My Crystal Ball
or many in the offshore industry, 2004 is expected to be a year of growth. The flux of the many OECD and FATF changes has settled with many jurisdictions having conformed to the expectations or in some cases having given up some types of business. There clearly has been in several spheres a rationalization of the operations of the service providers with the common theme of knowing what the client is doing, knowing the client, and ensuring that in the service/structure there is not just form but substance.
The segmentation of the offshore business will remain. The larger banking and insurance jurisdictions will continue to focus on raising their standards and further positioning themselves as an alternative location for the headquarters of international companies. While much was said about the move of US based companies to Bermuda over the past two years, little credit was given to the attractiveness of the island as a place to live and the quality of life the residents enjoyed.
This example has proven that the offshore world has become ever more sophisticated and to some extent surpassed the on shore centers in several key areas. There clearly must be first quality regulation to facilitate monitor and sustain the investments and business that occur and as well a legal infrastructure that is responsive to the needs of industry. It is this responsiveness that is amongst the main characteristics of offshore jurisdictions rather than the badge of money laundering or dodgy dealings that some of the less informed quickly associate with the word offshore.
Therefore quality aside, and in large measure most jurisdictions having sorted out the FATF requirements for anti money laundering, the question is what are likely to be the differentiating factors. I do suggest that stability of the jurisdiction and the level of service and the perceived value will be the key to attracting and keeping the higher end business. This stability was tested in the past year in an International Business Company (IBC) jurisdiction and also in the larger finance jurisdictions.
In the case of the BVI there was a move afoot to immobilize the bearer shares and to increase the fees due from any company that did not prohibit bearer shares in its articles. This was effectively withdrawn but what remains to be seen is if the uncertainty caused by the initiative will unsettle the users and cause them to seek brighter frontiers.
In the mutual fund and insurance centers, the costs have become the over riding concern, with both professional fees and the fees to the government for the corporate entity used either as the insurance company or mutual fund. In the larger centres there is a closing of the gate such that only banks that are subsidiaries of on shore banks may be licensed. While the objective of this is to preserve the reputation of the jurisdiction and minimize the risk of dealing with truly private banks, there will be reputable quality promoters and investors who will be turned away by these policies.
Whether it is a factor arising out of the success of the jurisdictions or arrogance as some industry professionals see it, an opportunity is created for smaller well regulated high quality jurisdictions. With more responsive service and more reasonable costs, including rents, salaries, professional fees and government fees, those who position themselves could benefit from the good business that is being put into limbo. The same to some extent applies to mutual funds where Ireland has become itself a victim of its own success, with high cost driving administration in Ireland to look for new options to establish operations.
China will continue to emerge as a player in the offshore world as a consumer of services. Entering that market now is the key, and the cultural and political considerations unique to the worlds’ most populous country have to be borne in mind. Suffice it to say the race is on but the winners will not be those who get there first, but who get there best geared and prepared for doing business in that new frontier.
Therefore while the past two years have seen contraction in many centers, the demand for quality structures, professionals and jurisdictions has been more insulated than the volume services. The same factors that lead to Bermuda and Caymans success are likely to allow new, younger jurisdictions the opportunity to get new business that is seeking better value with similar quality of life and professionalism.
The last three to five years in the offshore world have proven that uncertainty and change are the only sure things. My crystal ball does seem to show less change this year, and jurisdictions and professionals alike emerging from their consolidated positions to seek and exploit new opportunities for growth and greater sophistication of service.
