Offshore Financial Centers - Report on the Assessment Program and Proposal for Integration with the Financial Sector Assessment Program - Supplementary Information
Author: International Monetary Fund
Publication Date:
05 Aug 2008
eISBN:
9781498334549
Language:
English
Keywords:
PP; banking sector; net asset value; financial service; border assets; on-balance sheet assets; net value of assets; fund member; bank exposure
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This supplement reviews the data received thus far and the progress made by participating jurisdictions in their dissemination efforts. Data for major jurisdictions that declined to participate are also provided where it is available from published sources. In addition, data on a sample of advanced economies are provided for comparative purposes. The framework identified a minimum set of variables for dissemination and recommended that jurisdictions publish data on those variables although jurisdictions could choose to publish more. Tables 2 and 5 to 13 provide the data received on those variables. The framework also identified additional variables that were to be provided to the Fund to help Fund staff monitor developments in financial centers.

Abstract

This supplement reviews the data received thus far and the progress made by participating jurisdictions in their dissemination efforts. Data for major jurisdictions that declined to participate are also provided where it is available from published sources. In addition, data on a sample of advanced economies are provided for comparative purposes. The framework identified a minimum set of variables for dissemination and recommended that jurisdictions publish data on those variables although jurisdictions could choose to publish more. Tables 2 and 5 to 13 provide the data received on those variables. The framework also identified additional variables that were to be provided to the Fund to help Fund staff monitor developments in financial centers.

Information Framework Initiative

1. The information dissemination and monitoring framework initiative was undertaken to (i) help improve the transparency of activities in offshore and international financial centers and (ii) provide the Fund with data to monitor developments in financial centers. At the 2003 review of the offshore financial center (OFC) program, in response to a request by jurisdictions initially made at the first Roundtable in 2003, Directors recommended that staff work with jurisdictions in their dissemination efforts. A data template (covering, inter alia, aggregate data on banking, insurance and securities),1 was developed in consultation with the centers and 46 jurisdictions were invited to participate at end-2004. Participation has increased from 16 jurisdictions, when last reported in the February 2006 progress report,2 to 28 jurisdictions (see Table 1).

Table 1.

Status of Participation in the Information Framework Initiative

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These jurisdictions, while declining to participate in the initiative, have authorized the Bank for International Settlements (BIS) to forward data on banks’ external assets/liabilities to the Fund.

Excepting Andorra, Monaco, Nauru, and Liechtenstein, these jurisdictions are Fund members, and member territories or dependencies but do not currently receive Article IV consultations.

2. This supplement reviews the data received thus far and the progress made by participating jurisdictions in their dissemination efforts. Data for major jurisdictions that declined to participate are also provided where it is available from published sources. In addition, data on a sample of advanced economies are provided for comparative purposes. The framework identified a minimum set of variables for dissemination and recommended that jurisdictions publish data on those variables although jurisdictions could choose to publish more. Tables 2 and 5 to 13 provide the data received on those variables. The framework also identified additional variables that were to be provided to the Fund to help Fund staff monitor developments in financial centers.3

Table 2.

Banking Sector Indicators (2004-2006)

(in millions of US dollars unless indicated otherwise)

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Source: Information Framework.

The data for 2004 refer to third quarter.

Table 5.

Banking Sector External Assets (2004-2006)

(in millions of US dollars)

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Source: Information Framework.

A. Monitoring

Banking

3. The banking sector varies widely in size and scope across the jurisdictions considered as part of the OFC program. Some centers are major players in the global market, many are minor players, and some are important within their region. Twenty-seven jurisdictions have provided data on total assets of the banking sector (Table 2; Figure 1). As anticipated, in most of the jurisdictions a high proportion of assets are cross-border assets. This reflects the core activity in these centers (Figure 1).

Figure 1.
Figure 1.

Banking Sector (end-2006) 1/

Citation: Policy Papers 2008, 044; 10.5089/9781498334549.007.A001

Sources: Information Framework; Bank for International Settlements; and Eastern Caribbean Central Bank.1/ 2006 or latest available. Data on non-participating jurisdictions were obtained from public sources.2/ The data have been plotted on a logarithmic scale because of the wide dispersion in asset size among jurisdictions.3/ Data on bank assets for Samoa and Gibraltar cover off-shore sector only, and therefore the ratio is not reported.

4. In general, offshore banks deal mostly with other banks. Tables 3–6 show the proportion and value of external nonbank assets and liabilities in OFCs. Most banks deal with banks on both sides of their balance sheets, with only a few having a relatively large exposure to the nonbank sector. Generally, centers have less than 30 percent of their external assets placed with nonbanks and only three centers have as much as 50 percent of their external assets placed with nonbanks. External nonbank liabilities range from 30 to 90 percent of total external liabilities.

Table 3.

Banking: External Assets and Loans (end-2006) OFCs and Selected Advanced Economies

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Source: Bank for International Settlements.
Table 6.

Banking Sector External Liabilities (2004-2006)

(in millions of US dollars)

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Source: Information Framework.

5. There is a pronounced regional bias in the direction of funds to and from these centers. As shown in Figure 2, the European offshore centers gather funds from the rest of Europe and channel them to institutions in Europe. Similar patterns emerge in Asian and Western Hemisphere centers. OFCs do most of their business with the major markets in their regions (U.K. for Europe, Japan for Asia, and the U.S. for Western Hemisphere). Major financial markets account for a significant share of the claims and liabilities of offshore banks located in their respective regions.

Figure 2.
Figure 2.

Geographical Distribution of Banks’ Cross-Border Assets and Liabilities (2004-2006) 1/

Citation: Policy Papers 2008, 044; 10.5089/9781498334549.007.A001

Sources: Bank for International Settlements; and Information Framework.1/ The reporting jurisdictions are: The Bahamas, Bahrain, Bermuda, Cayman Islands, Gibraltar, Guernsey, Hong Kong SAR, Ireland, Isle of Man, Jersey, Macao SAR, Mauritius, Netherlands Antilles, Panama, Singapore, and Switzerland. They have been grouped regionally as follows: Europe, Middle East and Africa (EU+ME+AF); Western Hemisphere (WH); and Asia/Pacific (AP). The cross-border assets/liabilities are reported vis-a-vis the following countries/regions: United Kingdom (UK); Japan (JP); United States (US); Africa (AF); Western Hemisphere (ME); Europe (EU); Asia/Pacific (AP); Middle East (ME); and unallocated (UA). Mauritius data for 2004 and 2005 only, and Gibraltar data for 2005 and 2006.

6. For many offshore banks the provision of investment or fiduciary services are an important activity. Banks provide a range of services related to wealth or asset management. In some cases fiduciary deposits include those from parent banks. Eighteen participants reported data on fees and commission as a percent of gross income. The average was 23 percent with the highest being 56 percent. Twelve jurisdictions reported data on assets under management. For three of these jurisdictions, such assets were larger than their on-balance sheet assets.

Insurance

7. The insurance industry reflects almost as wide a range in size of activity as the banking sector, with one exception. Bermuda, one of the largest centers for reinsurance business in the world, accounts for the bulk of insurance business conducted in OFCs. While some other centers also play a significant role in the global market, several small centers have only limited activity and a small volume of business relative to the major players (Figure 3; Tables 7–10).

Figure 3.
Figure 3.

Insurance and Collective Investment Schemes Sectors (end-2006) 1/

Citation: Policy Papers 2008, 044; 10.5089/9781498334549.007.A001

Source: Information Framework.1/ 2006 or latest available. Data on non-participating jurisdictions were obtained from public sources.2/ The data for Anguilla and Cyprus excludes funds of funds. The asset value for Singapore is on a gross basis.
Table 7.

Number of Insurance Companies (2004-2006)

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Source: Information Framework

The data for 2004 refer to third quarter.

Bermuda’s insurance regulation and supervision do not differentiate between direct writers and reinsurers nor between branches and incorporated insurance companies.

No insurance company has a direct presence in Monaco at present. Insurance services are offered by approximately 50 agents and brokers, representing over 150 insurance companies.

Includes branches.

Table 10.

Gross Premiums of Insurance Branches (2004-2006)

(in millions of US dollars)

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Source: Information Framework.

The data for 2004 refer to third quarter.

Bermuda insurance regulation and supervision do not differentiate between direct writers and reinsurers nor between branches and incorporated insurance companies.

No insurance company has a direct presence in Monaco at present. Insurance services are offered by approximately 50 agents and brokers, representing over 150 insurance companies

8. Captives4 and reinsurance companies dominate the insurance business in OFCs. The growth in captives and reinsurance was in part facilitated by the regulatory and legal framework put in place by the centers. Indeed, captive insurance was initially established as a significant business activity in offshore jurisdictions. Reinsurance companies based in OFCs (primarily in Bermuda) share many of the characteristics of those in onshore jurisdictions. However, there is one key difference—catastrophe reinsurance is the dominant line of business. Onshore companies seem to have a more diversified business mix, and a more balanced mixture of long and short-term liabilities. Catastrophe insurers hold relatively large amounts of capital to meet sudden large outflows of cash. One of the advantages of OFCs in this area appears to be the speed with which they can authorize the deployment of new capital in additional insurance capacity (new companies). Bermuda illustrates that, as in banking, geography is important—the reinsurance business was launched there in response to a shortage of US liability insurance in the mid-1980s, and at end-2005, three quarters of captives’ gross premiums were sourced from North American companies, indicating that most captives were established by North American companies.

Collective Investment Schemes (CIS)

9. The data show that the number and value of funds based in OFCs are significant (Figure 3; Tables 11–12). Collective investment schemes, both public (mutual funds) and private (hedge funds) are offered mostly by the more advanced OFCs. The OFCs provide a number of supporting services to the fund industry. These include firms that provide directors, trustees, or general partners; fund administrators; audit functions; registered office service providers; and investment managers. In many cases a fund may draw upon one type of service from one jurisdiction and another service from another jurisdiction.

Table 11.

Collective Investment Schemes (CIS) Incorporated (Registered) in the Jurisdiction (2004 -2006)

(in millions of US dollars unless indicated otherwise)

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Source: Information Framework.
Table 12.

Collective Investment Schemes (CIS) Managed in the Jurisdiction (2004-2006)

(in millions of US dollars unless indicated otherwise)

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Source: Information Framework.