Offshore Survey – October 2003 by Christopher Owen
Number of offshore financial centres predicted to decline
The number of offshore financial centres worldwide could fall below 20 as businesses look to consolidate their offshore activities in quality jurisdictions, according to PricewaterhouseCoopers? Global Private Banking/Wealth Management Survey 2003. The trend to erode protection and enforce exchange of information was putting pressure on the offshore centres, said the survey. As a result wealth managers would continue to consolidate their operations and reduce the number of offshore centres in which they operate to one key centre in each region. Only some 20 or 30 out of the 50 existing offshore centres might be sustainable in the future, but this number might be even smaller. Wealth managers would need to consider carefully where they locate their business, according to the source and flow of wealth of their clients, the regulatory and tax environment, and the opportunity to reduce costs without undue impact on their service to customers. Key centres might encompass new rapidly growing jurisdictions such as Singapore and Dubai. The survey found that regulatory risk had become of major concern to wealth managers, with compliance, anti-money laundering and new regulatory developments being the top areas respondents were currently addressing. But a significant percentage of respondents had not yet taken action and about 40% of participants did not even respond, indicating that the level of preparedness might be exceedingly low. Scale would be a major factor in meeting the additional cost of regulation, particularly for those operating in multiple locations and for small players. Offshore financial centres, said the survey, had continued to tighten regulation in response to pressures from international regulatory bodies such as the Financial Action Task Force. But pressure to reform would continue to be placed on those not agreeing to full exchange of information. In addition to flow of clients’ funds, regulatory and tax considerations would be crucial, with only well-regulated and secure centres surviving. The regulatory framework, both onshore and offshore, had undergone a seismic shift and non-compliance and poor risk management were corporate suicide, said the survey. While there was evidence of increasingly sophisticated approaches to risk management, some wealth managers still lacked adequate systems to ensure that they were not handling the proceeds of crime. Wealth managers should place risk at the core of their strategic thinking and institutionalise the provision of risk information. Only 35% of respondents currently felt they had an integrated risk management system and only 32% expected to have a fully integrated system in three years, with the level of integration in Europe significantly lower than in North America.
UK calls off sovereignty talks over Gibraltar
The UK has effectively abandoned talks with Spain on sharing sovereignty over Gibraltar after Europe Minister Denis MacShane told a Spanish newspaper on 9 June that the chances of achieving an agreement were zero. MacShane said: “I doubt that at the present time one can seriously expect the issue of Gibraltar to be able to return to the negotiating table with the hope of obtaining positive results. For the citizens (of Gibraltar) and the British parliament, the chances of achieving an agreement, which is not accepted by the Gibraltarians, are simply zero.” Negotiations on shared sovereignty between UK Foreign Secretary Jack Straw and his Spanish counterpart Ana Palacio stalled last summer on a number of “red line” issues, including the use of Gibraltar’s military base. Gibraltar overwhelmingly rejected a shared sovereignty deal in an unofficial referendum last November. The Gibraltar government received written confirmation from the UK in July that it had qualified for investment services ?passporting? rights into the EU and EEA single market. As a result, investment services providers based in Gibraltar and authorised by the Financial Services Commission may operate in other member states on the basis of their Gibraltar authorisation. This completes the three “passporting badges” for Gibraltar?s finance centre following the recognition of banking passporting rights in 1999 and insurance passporting rights in 1997. The Gibraltar government is now to commence the Investor Compensation Scheme Ordinance, which was passed by the House in July 2002. Investment services passporting rights will be operational as soon as the Investor Compensation Scheme is in place. Passporting rights do not apply to the sale of investment services products by Gibraltar-regulated entities into the UK. This is the subject of further bilateral discussion between the Gibraltar and UK governments.