The move by the International Monetary Fund (IMF) to remove the distinction between "offshore" and "onshore" financial centres has been widely welcomed by the forty or so countries, including the Cayman Islands, that had complained the offshore label unfairly stigmatised their jurisdictions.
Local regulatory consultant, Paul Byles, Managing Director of Focus Corporate Services & Consulting, said the removal was a sign that some level of objectivity was finally creeping into organisations such as the IMF and OECD. “It is a clear sign that the factual evidence relating to regulatory assessments across countries cannot be ignored forever,” said Byles. “Many so-called offshore centres achieve far higher marks than the onshore centres when assessed objectively by the IMF reviews.
For some reason this fact has been conveniently ignored for the past 6 to 8 years in particular, when many offshore centres had carried out significant enhancements to their regulatory frameworks and at substantial costs to both the private and public sector.”The Society of Trust and Estate Practitioners (STEP) also said the IMF's decision to end the discrimination would help all international financial centres meet commonly agreed international standards. “STEP supports the recognition by the IMF that the arbitrary onshore/offshore divide should come to an end,” said STEP spokesman Jacob Rigg. “STEP has long held that the use of the arbitrary term ‘offshore’ is wrong because it stigmatizes jurisdictions based on their geographic size or location. Instead, any assessment of financial centres should be unequivocally based on a uniform assessment of risks to global financial stability, money laundering and fraud.
Adopting a unified approach would blunt concerns that jurisdictions are being unduly targeted, while also underscoring the expectation that all IFCs should meet commonly agreed international standards."The IMF said that the distinction between OFCs and other financially active jurisdictions has been blurred by globalization, which has increased the range of cross-border transactions in many countries. As a result, it has combined its assessment programmes for OFCs and its broader FSAP programme.Byles, former head of policy at the Cayman Islands Monetary Authority, who was directly involved in preparing for some of the major assessments on Cayman’s regulatory framework, said this was a small step in the right direction but there was still some way to go before centres like the Cayman Islands received the recognition they deserved.
“The more neutral approach of the IMF which focuses on regulation is relatively easy to achieve as compared to that of an organisation such as the OECD which focuses on tax issues,” explained Byles. “The reason for this is that the IMF assessments are based on primarily technical assessments of the regulatory regime. If a jurisdiction has met the requirements it is hard to ignore that. On the other hand, with the OECD we are dealing with tougher issues such as the so-called morality of tax policies, sovereignty and politics, and it unlikely that there will be common ground achieved in that area for a while.”
The IMF said it would now adopt a more uniform and risk-based approach to financial sector surveillance. It will focus on a small number of jurisdictions - Bermuda, the Cayman Islands, Jersey, Guernsey, the Isle of Man, Panama, Labuan (Malaysia), the Bahamas, and possibly the British Virgin Islands - which account for the large majority of offshore activity. The IMF said it still had some concerns regarding money laundering and terrorist funding in offshore financial centres (OFCs), although it judged compliance was "generally comparable" to that of non-OFC jurisdictions.