## Executive Summary ## Source details **Canonical URL:** [Executive Summary](https://www.imf.org/-/media/files/publications/ofca/english/020806.pdf) ## Other formats - [Markdown version](/-/media/files/publications/ofca/english/020806.pdf.md) - [Structured JSON version](/-/media/files/publications/ofca/english/020806.pdf.json) --- ### Introduction - This paper updates Executive Directors on progress since February 2005 in implementing the second phase of the offshore financial center (OFC) program as agreed in November 2003. - With the completion of the first round of assessments, staff have begun implementing the second phase of the program. - The paper is organized into: summaries of assessments and technical assistance; focus on transparency and monitoring via the information framework initiative; and themes emerging from collaboration with standard setters and supervisors. ### Second Phase of the Program: Monitoring and Technical Assistance - The second phase incorporates four elements: - Regular monitoring of OFCs' activities and compliance with supervisory standards. - Technical assistance in collaboration with bilateral and multilateral donors. - Improved transparency of OFC supervisory systems and activities. - Collaboration with standard setters and onshore and offshore supervisors to strengthen standards and exchanges of information. - Staff focus in the past year: - Encouraging jurisdictions to volunteer for assessments. - Implementing the information framework initiative. - Collaborating with standard setters and supervisors to identify measures to address gaps in cross-border financial supervision. ### Monitoring — Assessments and Coordination - Assessments and scheduling: - Three jurisdictions were assessed in 2005: Cyprus, Panama, and Uruguay. - Nine assessments have been scheduled (see Appendix II). - Countries are being invited to volunteer for Module 2 assessments in accordance with the 4–5 year frequency agreed by Directors. - Members may also choose FSAP assessments, which have an average frequency of five years. - Coordination and priorities: - To avoid duplication, assessments are being coordinated with mutual evaluations by FATF and FATF-style regional bodies (FSRBs). - Priority is given to jurisdictions with significant activity or important weaknesses identified, to progress in addressing substantial shortcomings, to significant areas not previously assessed, and to evaluating important reforms. - Increased emphasis on cooperation and information exchange, including home/host supervisory relationships; standard setters and jurisdictions with significant cross-border activity are invited to identify issues for follow-up. - Interaction with the Financial Stability Forum (FSF): - The FSF, at its March 2005 meeting, withdrew its 2000 listing of OFCs in light of progress in Fund assessments. - The FSF noted remaining problems in compliance with international standards, particularly in cross-border cooperation and information exchange, and established a Review Group on Offshore Financial Centers (with IMF representation) to monitor progress. ### Technical Assistance (TA) - Focus and recipients: - TA has generally been extended to small, lower-income jurisdictions, with emphasis on banking supervision and AML/CFT. - Seventeen jurisdictions received TA in banking supervision or closely related areas during 2005, and two jurisdictions received TA in insurance supervision. - Regional and thematic TA activities: - Asia-Pacific: three jurisdictions received assistance with AML/CFT supervision and legislation from MFD and LEG; several IOFCs participated in three AML/CFT workshops hosted by the Singapore Training Institute in cooperation with MFD and LEG. - Pacific: staff, in cooperation with PFTAC, is strengthening cooperation with bilateral agencies to address TA requirements. - Caribbean and Middle East: three AML/CFT workshops held for each region by MFD and LEG; two Caribbean countries received AML/CFT TA for legislative drafting and establishment of FIUs. - Statistical TA: - STA provided TA on statistical collection for the Coordinated Portfolio Investment Survey (CPIS), improving CPIS coverage. - Eleven of the more significant jurisdictions with IOFCs participated in a workshop in May 2005 to review 2003 results and plan for the 2004 survey. ### Monitoring and Transparency — The Information Framework Initiative - Objectives: - Improve transparency in the activities of international and offshore financial centers. - Provide the IMF with information for ongoing monitoring of financial developments in these centers. - Scope and data: - The framework provides structural and activity indicators for banking, insurance sectors, and collective investment schemes and complements existing reporting such as CPIS and BIS international banking statistics. - To avoid duplication, jurisdictions reporting banking data to the BIS authorized the BIS to transmit relevant data to the Fund. - Participation and operational launch: - Forty-six jurisdictions were invited in December 2004 to participate in the pilot phase of this voluntary initiative. - A workshop to discuss implementation was held on May 11–12, 2005, organized by MFD with assistance from STA and TGS; the workshop was attended by 27 international and offshore financial centers. - Operational arrangements for data submission were explained, including submission via the Integrated Correspondence System (ICS). - Participation status and data received (as reported): - Of the 46 jurisdictions invited, 16 have submitted data. - Another 18 jurisdictions have committed/indicated their intention to participate but have not yet submitted data. - Seven jurisdictions have yet to confirm participation. - Five jurisdictions have declined to participate. - Six jurisdictions have provided banking sector external assets/liabilities data through the BIS, including 3 jurisdictions who otherwise declined to participate. - Twenty-one jurisdictions either committed/indicated intentions to participate or attended the May 2005 workshop but have yet to submit data. - Benefits and next steps: - Data collected provide useful comparisons of the significance of different centers and a more complete picture of the geographical distribution of the financial services industry; for example, the data show a regional concentration in the placement of banks’ cross-border assets and liabilities. - The usefulness of the initiative depends on higher participation rates to increase cross-country comparability and reduce gaps in the global monitoring framework. - Staff are following up with remaining jurisdictions to encourage broader participation and promote data dissemination on jurisdictions’ websites. - In evaluating the pilot and planning follow-up work, staff will review participation, publicly available statistics, and remaining gaps in data availability. ### Collaboration and Cooperation — Supervisory Dialogue and Good Practices - Roundtable outcomes: - The third IMF roundtable for onshore and offshore supervisors and standard setters held in November 2005 highlighted the need for continued attention to cooperation and information sharing, risk-based supervision, and appropriate sequencing of standards implementation to address complex cross-border issues. - Participants agreed that supervisors and standard setters should consider: - Disseminating good practices on information sharing. - Providing website guides to jurisdictions’ information sharing arrangements. - Assigning priority and resources to information exchange issues. ### The Third Annual Roundtable for offshore and onshore supervisors and standard setters ### Event summary - The event was held in Sydney on November 17–18, 2005, hosted jointly by four Australian agencies. - Attendance included 27 jurisdictions, the 4 standard setting bodies (BCBS, FATF, IAIS, and IOSCO), the FSF, OGBS, the Egmont Group, and the APG. - Advance copies of the Proceedings of the 2004 MFD-hosted conference on cross-border cooperation and information exchange, incorporating the background paper and information exchange survey results, were distributed. Formal publication is expected in mid-2006. ### Sectoral findings and supervisory challenges - Cross-border and cross-sectoral integration and new instruments/products increase complexity of international financial services; international and offshore financial centers are often used to domicile new instruments/products developed to share and transfer risk across sectors and agents. - Banking - Effective supervision of complicated, cross-border banking conglomerates requires extensive two-way information exchange between supervisors in the home and host supervisors—not only host to home, but host to host, home to host, and home to home. - Basel II has provided new impetus for such exchange; for example, “supervisory colleges” are discussing approaches to Basel II, but there are as yet no established practices as regards content and modalities. - Insurance - Enhanced cooperation among supervisors is required to monitor risk transfer occurring through nontraditional arrangements. - Cross-border and cross-sectoral cooperation is required for supervising the insurance industry’s use of the capital market for insuring catastrophic risks. - Nontraditional insurance or reinsurance includes captive insurance, finite reinsurance, and securitization. - Securities - Widespread operations of hedge funds and their opacity were seen as requiring enhanced disclosure that can be facilitated by supervisory cooperation in collecting data. - AML/CFT - Challenges lie in implementing the increased scope of the standard; the standard explicitly provides for a risk-based approach to rationalize and prioritize the use of resources. - Further work is needed to develop accepted approaches to risk-based supervision in the AML/CFT context. ### Cross-cutting themes and recommended supervisory responses - Information sharing, risk-based supervision, and appropriate sequencing of standards implementation were identified as the means to address increasingly complex cross-border issues and demanding financial sector supervisory and integrity standards. - Cooperation and information sharing emerged as a crucial means of ensuring adequate understanding and oversight of complex cross-border financial activities, but improved formal and informal channels of cooperation are required. - Risk-based supervision requires refinement; approaches to sequencing standards implementation must be developed to effectively prioritize areas of higher risk. - Participants agreed on additional actions for supervisors and standard-setters: - Consider disseminating good practices in information exchange. - Provide website guides to jurisdictions’ information-sharing arrangements. - Assign priority to information exchange, including the allocation of adequate resources to the cooperation function. ### The information framework: submissions, monitoring, and transparency (as of end-January 2006) - Submissions and coverage - Data had been submitted directly by 16 jurisdictions and banking data were forwarded by the BIS. - The initial submission allowed for partial submission; some variables and components were not provided. - Four jurisdictions that made partial submissions indicated they are in the process of enhancing data collection and would be able to provide data on additional variables in the second submission. - Monitoring focus - The framework documents the size of major financial sectors to allow comparisons across jurisdictions and to help staff focus on jurisdictions with more significant activity. - Over time the data are expected to provide information on trends in aggregate activity. - Banking data highlights - Reported banking assets ranged from just above $100 million to over $1 trillion compared with banking assets of close to $10 trillion in a sample of G7 countries. - About two thirds of reporting jurisdictions submitted some off-balance sheet information. - 7 of the 16 jurisdictions provided limited information on derivatives. - 10 jurisdictions provided optional data on financial soundness indicators (FSIs). - BIS locational statistics - Regional concentration observed in placement of cross-border assets and liabilities: banks located in European and Middle Eastern financial centers invested largely in Europe and the United Kingdom; banks located in the Western Hemisphere invested primarily in the United States; banks located in the Asia-Pacific region invested most of their assets in Japan and the rest of the Asia-Pacific region. - Cross-border liabilities mirror this regional pattern of assets. - Insurance, CIS, and other sectors - Gross premiums in insurance ranged from about $10 million to $100 billion; most markets’ aggregate gross premiums are below or about $1 billion. - Only five jurisdictions provided optional balance sheet information for insurance. - Establishment of collective investment schemes (CIS) is mainly undertaken in middle- and high-income jurisdictions; some recorded aggregate net asset value of CIS of over $1 billion. - Ten of the 16 reporting jurisdictions provided CIS data; only half of those who submitted CIS data reported gross assets. - The financial sector’s contribution to GDP in reporting jurisdictions varies, in one instance reaching as high as 50 percent. - The number of trust and company service providers varies greatly across jurisdictions. - Transparency and dissemination - Two jurisdictions reported increasing the number of variables they disseminate following the start of the initiative. - Five jurisdictions indicated plans to increase dissemination based on the framework in the near future (e.g., after the second submission of data in the pilot phase) or following requisite changes in their publication formats. *Source: The Third Annual Roundtable for offshore and onshore supervisors and standard setters (Roundtable held November 17–18, 2005) and associated Information Framework submissions (as of end-January 2006).* ### Executive Summary ...................................................................................................... ### Executive Summary ### Introduction - This paper updates Executive Directors on progress since February 2005 in implementing the second phase of the offshore financial center (OFC) program as agreed in November 2003. - With the completion of the first round of assessments, staff have begun implementing the second phase of the program. - The paper is organized into: summaries of assessments and technical assistance; focus on transparency and monitoring via the information framework initiative; and themes emerging from collaboration with standard setters and supervisors. ### Second Phase of the Program: Monitoring and Technical Assistance - The second phase incorporates four elements: - Regular monitoring of OFCs' activities and compliance with supervisory standards. - Technical assistance in collaboration with bilateral and multilateral donors. - Improved transparency of OFC supervisory systems and activities. - Collaboration with standard setters and onshore and offshore supervisors to strengthen standards and exchanges of information. - Staff focus in the past year: - Encouraging jurisdictions to volunteer for assessments. - Implementing the information framework initiative. - Collaborating with standard setters and supervisors to identify measures to address gaps in cross-border financial supervision. ### Monitoring — Assessments and Coordination - Assessments and scheduling: - Three jurisdictions were assessed in 2005: Cyprus, Panama, and Uruguay. - Nine assessments have been scheduled (see Appendix II). - Countries are being invited to volunteer for Module 2 assessments in accordance with the 4–5 year frequency agreed by Directors. - Members may also choose FSAP assessments, which have an average frequency of five years. - Coordination and priorities: - To avoid duplication, assessments are being coordinated with mutual evaluations by FATF and FATF-style regional bodies (FSRBs). - Priority is given to jurisdictions with significant activity or important weaknesses identified, to progress in addressing substantial shortcomings, to significant areas not previously assessed, and to evaluating important reforms. - Increased emphasis on cooperation and information exchange, including home/host supervisory relationships; standard setters and jurisdictions with significant cross-border activity are invited to identify issues for follow-up. - Interaction with the Financial Stability Forum (FSF): - The FSF, at its March 2005 meeting, withdrew its 2000 listing of OFCs in light of progress in Fund assessments. - The FSF noted remaining problems in compliance with international standards, particularly in cross-border cooperation and information exchange, and established a Review Group on Offshore Financial Centers (with IMF representation) to monitor progress. ### Technical Assistance (TA) - Focus and recipients: - TA has generally been extended to small, lower-income jurisdictions, with emphasis on banking supervision and AML/CFT. - Seventeen jurisdictions received TA in banking supervision or closely related areas during 2005, and two jurisdictions received TA in insurance supervision. - Regional and thematic TA activities: - Asia-Pacific: three jurisdictions received assistance with AML/CFT supervision and legislation from MFD and LEG; several IOFCs participated in three AML/CFT workshops hosted by the Singapore Training Institute in cooperation with MFD and LEG. - Pacific: staff, in cooperation with PFTAC, is strengthening cooperation with bilateral agencies to address TA requirements. - Caribbean and Middle East: three AML/CFT workshops held for each region by MFD and LEG; two Caribbean countries received AML/CFT TA for legislative drafting and establishment of FIUs. - Statistical TA: - STA provided TA on statistical collection for the Coordinated Portfolio Investment Survey (CPIS), improving CPIS coverage. - Eleven of the more significant jurisdictions with IOFCs participated in a workshop in May 2005 to review 2003 results and plan for the 2004 survey. ### Monitoring and Transparency — The Information Framework Initiative - Objectives: - Improve transparency in the activities of international and offshore financial centers. - Provide the IMF with information for ongoing monitoring of financial developments in these centers. - Scope and data: - The framework provides structural and activity indicators for banking, insurance sectors, and collective investment schemes and complements existing reporting such as CPIS and BIS international banking statistics. - To avoid duplication, jurisdictions reporting banking data to the BIS authorized the BIS to transmit relevant data to the Fund. - Participation and operational launch: - Forty-six jurisdictions were invited in December 2004 to participate in the pilot phase of this voluntary initiative. - A workshop to discuss implementation was held on May 11–12, 2005, organized by MFD with assistance from STA and TGS; the workshop was attended by 27 international and offshore financial centers. - Operational arrangements for data submission were explained, including submission via the Integrated Correspondence System (ICS). - Participation status and data received (as reported): - Of the 46 jurisdictions invited, 16 have submitted data. - Another 18 jurisdictions have committed/indicated their intention to participate but have not yet submitted data. - Seven jurisdictions have yet to confirm participation. - Five jurisdictions have declined to participate. - Six jurisdictions have provided banking sector external assets/liabilities data through the BIS, including 3 jurisdictions who otherwise declined to participate. - Twenty-one jurisdictions either committed/indicated intentions to participate or attended the May 2005 workshop but have yet to submit data. - Benefits and next steps: - Data collected provide useful comparisons of the significance of different centers and a more complete picture of the geographical distribution of the financial services industry; for example, the data show a regional concentration in the placement of banks’ cross-border assets and liabilities. - The usefulness of the initiative depends on higher participation rates to increase cross-country comparability and reduce gaps in the global monitoring framework. - Staff are following up with remaining jurisdictions to encourage broader participation and promote data dissemination on jurisdictions’ websites. - In evaluating the pilot and planning follow-up work, staff will review participation, publicly available statistics, and remaining gaps in data availability. ### Collaboration and Cooperation — Supervisory Dialogue and Good Practices - Roundtable outcomes: - The third IMF roundtable for onshore and offshore supervisors and standard setters held in November 2005 highlighted the need for continued attention to cooperation and information sharing, risk-based supervision, and appropriate sequencing of standards implementation to address complex cross-border issues. - Participants agreed that supervisors and standard setters should consider: - Disseminating good practices on information sharing. - Providing website guides to jurisdictions’ information sharing arrangements. - Assigning priority and resources to information exchange issues. *Executive Summary in “020806 - Executive Summary”* ### 13. The Third Annual Roundtable for offshore and onshore supervisors and ### The Third Annual Roundtable for offshore and onshore supervisors and standard setters ### Event summary - The event was held in Sydney on November 17–18, 2005, hosted jointly by four Australian agencies. - Attendance included 27 jurisdictions, the 4 standard setting bodies (BCBS, FATF, IAIS, and IOSCO), the FSF, OGBS, the Egmont Group, and the APG. - Advance copies of the Proceedings of the 2004 MFD-hosted conference on cross-border cooperation and information exchange, incorporating the background paper and information exchange survey results, were distributed. Formal publication is expected in mid-2006. ### Sectoral findings and supervisory challenges - Cross-border and cross-sectoral integration and new instruments/products increase complexity of international financial services; international and offshore financial centers are often used to domicile new instruments/products developed to share and transfer risk across sectors and agents. - Banking - Effective supervision of complicated, cross-border banking conglomerates requires extensive two-way information exchange between supervisors in the home and host supervisors—not only host to home, but host to host, home to host, and home to home. - Basel II has provided new impetus for such exchange; for example, “supervisory colleges” are discussing approaches to Basel II, but there are as yet no established practices as regards content and modalities. - Insurance - Enhanced cooperation among supervisors is required to monitor risk transfer occurring through nontraditional arrangements. - Cross-border and cross-sectoral cooperation is required for supervising the insurance industry’s use of the capital market for insuring catastrophic risks. - Nontraditional insurance or reinsurance includes captive insurance, finite reinsurance, and securitization. - Securities - Widespread operations of hedge funds and their opacity were seen as requiring enhanced disclosure that can be facilitated by supervisory cooperation in collecting data. - AML/CFT - Challenges lie in implementing the increased scope of the standard; the standard explicitly provides for a risk-based approach to rationalize and prioritize the use of resources. - Further work is needed to develop accepted approaches to risk-based supervision in the AML/CFT context. ### Cross-cutting themes and recommended supervisory responses - Information sharing, risk-based supervision, and appropriate sequencing of standards implementation were identified as the means to address increasingly complex cross-border issues and demanding financial sector supervisory and integrity standards. - Cooperation and information sharing emerged as a crucial means of ensuring adequate understanding and oversight of complex cross-border financial activities, but improved formal and informal channels of cooperation are required. - Risk-based supervision requires refinement; approaches to sequencing standards implementation must be developed to effectively prioritize areas of higher risk. - Participants agreed on additional actions for supervisors and standard-setters: - Consider disseminating good practices in information exchange. - Provide website guides to jurisdictions’ information-sharing arrangements. - Assign priority to information exchange, including the allocation of adequate resources to the cooperation function. ### The information framework: submissions, monitoring, and transparency (as of end-January 2006) - Submissions and coverage - Data had been submitted directly by 16 jurisdictions and banking data were forwarded by the BIS. - The initial submission allowed for partial submission; some variables and components were not provided. - Four jurisdictions that made partial submissions indicated they are in the process of enhancing data collection and would be able to provide data on additional variables in the second submission. - Monitoring focus - The framework documents the size of major financial sectors to allow comparisons across jurisdictions and to help staff focus on jurisdictions with more significant activity. - Over time the data are expected to provide information on trends in aggregate activity. - Banking data highlights - Reported banking assets ranged from just above $100 million to over $1 trillion compared with banking assets of close to $10 trillion in a sample of G7 countries. - About two thirds of reporting jurisdictions submitted some off-balance sheet information. - 7 of the 16 jurisdictions provided limited information on derivatives. - 10 jurisdictions provided optional data on financial soundness indicators (FSIs). - BIS locational statistics - Regional concentration observed in placement of cross-border assets and liabilities: banks located in European and Middle Eastern financial centers invested largely in Europe and the United Kingdom; banks located in the Western Hemisphere invested primarily in the United States; banks located in the Asia-Pacific region invested most of their assets in Japan and the rest of the Asia-Pacific region. - Cross-border liabilities mirror this regional pattern of assets. - Insurance, CIS, and other sectors - Gross premiums in insurance ranged from about $10 million to $100 billion; most markets’ aggregate gross premiums are below or about $1 billion. - Only five jurisdictions provided optional balance sheet information for insurance. - Establishment of collective investment schemes (CIS) is mainly undertaken in middle- and high-income jurisdictions; some recorded aggregate net asset value of CIS of over $1 billion. - Ten of the 16 reporting jurisdictions provided CIS data; only half of those who submitted CIS data reported gross assets. - The financial sector’s contribution to GDP in reporting jurisdictions varies, in one instance reaching as high as 50 percent. - The number of trust and company service providers varies greatly across jurisdictions. - Transparency and dissemination - Two jurisdictions reported increasing the number of variables they disseminate following the start of the initiative. - Five jurisdictions indicated plans to increase dissemination based on the framework in the near future (e.g., after the second submission of data in the pilot phase) or following requisite changes in their publication formats. --- _Source: https://www.imf.org/-/media/files/publications/ofca/english/020806.pdf_