Offshore

Crown Dependencies Prepare for IMF Visit

Alison Ebbage, 10 March 2008

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The Crown Dependencies are due to welcome the International Monetary Fund with open arms later this year. Jersey, Guernsey and the Isle of Man are all keen to paint the visit as an opportunity to showcase just how well they are doing in dealing with anti money laundering and tax evasion to the wider world.

The Crown Dependencies are due to welcome the International Monetary Fund with open arms later this year. Jersey, Guernsey and the Isle of Man are all keen to paint the visit as an opportunity to showcase just how well they are doing in dealing with anti money laundering and tax evasion to the wider world.

But the industry meanwhile is concerned that the pace of compliance and the time required in dealing with it is effectively knocking out resource to move businesses forward. Compliance could therefore dent profits.

Robert Clifford, chief executive at Investec in Jersey comments: “Finding the balance between anti-money laundering and other compliance activities and commercial activities is becoming more and more trying.”

“At the moment there are far too many policies and procedures in a short period of time and the risk is that they become a series of quick fixes not really that well or thoughtfully embedded in the business.”

Although the IMF’s purpose is not to force legislation, rather to report their findings and assess supervision against international standards, the two are inextricably linked.

Indeed it is recent legislative activity that has effectively set those international standards; The Basel Core Principles for Effective Banking Supervision; the Insurance Core Principles of the International Association of Insurance Supervisors (IAIS); the Objectives and Principles of Securities Regulation of the International Organization of Securities Commissions (IOSCO); and the Financial Action Task Force (FATF) 40+9 Recommendations.

Little wonder then that small jurisdictions could complain that the resources required of them to have the paperwork in place is enough, without then having to commit further resources to proving that they are also being implemented rather than just being allowed to get on with it.

But in today’s finance industry small players need to keep up or else risk being left out in the cold. And this is something the authorities in Jersey, Guernsey and the Isle of Man are all too aware of. They want to show the rest of the world that although their core activity stems from tax efficiency, that they are clean centres where dirty money is not welcome.

John Aspden, chief executive of the Isle of Man Financial Services Commission comments: “There’s a big difference between merely having the right documents in place and actively implementing them. After the paperwork is complete then the regulator must devise a framework within which the industry must work and also have an action plan for firms to follow.”

He refutes any suggestion that the regulator is nervous about being in the spotlight: “The report produced last time was very complimentary and it is always good for us to be able to demonstrate to the wider financial industry that we are up to scratch. It is also good for us to be able to demonstrate to our own industry that we are accountable just like they are.”

Guernsey’s Financial Services Commission took much the same line with its director general, Peter Neville, stating that: “The suggestion that we are alarmed by the prospect of a visit by the IMF is nonsense. We have been preparing for it for some time. Indeed, I recently met the IMF in Basel to discuss the nature and scope of the assessment. In 2002 the IMF looked at both regulation and the way it was implemented. The same dual approach will be taken at the end of this year, although there will be greater emphasis on implementation.”

But is there a degree of Realipolitik at play here? Certainly it might make sense for larger countries to keep the spotlight on smaller ones, thus keeping their own shortcomings out of the spotlight. Indeed in 2002/2003 one of the only comments the IMF had about the Isle of Man was that its trustees were found to not be fully regulated, as was the case in the UK at the time.

Richard Hay, partner at Stikeman Elliot comments: “The issue is that it is OK looking like you want to aspire to be like bigger countries if they too are applying higher standards, but often they are not. So although smaller jurisdictions do not want to be perceived as falling short of international requirements they do not want to have to comply if other countries aren’t either.”

Mr Hay thinks that smaller jurisdictions basically end up with an imbalance where they will have anything up to 100 people looking at compliance, often at the expense of those looking at long term strategy and the like.

This sentiment does seem to be echoed by the industry itself which could be forgiven for thinking that the metaphorical carrot is seeming always just out of reach, even if its regulators have done more than enough to avoid an international stick beating.
In Jersey for example, the new financial services handbook, which was published last September, has new codes of practice that all must adhere to since last December. But tellingly there is little or no guidance on how to actually adhere to the codes of practice, leaving industry practitioners to decide what to do and hope their decision will not fall foul of the regulator.

Mr Clifford comments: “There has only been a very short time between the publication and implementation and thus there are serious workforce and resource constraints. The big issue is that the codes of practise are not just rules to be followed and ticked off, each firm has to decide how to interpret and implement them and of course that takes time and effort.”

But will this be enough? If the IMF is looking to see actual enforcement of regulation then does it expect a certain number of legal actions?

Mr Clifford thinks so. “In Jersey the FSC has already demonstrated that it is willing to use its teeth, for instance with the Caversham case, the Warren Case and the Anchor Trust which was refused a license.”

He thinks that places where there has thus far been no visible enforcement need to think carefully in advance of the IMF visit. “In Guernsey there has been no public enforcement and I would say that the FSC there needs to show it is capable and willing of using its regulatory teeth,” he says.

The GFSC says that it takes a slightly different view with regard to enforcement being in the public domain. “The IMF considers both the AML/CFT frameworks and the enforceability of those frameworks by taking into account the way in which sanctions are applied. The commission issues sanctions for breaches of regulatory requirements where appropriate. For obvious reasons, not all sanctions issued by the commission are in the public domain. We are confident that the IMF will provide Guernsey with a positive report,” said Mr Neville.

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