A recent initiative undertaken by the Financial Stability Board (FSB) to encourage the uniform adherence of countries to specific regulatory standards on international cooperation and information exchange concluded that many ffshore jurisdictions were in fact highly cooperative on such matters. The assessment was primarily focused on whether evaluated jurisdictions met the global standards in three areas: banking supervision, insurance supervision and securities regulation.
The Board was essentially envisioned as the successor of the Financial Stability Forum, which was founded in 1999 by the G7 Finance Ministers and Central Bank Governors. The recent financial crisis exposed the ineffectiveness of that Forum, with its short list of members, in tackling global economic issues in the 21st century. In 2008, the Leaders of the G20 countries consequently insisted on a wider membership of the financial forum and a larger role for emerging economies within its mission. The Forum was later re-launched as the Financial Stability Board at the G20 Leaders Summit in April 2009, with the goal of coordinating on an international stage between nation-based financial authorities and international standard setting bodies to reach worldwide economic and financial stability. It was also entrusted with the task of developing and promoting cross-border regulatory and supervisory policies, as well as assessing their genuine implementation by governments.
Members of the FSB currently include central banks and monetary authorities from 24 of the largest and highly vibrant economies and regions, in addition to important international organizations such as the European Central Bank (ECB), the International Monetary Fund (IMF), the Organization for Economic Co-operation and Development (OECD) and the World Bank. Other boardmembers arestandard setting bodies including the Basel Committee on Banking Supervision, the International Accounting Standards Board, and the International Organization of Securities Commission.
The assessment, entitled lobal adherence to regulatory and supervisory standards on international cooperation and information exchange was published in early November 2011. It is regarded as one of the most effective tools available to the FSB in its quest to promoting international adherence to prudential financial standards and higher cooperation levels between countries. The evaluation covered 61 jurisdictions, including the FSB 24 members. Depending on the degree of their implementation of the relevant cooperation and information exchange standards, jurisdictions were categorized into three groups: those "demonstrating sufficiently strong adherence" to these standards, those aking material progress towards demonstrating sufficiently strong adherence", and lastly those jurisdictions judged as "non-co-operative".
Offshore jurisdictions meet standards
Offshore centers have been the subject of intense scrutiny and pressure from the international community lately, especially after the financial crisis, as their vital role in facilitating cross border investments went generally unappreciated in the following months and some of them were even accused of facilitating fiscal evasion. In reality, many of these centers have had a positive impact on growth in the global economy and an increasing number of them are meeting the highest standards of supervision within their regulations, improving international cooperation with other countries and outright combating fiscal evasion. As a result of the FSB latest assessment, many offshore jurisdictions were ranked amongst the assessment tier one category alongside major economies including the US and Germany.
Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Guernsey, Hong Kong, Isle of Man, Jersey, Liechtenstein, Malta and Switzerland were among those offshore centers deemed as highly cooperative. In recent years, these financial hubs have also taken strides in demonstrating commitment in the fight against money laundering and terrorism related funding. They have now been recognized by the Board for their efforts in implementing effective information exchange systems and for their general cooperative conducts.Investment channeled through their establishments can provide much-needed liquidity in tight economic spells, broaden investment possibilities and enhance competitiveness within the financial services sector. They can also offer direct access to worldwide capital markets, and are more often than not a little more successful at that than some major economies.
The FSB evaluation of each jurisdiction level of adherence was primarily based on the latest available information from the joint IMF/World Bank Report on the Observance of Standards and Codes (ROSC), and on whether or not the assessed countries signed the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMoU).
Reactions
Immediately after the assessmentof the Financial Stability Board was completed and announced, praised offshore centers were quick to boast about their latest vindication on global financial supervisory issues. Almost all of them either mentioned the results in official governmental proceedings or sent out special press releases.
On December 9, Paula A. Cox, Premier of Bermuda, mentioned the FSB initiative during a Ministerial Statement to the House of Assembly. ecently Ramon Fernandez, Chair of the Financial Stability Board [FSB] and Secretary of the Treasury, Ministry of Economy, Industry and Employment, France sent a letter informing me of their evaluation exercise In the letter he states and I quote: "I am writing to inform you that Bermuda is one of the jurisdictions that was included in the initial pool for evaluation, since it ranks highly in financial importance. I am pleased to note that, according to publicly available information, Bermuda already demonstrates sufficiently strong adherence to international cooperation and information exchange standards and therefore, no further evaluation is necessary under the FSB's current initiative." She then boasted, igh praise indeed for a small jurisdiction that manages to stand toe to toe with giants!
In an emailed statement commenting on the matter, Peter Niven, Chief Executive at Guernsey Finance (the promotional agency for the Island finance industry), highlighted Guernsey track record of international assessments over the past two decades. e have faced scrutiny from a number of external agencies, including the UK Government, the EU, the IMF, the OECD and the Financial Stability Board. On each occasion, Guernsey has been placed within the very top tier of international finance centers globally On the evaluation itself, he added he FSB report prepared for the G20 meeting in Cannes recognized Guernsey as within the top tier of jurisdictions adopting international standards and thereby demonstrating strong commitment to financial stability. /p>
The future of offshore
What this assessment, along with other similar publications and a host of individual efforts taken by offshore centers to better position themselves with respect to international standards, mean for the future of this whole sector and its attractiveness is an intensely debated subject across the financial community. Some observes have termed it a ouble edged sword On one hand, this provides personal and corporate clients dealing with offshore jurisdictions with added reassurance on the legitimacy of their service providers and a cleartab on tax evasion issues with their local governments. On the other hand, some of these financial centers have come under fire from governments and regulatory bodies for specific elements that all but define their strengths as a financial service provider in a highly competitive industry. Banking secrecy is one of the most important such elements, as is several types of business-friendly domestic tax structures.
Responding to how Guernsey appeal was being affected by this delicate balance of advantages and potential disadvantages, Guernsey Finance Peter Niven maintained that better reputation was proving to be better for business on the Island. articularly he explained, n view of the financial crisis. Knowledgeable and professional investors want to make sure that they are using a reputable and reliable international finance (center) On the future outlook of the Channel Island offshore services he confidently stated, ime will show that Guernsey proactive and cooperative approach to signing tax information exchange agreements and meeting international standards of regulation has been in the best interests of the Island as a whole
One crucial and undeniable outcome is already evident. The continued worldwide crackdown on tax havens and the persistent coordinated efforts of the world largest economies tousher in a new highly regulated, information sharing, transparent and collaborative global financial industry are already reshaping the way offshore centers do business and how they market themselves.
