Finance Update For international investors and their advisors Issue No.1 - May 2009 Jersey’s stability makes it an attractive choice The importance of Jersey’s enduring stability has been recognised Read Article Time to differentiate between compliant and non-compliant centres Read Article Also in this issue: ■ Jersey Finance opens London office Read Article ■ Company law changes help Jersey to prepare for the recovery Read Article ■ Jersey Foundations: a new string to Jersey’s bow Read Article ■ EU Savings Directive update Read Article ■ Are wealth managers doing all they can to help our Jersey trustees? Read Article ■ What can Jersey offer to hedge fund managers? Read Article ■ Investing in a low interest rate environment Read Article
Transcript
Finance UpdateFor international investors and their advisors
Issue No.1 - May 2009
Jersey’s stability makes it an attractive choiceThe importance of Jersey’s enduring stability has been recognisedRead Article
Time to differentiate between compliant and non-compliant centres Read Article
Also in this issue:
■ Jersey Finance opens London office Read Article
■ Company law changes help Jersey to prepare for the recovery Read Article
■ Jersey Foundations: a new string to Jersey’s bow Read Article
■ EU Savings Directive update Read Article
■ Are wealth managers doing all they can to help our Jersey trustees? Read Article
■ What can Jersey offer to hedge fund managers? Read Article
■ Investing in a low interest rate environment Read Article
If you would like to contribute to the next issue of Finance Update, please email: [email protected]
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page 1
“The latest study on the competitiveness of the world’s financial centres reaffirms that the Island is weathering the storm well.”
By Geoff Cook Chief Executive, Jersey Finance
During this period of unprecedented upheaval in the global financial services markets, the importance of Jersey’s enduring stability has been recognised. Investors and their advisors are looking for solid, reputable organisations located in respected jurisdictions in which to shelter their assets, and Jersey continues to be an attractive and stable choice.
Business generally has been holding up well during these turbulent times and the latest study on the competitiveness of the world’s financial centres reaffirms that the Island is weathering the storm well.
The Island has been ranked 13th in the Global Financial Centres Index, one place higher than in the previous assessment six months ago. Jersey is one of only five offshore jurisdictions that make it into the top thirty in the Index, which is compiled twice a year by the Z/Yen Group for the City of London. The report concludes that some offshore jurisdictions led by Jersey, and our close neighbour Guernsey, may have a competitive advantage over other offshore locations, given the concerns that have been highlighted about the tax status of the offshore sector generally. The rankings also rate finance centres for their attractiveness in particular sub-sectors of financial services, and for the first time Jersey has entered the top ten in the table that ranks market access - with a listing at tenth spot, the only offshore centre to feature. Jersey remains highly ranked in the table based on the findings from the asset management sub-sector, currently in sixth place.
Jersey needs to be ready for when the downturn ends, so the Island has more developments in the pipeline. Further changes to the regulations affecting companies are planned for later this year and the Foundation vehicle will be on the statute very soon, adding to the choice of vehicles for wealth managers and advisors. We are bolstering our links with London by the opening of an office, we are continuing to negotiate with the authorities in Hong Kong to enable Jersey companies to list on the HK Exchange and we are visiting the Far East, the Gulf and Eastern Europe this year as we continue an active communications programme with intermediaries and international investors.
We also highlight some of the regulatory changes and business opportunities for investors who are using Jersey in the forthcoming articles of ‘Finance Update'. As always, further details are available on the Jersey Finance website,www.jerseyfinance.je.
Jersey’s stability makes it an attractive choice in turbulent times
Jersey Finance IntroductionFinance Update: For international investors and their advisors
Tax and secrecy issues Tax evasion and the secrecy of some jurisdictions have
become increasingly high profile in the discussions and
speeches of Western leaders as they seek solutions to the
global financial crisis, and there are significant calls for a
crackdown on jurisdictions that either maintain levels of
secrecy that make it difficult for law enforcement agencies to
investigate fraud, or have failed to embrace global initiatives
to exchange information on tax.
The role of international finance centres and their value
to the global economy has been widely misunderstood.
International Finance Centres or IFCs provide administration
and wealth management services to international corporates
and individuals around the world. They compete for
international business in exactly the same way as do many
OECD and G20 nations; on a mix of financial expertise, lower
costs, attractive tax regimes, political and social stability, and
robust, flexible, laws and regulation.
Jersey protects the rights to privacy and confidentiality
of financial information relating to law-abiding citizens
without the need for the banking secrecy laws used by some
finance centres. Latterly, Jersey’s commitment to the OECD
programme for information exchange and the willingness
of the Island to sign a number of Tax Information Exchange
Agreements including with the UK and US, has been
recognised by the most powerful Western economies.
You can read more about my views on these and other issues
in my recently launched blog, found on our website.
If you would like to contribute to the next issue of Finance Update, please email: [email protected]
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page 2
“Our standards of compliance and governance are well recognised.”
By Geoff Cook Chief Executive, Jersey Finance
Jersey remains confident of its position in respect of compliance with international regulations amid the current clamour for a crackdown on non-compliant jurisdictions.
The industry has welcomed the decision by the G20 nations to place Jersey on ‘a white list’ of jurisdictions that meet the internationally-agreed tax standard. The list, published by the Organisations for Economic Co-operation and Development (OECD) positions Jersey on the same list as the UK, the USA, and many member countries of the European Union and the OECD.
Some commentators have pinpointed the pre G20 comments of new US President Barack Obama as being a cause for concern for some offshore jurisdictions, but I believe Jersey has a track record of co-operation that will serve it well. The placing of Jersey on a ‘white list’ of co-operative jurisdictions has further cemented my view that our track record has been recognised by the leading Western economies.
For example, we have exchanged large volumes of criminal information with the US for many years and established a Tax Information Exchange Agreement in 2006 that has been operative since. Through the Island’s relationship with law enforcement agencies and regulators in the US, we have repatriated many millions of dollars of criminal proceeds.
In the wake of the credit crunch and collapse in confidence in the global banking system, there have been calls for greater transparency within finance centres and demands for a crackdown on fraud and tax evasion. Jersey would support such moves and would call on governments to differentiate between centres that are compliant and have led moves toward greater transparency and those that have not. The decision by the G20 nations to publish so-called ‘grey’ and ‘black’ lists of jurisdictions that have not made the same commitment to information exchange as centres such as Jersey is welcome, and
we hope that they will continue to press these other centres to meet similar standards.
Jersey is well-placed to continue to provide liquidity, critical to aiding the recovery of the global economy. We will be supporting the government in Jersey as it continues its work with the OECD to further the development of a global level playing field.
Our standards of compliance and governance are well recognised. For example, only recently HM Treasury in the UK publicly listed Jersey as a country it considers as having regulation and systems to combat money laundering and terrorism financing which are equivalent to EU standards. It acknowledged that Jersey and the other Crown Dependencies were fully compliant with international standards.
In Europe, we are making more efforts to influence the discussion about tax and transparency in financial services and have been represented in debates in Europe around these issues.
UK Review
Jersey is also confident that the UK government's independent review of the British Crown Dependencies and offshore territories, currently being undertaken by Michael Foot, will help to reinforce the strength of Jersey’s regulatory capabilities. This review will provide us with an opportunity to again demonstrate the high standards of regulation that are in place in Jersey, together with the actions we have taken to support the drive for greater transparency in global financial services. The interim report, published in April, confirmed the details of how the review is being conducted and established the progress made so far. The importance of the UK maintaining an understanding of Jersey’s financial viability is highlighted, as well as the relevance of Jersey’s reciprocal relationship with the UK.
Time to differentiate between compliant and non-compliant centres
Jersey Finance Finance Update: For international investors and their advisors News
The tables below summarise the OECD Secretariat’s report on the progress by financial centres around the world towards implementation of an internationally-agreed standard on exchange of information for tax purposes.
Click here to view the OECD report on the progress made by financial centres in the exchange of information.
Click here to view the Jersey Finance Briefing Document on Tax Information Exchange Agreements.
Click here to view the latest version of the OECD progress report which was published on the 2nd April 2009 and will be subject to change.
Information correct at time of going to press. This document is provided for general information purposes only and does not constitute or offer legal, financial or other advice upon which you may act or rely. Specific professional advice should be taken in respect of any individual matter. Whilst every effort has been made to ensure the accuracy and completeness of the information contained herein, Jersey Finance cannot be held liable for any error or omission.
Jersey Finance LimitedSuite 604, 6th FloorTower 42 25 Old Broad StreetLondon EC2N 1HN
“We need to ensure that professionals in the UK are kept up-to-date, are fully briefed on all that we can do and that strong contacts are made.”
“I see myself very much as an ambassador for
the Jersey financial services industry.”
Clive Boothman, London Representative, Jersey Finance
Jersey Finance has opened a permanent office in London at Tower 42 in the heart of the City, and has appointed Clive Boothman as their London Representative.
As well as promoting Jersey in the City, Clive will help to broaden Jersey Finance’s reach to key professionals within the industry and to strengthen the jurisdiction’s relationship with the City of London, the London Stock Exchange and trade bodies. Clive will also provide an easily-accessible point of contact for enquiries emanating from London-based media.
Having qualified as a Chartered Accountant in Jersey, and with family in the Island, Clive combines a knowledge of the many services Jersey can offer as an International Finance Centre with over 25 years experience working at a senior level in the financial services industry in the UK.
“I see myself very much as an ambassador for the Jersey financial services industry”, says Clive. “We need to ensure that professionals in the UK are kept up-to-date, are fully briefed on all that we can do and that strong contacts are made and maintained between Member firms and their UK counterparts.
Meeting with accountants, solicitors, trade associations - and their end-clients – as well as opinion formers in the media, City Corporation and regulators will be an important part of my role. I intend to hold regular, informal, themed dinners for UK professionals and will also support our seminar programme in the UK.”
Clive will make regular visits to Jersey and has already started to meet Jersey Finance Members to hear first-hand what they see as the important issues, to obtain introductions to their key contacts in the UK and to consider ways in which business flows might be further improved.
Contact details for the London office are given below. If you would like to meet with Clive in London or in Jersey – or pass him a useful UK contact – please e-mail him at:[email protected]
Jersey Finance opens London office
Jersey Finance Finance Update: For international investors and their advisors News
If you would like to contribute to the next issue of Finance Update, please email: [email protected]
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page 5
“Recent changes to the Companies (Jersey) Law 1991 continue to demonstrate Jersey’s commitment to providing a leading statutory framework for companies domiciled in the Island.”
By James Gaudin Partner, Walkers
Contrary to the gloomy reviews we are served daily in the media, we think business has actually been relatively robust in recent times.
The market is adapting and we are currently advising on restructurings, insolvencies, all types of ‘distressed products’, re-domiciliations, tier 1 capital raising and some innovative fringe financing with the funding coming from private individuals rather than the traditional (bank) sources.
Recent changes to the Companies (Jersey) Law 1991 (the “Law”) effected by the Companies (Amendment No.10) (Jersey) Law 200- (the “Amendment”) and the Companies (Amendment No.3) (Jersey) Regulations 2009 (the “Regulations”) continue to demonstrate Jersey’s commitment to providing a leading statutory framework for companies domiciled in the Island. The changes being introduced include:
■ Amendment to the definition of “open-ended investment company”. This amendment will facilitate redemptions and distributions for non-Collective Investment Funds (including COBO only, Unregulated and Master Fund structures) without the need for a formal written solvency statement. This particular amendment is an excellent example of how a strong representation from a member of the industry (in this case, Walkers) can pay dividends.
■ For the purposes of Part 12 of the Law, the redemption, purchase or cancellation by a company of its own shares will not be regarded as a reduction of capital and nor will the making of a distribution in accordance with Article 115 of the Law.
■ Article 90 of the Law is to be amended to enable companies to specify in their articles of association a higher than two-thirds majority of the members or class of members concerned for the passing of special resolutions.
■ Amendments to Article 181 of the Law to limit the circumstances in which a payment on redemption or repurchase of share may be clawed back on insolvency of a relevant company.
■ Additional requirements for a company to have a registered office in Jersey, including a new offence where companies do not comply with their obligations.
The amendment will need to be approved by the Privy Council (anticipated to be in Quarter 3 of 2009) and will come into force 7 days after it is registered in the Royal Court. The Regulations came into force on 3 March 2009.
The key question within the finance industry is no longer “How do we manage the downturn?”; rather it has moved on to “How do we get in the right position to maximise opportunities when the industry recovers." These changes to company law and others will help Jersey to be in that ‘right’ position.
Company law changes help Jersey to prepare for the recovery
Jersey Finance Finance Update: For international investors and their advisors Legal
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page 6
“Clients seeking a viable alternative to a Trust or Company will find that a Jersey Foundation may just suit their needs.”
By Oliver Donagher Associate Director, Horizon Group
Like the foundations of a house, Jersey has for the last three years been working on a new law which will strengthen its foundations as a world-class leader in the field of Offshore Financial Services with the introduction of the Foundations (Jersey) Law 200[9]. This law was passed on 22nd October 2008, and it is anticipated that it will come into force later this year.
This new legal entity of a Foundation is a combination of a Trust and a Company and its characteristics can be summarised as follows:
■ It can hold assets in its own name
■ It can enter into a contract, it can sue and be sued in its own name
■ It has a Council of Members to administer the business of the Foundation
■ There are no shareholders, hence some refer to it as an Orphan Entity
■ It can have one or more objects, which can be either charitable or non-charitable and/or be for the benefit of one or more beneficiaries
A Foundation is established in a similar way to a Company. Instead of Subscribers, a Founder is the person who calls for the Foundation to be incorporated. However, only a Qualified Person, someone who is registered with the Jersey Financial Services Commission (JFSC) to carry on Trust Company
Business, can apply for the incorporation of a Foundation, but a Founder can instruct a Qualified Person to apply on the Founder’s behalf.
The Qualified Person will be required to file a Charter with the Registrar at the JFSC. The Charter will have to specify the objects of the Foundation and unlike other jurisdictions, Jersey will not require a Foundation’s objective to be non-profit making.
Many see the advantages of a Foundation as follows:
■ It can be used for general commercial transactions provided that they are incidental to the attainment of its objects
■ It can be seen as an alternative to Trusts, particularly in parts of the world where the concept of Trusts are unknown or alien
■ Charities and Philanthropic organisations can use Jersey Foundations as a vehicle for distribution
In relation to taxation, Foundations will be treated like Jersey Companies, i.e. liable for 0% tax under the new 0/10 system. However, the service provider is required to notify the Income Tax Department if there are any Jersey resident beneficiaries. The UK has no provisions for Foundations for any of its taxes.
As Jersey thrives in areas such as Wealth Management, clients seeking a viable alternative to a Trust or Company will find that a Jersey Foundation may just suit their needs.
Jersey foundations:
a new string to Jersey’s bow
Jersey Finance Finance Update: For international investors and their advisors Legal
Click here to link to the Jersey Finance fact sheet on the Jersey Foundation.
If you would like to contribute to the next issue of Finance Update, please email: [email protected]
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page 7
“Amending proposals were adopted in November 2008 which would widen the scope of the Directive. ”
By Lisa-Jane Harper Tax Senior Manager, Ernst & Young
The EU Savings Directive (EUSD) was implemented in Jersey in 2005, and, in general, catches payments of interest made to individuals resident in the EU. Such payments suffer a retention tax (currently 20%) unless the individual agrees for information on such income to be exchanged with their home country tax authority.
Last year, the Commission undertook its review of the first three years of operation and concluded that the Directive, although effective within the limits of its scope, can be easily circumvented.
László Kovács, Commissioner for Taxation and Customs, commented “the current scope of the Directive needs to be extended, in order to meet our goal of stamping out tax evasion, which affects the national budgets and creates disadvantages for the honest citizens” - a reflection of the EU’s original intentions and the current global zeitgeist.
Amending proposals were adopted by the Commission in November 2008 which would widen the scope of the Directive to include:
■ interest payments channelled through intermediate structures, by using a 'look-through' approach to catch payments made to legal entities and other ‘arrangements’ where an individual ultimately holds an interest;
■ income from securities which are equivalent to debt claims, such as certain structured products, and life insurance contracts whose performance is linked to income from debt claims;
■ income from non-UCITS1 funds, regardless of their legal form.
Such amendments would have a significant impact on the EUSD as implemented in the Island.
Generally, it is considered that Jersey made the best of the matter in 2005, and many of the arguments forwarded at that time with regard to the continuing need for a level playing field, and the similar adoption of the Directive by other third countries, such as Singapore, and Hong Kong/China, remain.
The practical reality is that there is likely to be a delay before any of the above proposals are agreed to, not just by Jersey but by other EU Member States like Luxembourg, and by third countries such as Switzerland.
However it is clear that the political will is there within the EU to crack down on perceived tax evaders within their borders, whether this is achieved through the EUSD, or otherwise. Definitely a space to watch!
1 Undertakings for Collective Investment in Transferable Securities
EU Savings Directive update
Jersey Finance Finance Update: For international investors and their advisors News
“The political will is there within the EU to crack down
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page 8
“It is no longer enough for wealth managers to send a generic balanced portfolio out to the trustees and then wait for a decision to proceed or not.”
By Jim Gilligan Head of Private Wealth Management - International Sales, Kleinwort Benson
The last few years have seen an awakening in the trustee world as to the importance of effective management of fiduciary duties, with regard to the management of the investable assets held.
The current economic difficulties have certainly brought this issue into focus, and trustees are now reaching out to wealth managers and other advisors to help them manage the process, and the investment risk of both the beneficiaries and the trust company itself.
As a result, a trustee’s relationship with its investment manager has become more important and we are seeing a far greater degree of collaboration within this relationship. For instance, it is no longer enough for wealth managers to send a generic balanced portfolio out to the trustees and then wait for a decision to proceed or not, as that adds no value to the trustees.
Forward-thinking firms are seeking to help trustees to ensure that the risk profile of the trust assets is correctly established, utilising all available asset classes to provide well-diversified portfolios which have, in the main, outperformed the more traditional asset allocation models of cash, bonds and equities.
With the trustee business so integral to Jersey’s finance industry, involving trustees in risk profile management will be critical to the Island’s continued success in attracting high-calibre business, and it will also minimise the exposure to potential litigation brought against trustees through the Jersey courts.
Wealth managers in Jersey need to reach out and help trustees, providing a coordinated and professional service to further enhance Jersey’s reputation as a financial centre of excellence.
Are wealth managers doing all they can to help our Jersey trustees?
Jersey Finance Finance Update: For international investors and their advisors Wealth Management
Sub-Indices by Areas of Competitiveness (changes against GFCI 4 in brackets)
Rank Asset Management BankingGovernment &
RegulatoryInsurance Professional Service0s
12345678910
London (-)New York (-)Singapore (+1)Hong Kong (-1)Zurich (-)Jersey (-)Geneva (+1)Guernsey (-1)Dublin (+1)Luxembourg (+3)
New York (+1)London (-1)Singapore (-)Hong Kong (-)Chicago (+1)Zurich (-1)Geneva (-)Frankfurt (-)Boston (+4)Toronto (+2)
London (+1)New York (-1)Singapore (-)Hong Kong (-)Chicago (-)Tokyo (+2)Frankfurt (+5)Paris (-1)Zurich (-3)Toronto (-1)
London (-)New York (-)Zurich (-)Singapore (-)Hong Kong (-)Dublin (+2)Tokyo (-1)Hamilton (+1)Munich (-2)Geneva (+1)
London (-)New York (-)Hong Kong (-)Singapore (-)Zurich (-)Geneva (+3)Jersey (-1)Guernsey (-1)Frankfurt (+3)Chicago (-)
Jersey was ranked 13th overall in the Global Financial Centres Index, March 2009, an increase of one place since the last Index. High rankings were also achieved in the Sub-Indices by Areas of Competitiveness, as shown below.
Please click here to complete the GFCI questionnaire, to give feedback on any jurisdiction that you have done business with.
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page 9
“Jersey can boast a flexible but robust regulatory regime, a well-developed legal system, a benign tax regime, and a highly-qualified and experienced finance sector work force, but what really sets Jersey apart is quality of life. ”
By Wendy Dorman Tax Partner, PricewaterhouseCoopers
The hedge fund as an asset class has been around since the 1940s, but it is only really in the last 15 years that we have seen rapid growth in the sector, assisted by impressive performance returns and broader interest, including from institutional investors. It is estimated that the industry managed around $2.5 trillion at its peak last summer1.
New York was the birthplace of the hedge fund, and today the vast majority of hedge fund managers are based in either New York or London. In the last year or two there has been a trickle, if not a steady flow, of hedge fund managers relocating away from the US and UK. Modern work practices mean that physical location in the main financial centres is not critical, and managers have been driven by a desire to find a better quality of life, and in many cases a tax environment where they can build wealth without significant tax leakage.
The banking crisis has thrown the spotlight on the hedge fund industry, and some commentators have blamed the practices of hedge fund managers for instability in capital markets. Those based in the UK and US now face the prospect, not only of being public enemy number one, but also of increased regulation and increased taxation. Some managers are now exploring the options overseas, but given recent turmoil there will be a flight to quality. Managers will be looking for a location with a reputation for strong but appropriate regulation and not one making headlines for all the wrong reasons.
Jersey has already attracted a number of managers including Altis Partners, ranked 14th in the Bloomberg top 20 best performers2. What is the attraction? Jersey can boast a flexible but robust regulatory regime, a well-developed legal system, a benign tax regime, and a highly-qualified and experienced finance sector work force, but what really sets Jersey apart is quality of life. A high quality education system, safe environment for families, easy access to the UK and Europe: it is easy to overlook the importance of these factors, not just for managers but also for their families.
Jersey ticks all the boxes. With a population of around 90,000, the business community is well connected, commuting times low, beaches and scenery spectacular, and social life vibrant. There is a wonderful balance of small-town feel with a sophistication normally associated with far larger jurisdictions. Added to this is the attraction of low rates of income tax for companies and individuals, no inheritance tax, and no capital gains tax. And just to make sure the move goes smoothly, there is a nice man from the States of Jersey who will guide you through all aspects of your relocation to the Island.
1 AIMA Roadmap to Hedge Funds2 World’s best-performing hedge funds, Bloomberg Markets, January 2009. Ranking based on data compiled by Bloomberg and information supplied by hedge fund research firms, hedge funds and investors. Figures are for the nine months ended on 30 September 2008 and include hedge funds with more than $1 billion under management.
What can Jersey offer to hedge fund managers?
Jersey Finance Finance Update: For international investors and their advisors Funds
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page 10
“The objective is to find a way of enhancing yield without running the undue risks associated with low credit rated banks, high-risk asset classes, or tying up capital for too long.”
By Phil Cutts Head of Advisory, British Isles, RBC Wealth Management
The world has changed. With interest rates at an all time low, generating meaningful yields on cash deposited at the bank is almost impossible. This has significant implications for High Net Worth Individuals with accounts in Jersey, and for the banking industry in Jersey as a whole.
Yield enhancement is a topical issue for most investors, and this is particularly the case for international clients, many of whom have offshore accounts in the Channel Islands in which their wealth is held in cash or near cash instruments. For some investors, holding cash and preserving their wealth with a strong and stable institution in these volatile times is enough; for others, the objective is to find a way of enhancing yield without running the undue risks associated with low credit rated banks, high risk asset classes, or tying up capital for too long.
There are a number of choices available to the investor with an international element to their lives. People with the need for two or more currencies, be it because they have families, homes, businesses or other assets abroad, and who are happy to convert to another currency, can invest in currency linked deposits such as Dual Currency Deposits and enjoy a significantly enhanced yield over regular-term deposits. Other currency-linked deposits allow clients to benefit if rates stay within set ranges, and others, if rates move either up or down from where they are at the beginning of the deposit period.
Low interest rates have implications for financial institutions too, as the profit margins on deposits are being eroded as
interest rates have fallen. Traditionally, this has been a core element in the profitability of banks, but it is now declining. It is likely that, as a financial centre, Jersey will see its banks having to become more innovative in finding new ways to generate earnings and we can expect to see an increased emphasis on developing other solutions that meet the needs of both clients and banks in our new low interest world.
FX Linked Yield Enhancement Ideas
Investing in a low interest rate environment
Jersey Finance Finance Update: For international investors and their advisors Banking & Investment
A Dual Currency Deposit (DCD) is a foreign exchange-linked
deposit that can meet an investor’s foreign currency needs
whilst offering the potential for a higher interest rate than
available with other fixed-term deposits. In compensation
for the higher risks that are associated with DCDs arising
from foreign exchange market exposure, the returns are
higher than the returns on normal deposits. The deposit
will receive a higher rate of interest irrespective of what
happens to the exchange rate. However, the principal may
be received back in the alternative currency if the exchange
