A shifting outlook in a turbulent decade
The last decade has perhaps been the most turbulent period the industry has faced, with major geopolitical, economic, regulatory and technological shifts all driving radical transformation.
The Vistra 2020 report launched in 2010 to help the industry navigate and understand change. As the pool of survey respondents grew, we have drawn on the results to provide some prescient insights.
Here, we reflect on three major trends that Vistra 2020 has explored, discussing which predictions came to pass, those that have been less clear-cut, and what the future may hold.
1. Swing from China inbound to outbound
At the beginning of the last decade, more of our survey respondents’ China business was inbound (55%) than outbound (45%). Yet an overwhelming majority (70%) anticipated the scales tipping in the other direction within five years.
By 2013, this swing had already materialised. Looking ahead, it was clear China would be the major global driver for new business within the industry. Hong Kong, BVI and Cayman would all benefit greatly as Chinese clients relied on them within outbound structures.
Yet today, with US-China relations under severe strain and threats to globalisation exacerbated by the coronavirus pandemic, growth in China’s outbound investment may stall, or even reverse in some regions.
China’s emerging market investments may be rocked by the pandemic fallout too, as crisis-hit countries included in the ‘Belt and Road Initiative’ apply for debt relief. Meanwhile, on the structuring front, Singapore is working hard to attract increased capital flows from China’s wealthy at the expense of Hong Kong.
These issues will fall under the spotlight in this year’s study, to understand which outcomes the industry is preparing for.
2. Ongoing shift from offshore to mid-shore — but not a zero-sum game
Since the early iterations of Vistra 2020, we’ve tracked the rise of mid-shore jurisdictions such as Hong Kong, Ireland, Luxembourg and Singapore, which has come at the expense of some offshore centres.
The regulatory changes sweeping the industry, intensifying scrutiny of offshore business, and new competitive levers being introduced by mid-shore jurisdictions promised to propel this shift.
While Vistra 2020’s jurisdictional rankings have broadly borne out some of these changes, with onshore and mid-shore coming to dominate, the shift has been less pronounced than expected.
Hong Kong and Singapore have adapted their corporate laws and fund regimes to compete with traditional offshore centres – and with some clear success – but it has not triggered an exodus towards mid-shore.
In many cases, clients have seen value in incorporating both mid-shore and offshore vehicles within their structures, creating a complementary relationship.
As we revisit this trend in our latest study, we’ll see if the industry plans to stick with tried and tested jurisdictions and structures in these uncertain times, or if there’s still appetite for new approaches.
3. From regulatory aversion to regulatory advantage
Regulation was one of the biggest disruptors of corporate services over the last decade.
While the industry was used to scrutiny from individual governments and agencies, by 2010 it was clear that real global coordination was underway, as the OECD – backed by the G20 – led new tax and information exchange initiatives.
The industry was moving away from a fragmented regulatory landscape, in which some jurisdictions saw minimal rules governing tax, information exchange and substance as a selling point, while others had more stringent regimes.
A majority of our 2015 respondents predicted full implementation of the common reporting standard (CRS), and widespread adoption of central (non-public) beneficial ownership (BO) registries within three years.
Today, all jurisdictions in our Vistra 2020 rankings participate in the CRS, except for the US. And while central BO registries have not materialised everywhere, they’re now in place across most jurisdictions, including the British Crown Dependencies and Overseas Territories, and the EU is pressing its members to go a step further and introduce publicly available registers.
As the regulatory landscape has shifted, jurisdictions such as Jersey, the BVI and Cayman Islands have embraced its advantages, building reputational strength and finding opportunities to market more sophisticated structures.
In this year’s study, we will call on the industry to forecast the next twist in the tale. Has momentum behind regulatory harmonisation diminished? And will geopolitical forces lead us down a path of divergence in the wake of Covid-19?
We look forward to sharing our new insights with you when we release our report later this year.
Find out more about Vistra 2020 and download the 2018 report here.
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