Financial consultant calls for better regulation, improved standards for offshore centers

• Author: Forum initiative. -Remaining challenges. -Role of IMF.
• Pages: 222-224

Page 222

IMF Board to discuss Forum proposal

The IMF Executive Board was asked by the International Monetary and Financial Committee in April to assess the relevant recommendations of the Financial Stability Forum; and the Board will shortly discuss the Forum’s recommendation that the IMF take on assessments of offshore financial centers.

Offshore financial centers provide financial services primarily to nonresidents. Some are seen as offering low taxation, light financial regulation, and banking secrecy. In April 1999, the Financial Stability Forum (see box, page 224) asked a working group to consider the implications of offshore financial centers for global financial stability and to make recommendations for addressing any concerns. The report of the Working Group on Offshore Financial Centers was publicly released on April 5, 2000, and on May 26, the Forum released a list of offshore financial centers, in three broad groups, designed to set priorities for assessments.

Speaking at a seminar arranged by the IMF’s Monetary and Exchange Affairs Department on June 19, Andrew Edwards, a consultant on financial and governance issues, discussed the Forum’s initiative for offshore financial centers, the implications of the initiative for the IMF, and the best way to carry the initiative forward. Edwards, previously a senior official in the U.K. Treasury, has had firsthand experience with assessment of offshore financial centers, having been commissioned by the U.K. Home Secretary to conduct a review of the regulation of the international financial centers in the three crown dependencies—Jersey, Guernsey, and the Isle of Man. Edwards’s report was published in November 1998. Although the review was met initially with resistance from the concerned centers, Edwards said the overall results were positive.

“Offshore financial centers do have the right to exist,” Edwards said, and to do business like everyone else. But, he added, they do not have the right to break every rule, commit economic crime, or “rock the good ship of international stability.” Our job, he said, is to make sure these centers play fair and straight. For this reason, Edwards said, he was encouraged by the Forum’s willingness to “grasp the nettle” of offshore financial center regulation.

Forum initiative

While noting that offshore financial centers have not played a major role in creating systemic financial problems, the Forum’s report nevertheless cautions that these centers have featured in some crises, and, as national financial systems grow more interdependent...