The Financial Stability Forum, a group of financial regulators established by the G7 after the Asian crisis in 1998 to study methods of reducing global financial volatility, has released a report which places 25 of the world's leading offshore financial centres (OFCs) into three groups representing differing levels of threat to global financial stability.
Whilst the FSF's report acknowledges that offshore financial activities can be well-supervised and accompanied by strong co-operation by the supervisory authorities, it does see certain OFCs as presenting a serious problem, and in its list has placed these in its third grouping, which very remarkably includes the Cayman Islands, the BVI and the Bahamas. These jurisdictions will be outraged that the FSF should attack them in this way under the aegis of the G7.
The FSF will claim that this classification does no more and no less than rate the jurisdictions according to the scale of their financial activity, and that large financial agglomerations pose a threat to stability if they are not supervised in a transparent way. What is transparent is that that the FSF has very mixed motives, and is sneakily using the pretext of global financial stability to forward the rich countries' tax-haven-bashing programme. The issue of international information-sharing is a separate matter from stability. It may be right that the jurisdictions should make their banking sectors more transparent, in order to contain money-laundering, but does anyone seriously believe that this has got anything to do with financial stability? It is scarcely credible that grown up economists would lend their names to such drivel.
The FSF piously hopes that the publication of the list, combined with an assessment process due to be put into place, will encourage all OFCs to take appropriate action to raise the quality of their supervision and their level of co-operation as quickly as possible.
Within the FSF's first group are Hong Kong, Luxembourg, Singapore and Switzerland, which the FSF generally perceive as having legal infrastructures and supervisory practices of the best quality amongst all the OFCs. Dublin, Guernsey, Isle of Man and Jersey are also included in the group and more or less regarded in the same way, but with the added emphasis that continuing efforts to improve the quality of supervision and co-operation should be encouraged.
The second group of Andorra, Bahrain, Barbados, Bermuda, Gibraltar, Labuan, Macau, Malta and Monaco fare less well, with the conclusion that action should be taken to bring them up to the standard of the jurisdictions of the first group.
The FSF is most critical of jurisdictions such as Anguilla, Antigua, Aruba, Bahamas, British Virgin Islands, Cayman Islands, Cook Islands, Costa Rica, Cyprus, Liechtenstein, Mauritius, Netherlands Antillles, Panama, Seychelles, the Turks and Caicos and Vanuatu, claiming that the scale of financial activity in these OFCs has the greatest potential impact on global financial stability.
Andrew Crockett, chairman of the FSF, believes the classification will help the IMF prioritise its work in agreeing remedial measures to bring groups two and three up to standard.
He said 'OFCs are not in themselves bad, but if not prepared to maintain adequate supervisory structures they could pose a threat to global stability'.
The FSF has outlined the ways in which OFC's can demonstrate their commitment to achieve high standards of supervision and co-operation with other authorities. These include a declaration of intent by a jurisdiction to implement relevant standards, completing self-assessments of these standards, undergoing an external assessment and addressing shortcomings through action plans. The FSF warns that jurisdictions failing to reach acceptable standards could face harsh sanctions including prohibition from conducting business with the main financial centres.
The full text of the Financial Stability Forum's Grouping Report is available in Tax-news.com Resources - Click Here
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