, according to Collins English Dictionary, is a substitute for currency, such as a round metal or plastic disc used in slot machines or public transport.
Or: a gift voucher or card that can be exchanged for goods.
When it comes to how this translates to financial services, it is a little more complicated than buying, selling, storing and regulating plastic discs but the principle is the same: it is the representation of a real-world asset – a house, share or piece of art, for example, but in a tokenised, digital form.
It is about giving real ‘things’ a secure digital equivalent – so a piece of real estate, bond or equity can be traded as easily as sending an email. It is cheaper, quicker and 24/7.
The key thing is that this digital representation of a real thing is recorded on something called a distributed ledger – a decentralised digital system that records, validates, and synchronises data without relying on any one central authority.
The best-known type of this technology is called ‘blockchain’.
Each digital token indicates ownership or a part claim on an underlying asset and is stored in a secure wallet rather than a paper deed or share certificate.
The underlying idea is that it can be bought, sold, or transferred with near-instant settlement. This, in theory, makes the whole system more efficient: the blockchain ledger provides a clear asset ownership history, and removes layers of (potentially costly) intermediaries.
Tokenised assets can also have a ‘smart contract’, or a series of rules, assigned to it, which means that actions can be programmed to happen automatically when the agreed conditions are met. It also makes it easier to divide an asset into bite-sized chunks, so lots of people can own a share of a high-value ‘thing’.
Nathan de la Haye is FinTech lead at Digital Jersey, and is leading the organisation’s work on tokenisation, particularly around training and education. He said: “This is not a new area for Jersey, and I don’t think it needs to be seen as overly abstract or out-of-this-world.
“When you are buying and selling shares on certain platforms, it is effectively tokenised versions of those shares, just not in a blockchain.
“With tokenisation, the blockchain provides more of a single source of truth because the underlying cryptography makes it difficult to edit. It is also a very effective shared record, which is useful when there is multiple owners; it reduces a lot of the operational friction of managing various sources.”
Mr de la Haye said Jersey was a natural home for tokenisation: it already had firms such as Coinshares, Moneybrain and Komainu based in the Island, and, in terms of setting the right conditions, a Digital Asset Innovation Council had been set up.
He said: “The facilitation and organisation of this group is a very good thing and it is working really well so far. It including experts from industries already in this space, and representatives from traditional financial services industry who are exploring these technologies.
“The decision about priorities and what needs to be done is very much being worked on. For example, I chair the skills subcommittee, which is looking at gaps in education and how we fill them. Jersey’s principles-based approach to regulation also works, and people are able to launch these types of products now and are doing so.
“Jersey sits in a niche between the UK and European and we do not subscribe to the same crypto regulations as those two markets. So, I think we are in a good position to service the offshore financial services market, especially for tokenized products.”
Another Islander looking closely at this emerging opportunity is Tom Grogan, chief transformation officer at Mourant.
He said: “Tokenisation is not new, but what is new is Jersey being intentional and explicit about how it is going to win in this sector, which naturally goes hand in hand with deciding what it is not going to try to win.
“Forming public policy is not an easy task but it is about making choices and deciding what you’re not going to do. Many governments are very bad at that but smaller, more agile jurisdictions like Jersey are better placed.
“Governments that are able and willing to take clearer strategic bets on how they’re going to win – and what they’re going to do and what they’re not going to do – are the ones that are going to carve themselves a really interesting position in what is an increasingly competitive global landscape.”
Mr Grogan added: “Digital assets is a fascinatingly bifurcated industry: the original part of that industry was built around digital assets and crypto currencies, which are very high growth, very lucrative and high risk.
“The bad news for Jersey is that many jurisdictions are far ahead of us in winning that more traditional crypto asset market; that horse has bolted.
“The good news for the Island is I don’t think we want that market. Instead, we are focussing on tokenisation, which leans into all of Jersey’s historic and established strengths.
“This isn’t about trying to build a new sector; it’s about ensuring that Jersey continues to lead in the areas it already performed well in by ensuring that those sectors can continue to use the Island, even as the world becomes increasingly tokenised.”
He continued: “I think being able to transact more things that have real-world value and real-world applicability in a more seamless way can only be a good thing. I don’t believe that every real-world asset is suddenly going to get traded via tokenisation but there will be certain subsets which will start to transact value in a tokenised form.
“The conversations around that will be held in New York or London, and they will be weighing up where and how to structure those tokenisation programmes.
“We need to make sure that Jersey has a very clear value proposition so that it features in their decision making. We have the advantage that many of the key entities are already here.
“If we can provide the entities are already here with a ready solution, they would be delighted to not have to also re-domicile their structures along the way.
“There is a big role for sponsorship in this: Gibraltar, the UAE and US have very senior champions, often with very impressive sounding job titles, who are able to speak on behalf of a jurisdiction and open doors that us mere mortals would struggle to.
“Having that voice, that champion in the jurisdiction, is an important part of his; you can have the best regulatory framework in the world, but if no one is advocating for it on a global stage, you are not going to get to where you want to be.
“The race has already finished for the more traditional digital assets crypto market – but, thankfully, it’s a race we didn’t ever really want to win. The race is now kicking off for tokenisation properly, and I think we should make a virtue of the fact that we are only competing because it will help us and it plays to our strengths.
“We can be more targeted and focused.”
It is a view that Sir Howard and his panel which reviewed Jersey agree with. They concluded: “[We] believe that Jersey is well-positioned to capitalise on rising global interest in digital assets.
“That does not mean that Jersey should become a retail crypto hub. But as digital assets shift from speculative markets to institutional infrastructure, and tokenisation moves inside traditional finance, Jersey’s comparative advantage lies in its strong regulatory framework, reputation for integrity and access to private markets.
“Institutions considering tokenised asset adoption will require legal certainty, governance strength, reliable operational controls and regulatory interoperability. Few jurisdictions offer all four, but Jersey potentially can.
“The JFSC’s guidance on tokenisation, stablecoins and digital offerings has sent a welcome signal at a time when other jurisdictions are prevaricating. Jersey’s position outside the EU gives it the flexibility to adapt quickly to global trends and align with emerging best practice.”
