Since opening its first international office in London back in 2001, Walkers has played a central role in the evolution of offshore legal services in some of Europe’s major financial centres. It has supported clients through periods of significant upheaval, from the financial crisis in 2008 to Brexit less than a decade later, while advising at the forefront of regulatory change and market innovation across multiple jurisdictions.
Walkers has established itself as a leading firm in each of Jersey and Guernsey following a period of sustained investment and expansion across both islands. This growth, coupled with its dominant global footprint, makes it uniquely positioned to assess the competitive landscape that offshore firms are operating in.
“International finance centres like Jersey and Guernsey have been reactive to the changes that have been occurring in the major financial centres such as London, New York, Hong Kong, but proactive in terms of dealing with foreseeable challenges and an ever-evolving regulatory landscape,” said Fraser Hern, a partner at Walkers and head of its Channel Islands business.
Hern confirmed that the pace of change in offshore jurisdictions has been particularly marked over the past decade as those centres seek to become the go-to jurisdictions for new market innovations and opportunities.
“Investors and advisors alike are increasingly savvy,” said Hern. “The offshore jurisdictions which thrive will be those which manage to maintain Tier 1 levels of quality, service and reputation, whilst at the same time being demonstrably dynamic and commercial in how they approach and take advantage of market opportunities.”
Investors and advisors alike are increasingly savvy Fraser Hern
Ireland's Brexit dividend
Ireland has also seen significant growth as a finance centre over the past quarter of a century, with Walkers being at the forefront of this industry since opening in Dublin in 2010.
“We’ve seen continuous growth in the presence of global financial institutions in Ireland, and this in turn has driven growth in professional advisory firms, which we have been a beneficiary of now for over 15 years,” said Nicholas Blake-Knox, managing partner of Walkers’ Ireland office. “Ireland has grown to become the third-largest funds domicile in the world, and based on the current rate of growth, is expected to take over as the second largest, behind only the US. A lot of that growth has been driven by exchange-traded funds (ETFs), but also by other investment products as well.”
The jurisdiction benefited from Brexit, as a wave of UK-based asset management firms set up shop in Ireland as a European hub.
As a London-based gateway to Bermuda, BVI and Cayman for an EMEA client base, Walkers’ London managing partner Hughie Wong says regulatory intensification has been the biggest change over the past 25 years, an area where Walkers has cemented its reputation with the largest and longest-established group of financial regulatory lawyers among offshore firms.
“We’re still living in a high tide of regulation globally post the great financial crisis, so there’s a lot more regulation we as advisors have to deal with,” said Wong. “There was a time that, as an offshore lawyer, regulation was lighter, but now we need and have a dedicated regulatory department, which is a good illustration of the difference over that time.”
Walkers opened its London office in 2001
Shifting legal demand
Demand for legal advice in these jurisdictions has also shifted over the past quarter of a century.
“The Channel Islands have evolved into specialist international finance centres supporting international capital flows on highly sophisticated multi-jurisdictional transactions and matters,” said Hern. “Regulation and transparency have increased dramatically, and the Channel Islands have adapted – often proactively – to international standards around AML, sanctions, beneficial ownership, economic substance, tax standards and regulatory supervision. The investor base using the Channel Islands has also evolved considerably as a consequence and has become much more global in nature.”
Digital assets and tokenisation have been another area of growth for a number of the offshore jurisdictions, with Walkers now seen as the leading firm in the Channel Islands in blockchain, alternative finance models and other fintech-related matters.
“The conversation in this space is well past speculative crypto opportunities,” said Hern. “We have an increasingly complex and considered institutional client base looking at the tokenisation of real-world assets, digital fund interests, custody solutions, digital infrastructure and compliance frameworks around digital finance. Far from being lightly regulated hubs, the Channel Islands are positioning themselves as market-leading and highly credible jurisdictions for international digital finance.”
Ireland has grown to become the third-largest funds domicile in the world Nicholas Blake-Knox
In Ireland, a growth in demand for alternative investment funds is being seen, including private credit and direct lending funds. The country recently transposed the Alternative Investment Fund Managers Directive 2 into Irish law, which introduces a passportable loan origination framework, which Blake-Knox believes should drive further growth in the private credit market as the rules are harmonised across Europe. Strong demand also continues for Walkers’ finance and capital markets offering as well as its financial regulatory advisory practice.
“There have also been changes recently to the domestic tax regime here, which has introduced a dividend withholding tax exemption for our investment limited partnership vehicle, and we think that will stimulate further growth in private equity funds,” said Blake-Knox.
Demand for Cayman Islands services via London also continues to be dominated by fund-related matters.
“Our biggest features for the Cayman Islands proposition has always been funds – hedge funds and increasingly private equity funds and venture capital funds,” said Wong. “We also have very strong corporate practices in the Cayman Islands and the use of our SPVs in various structures for regulatory and tax reasons.”
Forum selection
When it comes to forum selection, there are several reasons why a client might choose one jurisdiction over another.
“Whilst tax has always been a key structuring consideration, regulation is an increasingly key focal point,” said Hern. “The Channel Islands are highly regulated jurisdictions, and that’s intentional. They’re not trying to be seen as light touch from a regulatory perspective. They want to be seen as the gold standard.”
And while that perhaps hasn’t resulted in the same volume of work to the Channel Islands out of Asia and the Middle East as it has to the Caribbean jurisdictions, from a reputational perspective, the Channel Islands is among the most credible globally, says Hern.
One of Ireland’s chief selling points is its European regulatory position, which enables users of the jurisdiction to passport investment products and services throughout Europe, which is particularly attractive to third-country firms that set up hubs in this jurisdiction, says Blake-Knox.
It also has a strong network of international tax treaties that provide efficiencies for investors, he adds.
“A lot of our clients that are in the US or in the UK, for example, say the way in which we do business is quite similar to what they’re familiar with,” Blake-Knox said.
London clients are often seeking tax neutrality to facilitate cross-border investments without the risk of tax leakage, says Wong. In the fintech and digital asset space, jurisdiction choice is often dependent on the desired level of regulation.
“That doesn’t necessarily mean minimal regulation, because depending on the particular type of structure, relevant service providers are actually quite worried about money laundering risk or terrorist financing risk, so they do actually want a level of mandatory regulation rather than just as little as possible,” said Wong.
[Clients] do actually want a level of mandatory regulation rather than just as little as possible Hughie Wong
Looking to the future
Demand for services may also evolve in the future. For example, in the Channel Islands, fintech-related reforms will ensure both islands remain at the forefront of development as they seek to stand out relative to other jurisdictions – both onshore and offshore.
“The pace of change in many sectors in which we operate is very significant, perhaps more now than ever before. We have to be right on the pulse of it,” said Hern.
The continued appeal of the Channel Islands will be dependent on its ongoing embrace of innovation and flexibility to welcome new products and opportunities.
“It’s about saying we’re open for business with a can-do attitude, but we’re not going to compromise on quality or credibility,” Hern said.
In Ireland, the future looks bright as international firms continue to expand and integrate Ireland into their long-term business plans. In addition, the jurisdiction continues to expand its investment product toolkit, most recently with enhancements to its private market fund offering, where Ireland now has the appropriate tax framework alongside the regulatory and legislative frameworks to drive greater market growth.
“Users of these products and services typically want to consolidate their operations in a particular hub, as opposed to having to set up different offerings in different jurisdictions, and so it’s really important that Ireland has all of the tools users of the jurisdiction need to do that,” said Blake-Knox.
For London clients seeking offshore services, no news is always good news.
“Cayman Islands is a facilitative jurisdiction, so change can be disruptive,” said Wong. “At the moment, there is no material change, which is a good thing.”
This is the first of two articles celebrating the 25th anniversary of Walkers' European operations, following the opening of its London office in 2001. The second article will commemorate the Jersey and Guernsey offices' 20th and 10th anniversaries, respectively. Click here for more information about Walkers.
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