Going Forward in Partnership

With most of the major European Banks having representation in the Channel Islands, the banking services market has traditionally been highly competitive. It has encouraged primary financial service providers such as trust companies to retain multiple banking relationships, enabling them to "shop around" for the best rates for their client deposits and, to a lesser extent, foreign exchange transactions. More recently, however, with an ever increasing cost base for the finance industry, we believe that it has become critical that closer links are forged between primary service providers such as trust companies and their bankers for the continued wellbeing of, and further growth in, the finance industry in the Channel Islands.

There are several challenges ahead for the finance industry that we expect to impact adversely its cost base going forward. While blessed with full employment on the islands, this restricts the ability to keep under control wage inflation, particularly when the general level of cost of living is running ahead of both competing offshore, and onshore, jurisdictions. It also presents a particular problem for the many multinational institutions represented on the islands that may be under pressure from Head Offices to contain costs because of an overall weaker financial performance globally.

At the same time, the administrative burden, too, is increasing the costs for the finance industry, particularly from the requirements of meeting more exacting regulatory standards. There is also on the horizon the EU Taxation of Savings Directive. This may ultimately add to the reporting requirements of the industry but, almost certainly in the shorter term, is likely to give rise to increased client concerns as to ensuring confidentiality over their financial affairs, with consequences for the already scarce time of those responsible for client relationship management.

How can Banks and trust companies work together to meet these challenges so as to minimise the inconvenience, and cost, to their clients?

Firstly it will be important to co-ordinate closely the gathering of essential "know your client" (KYC) information to accord with revised principles of best practice stipulated by the industry regulators. We should ensure that a client is not inconvenienced by multiple requests for such KYC documentation and that a costly "paper chase" is not generated for island firms.

We believe that in consideration of this process, which has been confirmed during discussions with Deutsche Bank's own clients, that this will inevitably lead to a reappraisal of the number of banking relationships that a primary service provider will maintain. The future additional requirement for banks to have in their possession certified documentation of the "principals" (widely defined in the new Overriding Principles issued by the Jersey Financial Services Commission) in any trust or company structure introduced to them from primary service providers will present a major practical problem for both Banks and trust companies. How many sets of such KYC information will a trust company wish to disseminate?

The attendant increase in the flow of information must be managed efficiently while ensuring that client expectations as to confidentiality of their affairs is not compromised. Banks that are able to assist the primary service providers in the capturing and retention of this KYC information, for example by utilising electronic data storage systems, should undoubtedly benefit.

A second important area in which to enhance efficiency for the finance industry, to which Deutsche Bank is committed, is in the ability of banking and investment information to be exchanged electronically directly into the systems of a trust company. There are barriers to achieving this caused by the plethora of bookkeeping systems used. However, if achieved, this can obviously result in valuable savings in administration time by eliminating manual entry of transactions into a company's accounting system by replacement with an electronic transfer from the Bank's own systems.

Lastly, with pressure on the resources of trust companies, it has never been more important for Banks to ensure that they deliver the highest level of service quality to their clients. Time spent managing a client's affairs is undoubtedly better spent than chasing up transaction errors made by Banks!

So, in summary, we believe that while there is likely to be a consolidation in banking relationships in the near future, financial intermediaries can rightly expect their bankers in return to work more closely with them to resolve upcoming problems facing the industry.