Fund firms operating in U.K. crown dependencies will become ensnared in serious damage should the European Union decide to blacklist the territories after Brexit, according to a parliamentary report released Thursday.
There are thousands of jobs and billions of dollars at stake for financial firms caught up in the U.K.s divorce from Europe. Britains crown dependencies - Jersey, Guernsey and the Isle of Man could see the $500 billion of assets under management across the region shrink if theres a blacklisting by the E.U.s Economic and Financial Affairs Council, or Ecofin.
The House of Lords is warning in the report that the U.K.s departure from the E.U. scheduled to begin on March 29 could leave its dependencies with no representation on the council deciding which jurisdictions do and do not comply with European tax rules. Ecofin could determine by the end of the year which countries to blacklist, and to which sanctions should apply.
Politically, it will be very difficult, Professor Alastair Sutton, a former European adviser to the U.K. crown dependencies who was cited in the parliamentary report, said in an interview. It is already difficult for the U.K. members of the European parliament.
Crown dependencies are neither part of the E.U. nor of the U.K., but the U.K. government has a constitutional responsibility to represent the interests of these jurisdictions during the Brexit negotiations. Sutton said the U.K. may not be consulted on certain things which are not ongoing business and deemed part of its E.U. negotiations, as soon as March 30.
The economies of Jersey, Guernsey, and the Isle of Man will see serious damage if the E.U. blacklists the territories despite the fact that they have ticked all the boxes internationally, in the Organisation for Economic Co-operation and Development, for compliance with tax, anti-money laundering legislation and financial regulation, the parliamentary report said, citing Sutton. He suggested the blacklisting was part of the E.U.s drive to deal with what they call low, no or zero tax jurisdictions.
Financial services firms are major employers in the Channel Islands, which are situated between 10 miles and 30 miles off Frances Normandy coast and include Jersey and Guernsey. The firms represent more than a quarter of the islands workforce, or 19,000 jobs, according to the report.
Jersey Finance, a trade association representing fund firms such as BlackRock, Brevan Howard and Invesco International, offered some reassurance Thursday.
As we understand it, the U.K. will have a seat on Ecofin until they leave the E.U. in 2019," Geoff Cook, chief executive of Jersey Finance, said in a statement. The E.U. blacklisting process is still at an early stage.
He said the trade group is in active dialogue with its members and the government.
Fund firms Schroders, JP Morgan Asset Management, Barclays International and RBC Wealth Management all declined to comment. BlackRock and BNP Paribas did not respond to a request for comment.
In a media statement, Senator Ian Gorst, chief minister of Jersey said that the Lords report reinforces the importance of that dialogue and the impact it will have on the successful representation of Jerseys position in the forthcoming Brexit negotiations as well as important opportunities for future trading arrangements.
Sutton said that people often mistakenly think that all 28 E.U. members would need to agree on a blacklisting before it could take effect.
That is correct for new legislation like VAT or corporate tax but this is not legislation. This is an executive act by the E.U. and there is no fixed rule about voting on that, he explained.
According to Sutton, if at the end of 2017, 27 member states feel that the islands should be blacklisted, then that will happen. I do not think the U.K. will be able to stop it, he said. Much depends on how the Brexit negotiations will go.
An E.U. spokesman did not respond to a request for comment at the time of writing.