Offshore Centres and the EU

The decision by the UK to use its veto and not support a proposed treaty change designed to resolve the Euro crisis has indirectly brought the role of offshore jurisdictions into the frame, though not in a manner that would be expected. 

According to Channel 4 News, French President Sarkozy was reported as saying that Britain, in seeking safeguards for the City of London, was trying ‘to set up an offshore centre’ which would drain capital from the EU. Once again offshore or at least the term ‘offshore’ is drawn into the political debate as a negative feature of the financial services system. It was an interesting but rather unsettling comment, which perhaps is a reflection of the mindset of one of Europe’s most influential leaders.   

Some local finance practitioners believe that the shift in power in the EU will work in the Channel Islands' favour because more firms will consider Jersey as an alternative to London because of fears that the City will suffer increasing regulation from Brussels which Britain will be powerless to prevent. But I’m not sure it's as simple as that.

It seems to me that the Channel Islands have been successful because the City has been successful and if the latter is severely hindered by rampant regulation from the EU, does it necessarily follow that the Channel Islands would benefit and obtain increasing business as a result?

Furthermore, what have Sarkozy and colleagues in mind for regulating offshore jurisdictions? The EU leaders are probably convinced that the country with the most to lose from attacking offshore jurisdictions is Britain which has three of the most successful within the British Isles.  The outcome is uncertain.

What is certain is that the offshore jurisdictions remain bystanders to this political infighting between the members of the EU. With the UK on the fringes and other states angry with the UK for having used the veto, how will this affect the British Crown Dependencies once the dust settles? Will all the hard work to try and convince the EU of the value of offshore locations in supporting onshore economies come to nothing if political objectives take precedent?

The relationship between Germany, France and the UK would seem to be crucial here and the implications from the decision on Friday December 9 are far from clear, so we will be watching political comments from the EU about the UK and its financial services industry with renewed interest.

MS