A US-based risk consultant says there’s a big bulls-eye painted on Bermuda’s offshore financial centre (OFC), in terms of a potential decline of the industry because of struggles toward independence after 400 years, and fears of political corruption.
"The OFC with the biggest bulls-eye on its proverbial chest at the moment is Bermuda," Brendan Hewson, a risk consultant based in North Carolina, said.
"There are signs that this phenomenally financially-successful island has peaked economically and will face a future of decline caused by rampant political corruption and the very real prospect of independence in the not-too-distant future."
"There are striking similarities between what is currently taking place in Bermuda and what took place in the Bahamas in the 1960s and 1970s, when corruption, independence, and a lack of concern for the needs of international businesses contributed to a wave of insurers moving to Bermuda and banks to the Cayman Islands."
Mr. Hewson was talking to the Miami-based financial newsletter Offshore Alert, and suggesting that the more financial industry rules and regulations that are implemented by major countries like the United States, the better it is for offshore financial centres (OFCs).
"Bureaucracy is like oxygen to OFCs," he said. "The more there is, the more opportunities exist to provide safe havens for those fleeing it."
He said the greatest threat to established OFCs like The Bahamas, Bermuda, the British Virgin Islands, and the Cayman Islands is not the United States but competition amongst themselves and the threat posed by emerging financial centres like Dubai and Singapore.
Mr. Hewson elaborated on some of the dangers he foresaw with respect to Bermuda.
He said the rival OFC that stands to benefit from Bermuda’s problems is the Cayman Islands.
"Cayman has the physical infrastructure, professional expertise and intellectual capacity to compete with Bermuda but not yet the legislation," he said.
"However, this is one of the issues that is currently being addressed by a Reinsurance Task Force that was set up about a year ago."
"If Bermuda’s corruption continues to worsen and the country goes independent, particularly if it is forced through by the government against the will of the people, as has been threatened, then it is only reasonable to expect an exodus of existing business and a slow-down of new business," he added.
"Cayman is laying the ground-work now to capitalize on this. If it passes reinsurance legislation and tweaks existing legislation, such as removing the term-limits on work permits for expatriates, Cayman would have a significant and irresistible competitive advantage over its biggest offshore rival."
Of the newer jurisdictions, Singapore and Dubai appear to be the "best-positioned to blow a wind of change through the offshore world at the expense of jurisdictions burdened by reputational issues", he said.
Generally, Mr. Hewson said the future looks positive for OFCs.
"There is no sign that business in OFCs is slowing down," he notes. "If anything, it seems to be growing, fueled by new wealth that is being created in former Soviet Bloc, Baltic and African states."