Executive Directors welcomed the opportunity to review the offshore financial center (OFC) assessment program in light of the experience gained since it was initiated in June 2000. They also discussed the future role of the Fund in OFCs, in the context of the Fund's work on financial sectors.

Directors recognized that OFCs could pose risks, associated with prudential and financial integrity concerns, to the international financial system. While effective consolidated supervision in the home country can mitigate prudential risks, there remain weaknesses and gaps in supervision. Also, combating money laundering and the financing of terrorism (AML/CFT) requires worldwide implementation of the relevant international standards.

Directors commended the significant progress made by the OFC assessment program since it was initiated in 2000, noting that all major jurisdictions contacted since the start of the program have now been assessed. They welcomed the improvements made to the supervisory and regulatory systems of a number of OFCs as a result of the program. However, Directors noted that supervision and regulation of the non-banking sector, in particular, needed to be strengthened in many OFCs.

Directors agreed with the proposed evolution of the OFC program as outlined in the staff paper. They emphasized that the Fund's role should continue to be guided by the Fund's mandate and expertise in this area, and that the future program should be based on the following four broad elements:

· regular monitoring of OFCs' activities and compliance with supervisory standards;

· improved transparency of OFC supervisory systems and activities;

· technical assistance in collaboration with bilateral and multilateral donors;

· collaboration with standards-setters and the onshore and offshore supervisors to strengthen standards and exchanges of information.

Directors stressed that participation in OFC assessments and monitoring should continue to be voluntary.

Directors agreed that the monitoring of OFCs' activities and their compliance with supervisory and integrity standards should become a standard component of the financial sector work of the Fund. Ongoing monitoring of OFCs would help to ensure that well-managed jurisdictions maintain good supervisory practices and to monitor progress in the development of supervisory systems in other jurisdictions. Nevertheless, Directors considered it important to maintain an appropriate distribution of resources in monitoring offshore and onshore centers. Some Directors noted that some onshore financial centers potentially pose greater risks to international financial stability.

Directors agreed that it would be appropriate to continue periodic monitoring of OFCs' compliance with relevant international regulatory standards. Module 2 assessments every 4-5 years of supervisory and regulatory systems' compliance with international standards, focusing mainly on those jurisdictions that are not covered by FSAPs, would generally be appropriate, but the program should be sufficiently flexible to allow for more frequent targeted assessments to address areas of immediate concern. Some Directors felt that the scope of OFC assessments should be consistent with that of ROSCs and FSAPs. Directors agreed that, for the time being, the OFC program should remain separate from the FSAP, and that the next review of the OFC program should reevaluate the need for a separate program. Some Directors, however, noted that the objective should be to integrate the program into the Fund's regular FSAP/ROSC procedures.

Directors welcomed the decision by many jurisdictions to publish their OFC assessment reports, as this has helped to improve transparency of OFC activities and their supervisory systems and contributed to promoting market discipline. Directors encouraged all jurisdictions to publish their reports, noting that this was in their interest since failure to do so would send an adverse signal to the market. Directors supported a continued policy of voluntary publication.

Directors endorsed reclassifying the Module 2 main report (which would contain a description of the activities of a financial center and the supervisory system, ROSCs, and prioritized recommendations) as a staff report, and circulating these to the Board. Board members, as usual, would have the option to request a Board discussion. Directors were of the view that the detailed assessment reports should remain a confidential document and would not be circulated to the Board unless the authorities chose to have it published.

Directors agreed that technical assistance should continue to be extended to OFCs, focusing on those OFCs that have the resources and commitment to benefit most from technical assistance or that experience the greatest shortcomings in complying with international standards. Directors underlined that all OFCs should meet minimum international financial regulatory standards. However, they stressed that the Fund should limit itself to identifying areas where further guidance from the relevant standards-setters would be useful-the Fund should not itself set financial supervisory standards. Furthermore, meeting international standards carries significant costs and thus creates particular challenges in small, low-income jurisdictions. Directors encouraged the staff to explore with other bilateral and multilateral donors how best to assist these jurisdictions. However, they reiterated the agreed principle that collaboration with other organizations should continue to be based on their commitment to work within a cooperative framework.

Directors recognized that information sharing arrangements play a key role in effective cross-border supervision. In this context, they indicated that the Fund should help strengthen information sharing mechanisms through increased collaboration with standards-setters and supervisors, while noting that institutions would need to protect the confidentiality of information.

Directors welcomed the staff's proposal on rebalancing the use of resources within the existing budget envelope. In particular, most Directors supported the introduction of offsite monitoring of OFC activities and risk-focused assessments, which would be less resource-intensive compared to full assessments.

Directors noted that while the initial Fund OFC program has helped to improve the information available on OFCs' supervisory systems, the jurisdictions need to disseminate more information themselves. They encouraged jurisdictions to work with the Fund to develop data on OFCs for general dissemination.

Directors agreed that the staff should continue to provide periodic updates on the progress with the OFC program, and that the Board should conduct its next review of the OFC program in 2-3 years.¹

¹ Ed. Note: Pursuant to Decision No. 13814-(06/98), November 15, 2006, future reviews will be conducted on an "as needed" basis. The expectation going forward is that "as needed" would generally mean a lag of at least five years between any such reviews.