Of late, changes in technology have virtually transformed the offshore sector. Global barriers have been broken down by technological innovation and the broadening of access to information. Simultaneously, deregulation has greatly facilitated the mobility of capital. The relatively poor performance of closed economies, combined with a wider desire to access global capital and technological know-how and skills, have resulted in the opening up of markets to trade and investment.
The offshore financial services sector has benefited significantly from each of these underlying trends. Offshore companies have been at the forefront of adopting the latest technology to improve communication and access to information. The result has been that offshore centres have evolved from their original purpose, which was to provide private banking and estate management for the very wealthy in a tax-free environment, to become multi-faceted financial services centres that are a consistent and coherent part of the global financial system.
Confidence in the reputation of an offshore centre is perhaps its most valuable commodity; hence a continuing commitment among the most reputable centres to ensure that bad money does not drive out good. Many offshore centres have concluded mutual legal assistance treaties with the larger G-7 countries to formalise the prevention of illegal transactions.
In the case of most offshore jurisdictions, notions of involvement in suspicious dealings are singularly out-dated. Authorities in reputable jurisdictions, such as Bermuda, have gone to great lengths to ensure that illegal activities are not conducted in their territories. Questionable business is neither wanted nor needed, since considerable opportunities exist for growth in conventional lines of activity. The presence of major banks and insurance companies in offshore centres enhances their legitimacy and testifies to their integration into the global system.
One of the more important current trends is the widening of the customer base for offshore financial services firms. Targeted customers are no longer solely large corporations and the very rich. Great potential exists for expanding the clientele to include smaller corporations and private customers. Offshore financial service providers have demonstrated a greater ability and willingness to reach, attract and inform potential clients.
Efficient management and the continuing implementation of the latest technologies allow offshore finance houses to provide a broad basket of services at competitive rates. For consumers of such services, there is a growing confidence in, knowledgeability about and receptiveness to transacting offshore. A broad range of services, including fiduciary, trust, brokerage and mutual fund investment services, is on offer on an efficient, cost-effective basis.
While most centres provide a full spectrum of services, a measure of specialisation has also developed, which has allowed certain centres to achieve pre-eminence in particular lines of activity. The Caymans and Bahamas, for example, have concentrated on banking. Guernsey has focussed on investment funds, and Jersey on trusts. The competitive international economy means that authorities in all centres have had to contain the costs of local operations; unnecessary regulations are not imposed. Offshore centres which fail in these objectives know that they will lose service providers, whose main asset is the brainpower and experience of their staff, to other jurisdictions.
It should be noted that few offshore financial services firms enjoy a privileged monopoly status. They operate in a keenly competitive global marketplace and must continually deliver top quality service at competitive rates. The customer's confidence must be earned and maintained, and the brand name of the firm secured, by an ongoing first-class service record. Firms must constantly innovate, upgrade their technology and skills, and act on the latest information and research.
There is no indication that the growth of the offshore industry has in any way jeopardised the stability of the global financial system. On the contrary, it has allowed greater opportunities for intermediation, diversification and the efficient allocation of global resources. At the same time, the offshore financial services industry has demonstrated considerable robustness. The recent experience of crisis in Asia and financial instability in Eastern Europe and Latin America did not cause noticeable distress in the major offshore centres.
The outlook for offshore centres is favourable. The continuing drive towards efficiency, restructuring and deregulation will open up further opportunities for financial services firms in the global economy. However, the premium on customer service and efficient operation means that not all firms will automatically prosper. Only those that can innovate successfully will remain among the front runners as the competitive environment worldwide erodes privileges and monopolies. The ultimate winners will be the most efficient firms and their customers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances from a local lawyer or accountant.
This article also appears in the 'International Offshore and Financial Centres Handbook 1999/2000'. For further information about this highly informative guide to offshore centres, or to order your copy, please phone +44 (0) 207 820 7733 or send an email to iofch@mondaq.com
