In many cases the biggest names in the offshore world: Appleby, Maples and Calder, Mourant, Ogier and Walkers have become world-class specialists in offshore finance, private banking, wealth management, trust administration, fund management and company service. Being able to offer trust and legal services under the same umbrella business has come to be expected of the bigger players.
The offshore centres that survive in this environment, where buyers are more demanding, are those that offer a portfolio of services, including private and commercial banking, insurance, trusts, funds and company services.
The market for offshore law firms has altered radically in the last five years; it has also become more complex. The impact of external pressure has demanded tougher regulation by the centres. And now, they would argue, their regulatory environment is more robust and resilient than many onshore jurisdictions.
Local lawyers have played a considerable part in the formulation of new financial sector laws and regulations and in the structuring of new offshore products. For example, the revision of the trust laws in the British Virgin Islands (BVI) was done under the tutelage of local firm Harneys.
The formulation of the Manx corporate vehicle — the new international company structure — was fashioned by
As this edition of Legal Week goes to press,
“We have played a key part in the industry group which has shaped the new regime. Unregulated funds will be only suitable for professional and expert investors or those who have taken appropriate professional advice. We will be working for fund managers, intermediaries and shareholders.”
Funds and fund management are critical areas for the offshore legal market. There has been a rapid increase in litigation but also in the framing of new structures in each of the jurisdictions. The traditional fund jurisdictions: Jersey, Guernsey, the Isle of Man, Bermuda, Cayman, BVI,
In September, the Isle of Man Government issued details of the changes it intends to implement. In February, former HSBC director Paul Smith argued for a comprehensive revitalisation of the funds sector. The announcement by the Manx Government came as the island reported £25bn under administration.
The regime offers a new and enhanced suite of fund categories, including specialist fund and qualified fund products. It includes a major new focus on alternative funds to secure business for the incorporation, domiciliation and establishment of fund management operations in the Isle of Man. Funds under administration in the island are forecasted to double to £50bn over the next three years.
This followed
Impact of the sub-prime crisis
Cayman is — by far — the largest funds jurisdiction in the world. The vast majority of the world’s hedge funds are domiciled in
One of the main trends in the past year in Cayman has been the vast increase in the volume of work. Maples and Calder say its funds work has increased by at least 50% and probably more. Appleby talks about a substantial rise in activity.
Mac Imrie of Maples describes how funds business has changed in the last few months. “Traditionally, the business would be litigation around one of the parties failing to meet their obligations and a loss suffered by one or more of the other parties.
“Now in the wake of the sub-prime crisis in the
Despite the more volatile conditions that have taken hold of the world’s financial markets since the summer, Imrie says investors have become much more sophisticated, understanding what they are able get out of a situation and becoming more pragmatic about achieving their goals.
“What they are most keen on is staying out of court or being caught in the public gaze. If any one party has failed, that is different. They are quite happy about going to court in those circumstances. But in conditions where economic circumstances have played a major role, the parties want to get a quick resolution and move on.”
He says that in many of the most recent examples — certainly since the sub-prime crisis started to have an impact — work volumes have doubled and many of the cases have been behind- closed-doors transactions.
“I believe that this trend will be extended to other areas of our work. We may see other jurisdictions adopting this approach.”
Another factor in this hugely competitive arena is the structure of new fund products. The
This includes an Unregulated Eligible Investor Category and an Unregulated Exchange Traded Category. Funds in these categories will not be approved or authorised by the
“We have been taking note of the regulatory changes that have been introduced in other jurisdictions and following extensive consultation with the JFSC are now ready with a new element which has been missing from the Jersey product range in the form of unregulated funds,” says Richard Thomas, chairman of the Jersey Funds Association.
The profile of offshore financial centres in the last five years has taken on a significantly new dimension. The market has been defined by tougher and more penetrating regulation, a reaction to the collapse of poorly-capitalised centres, the globalisation of business, a diversification in services and a more demanding clientele.
In practice, this means that the 50 or so offshore financial centres of the late 1990s are now many fewer. Some centres have announced that they are out of the offshore business altogether.
A top tier of centres has emerged, including Jersey, Guernsey, the Isle of Man, Cayman,
The business sense behind
A lesson in mergers
The professional press has been littered with news of offshore mergers, intensive recruitment and the opening of new offices. The new combinations have reported substantially expanded income and a more sophisticated portfolio of work — presumably the key aims in any law firm merger.
In September, Mourant expanded its international financial administration operation division into Hong Kong and
The law firm arm of Mourant, Mourant du Feu & Jeune, finally signed the merger documents with Cayman’s Quin & Hampson in July.
One of the major areas of growth for offshore law firms has been the rapid rise in the funds market. Cayman is — by far — the home of the largest number of funds in the world.
Another area of growth for offshore law firms has been listing on the Alternative Investment Market (AIM). Cains, the leading
Jeremy Walton, a partner at Appleby, discusses his firm’s decision to move into
“It was one jurisdiction which did not have any major law firms. But this is a well-established offshore jurisdiction with an active government. It draws a considerable amount of business from
Looking further east from
The Malaysian Government argues that by 2015 half of the world’s Muslims will use Islamic finance products — the key centres for much of this new business will be
These offshore centres are ideally placed to position themselves as Islamic finance centres. The core problem is that there is insufficient legal talent available to meet the demand for Sharia law specialists. In the Gulf,
One local lawyer says: “Local Arab firms are really too small to cope with the sheer volume and the pace of growth in new work, but they have the distinguished specialists.
“In sheer practical terms, the
The offshore future
In the longer term, the offshore world will inevitably see further rationalisation of centres which will lead to 14 or 15 senior players in the next two to three years.
Most of the serious centres will offer a package of highly sophisticated services which adapt to the changing demands of an increasingly aggressive customer base.
There will also be further consolidation. The banks and major wealth management businesses are staking out their territories ahead of the shake-out which must inevitably come.
And the introduction of the zero-ten tax regime in the Isle of Man and shortly in the Channel Isles will spur another tax competitiveness war across Europe, the Mediterranean and the
Observers also expect the smaller centres such as
