## Status of IMF Second-Phase Offshore Financial Center Assessments ## Source details **Canonical URL:** [Status of IMF Second-Phase Offshore Financial Center Assessments](https://www.imf.org/-/media/files/publications/ofca/english/050808.pdf) ## Other formats - [Markdown version](/-/media/files/publications/ofca/english/050808.pdf.md) - [Structured JSON version](/-/media/files/publications/ofca/english/050808.pdf.json) --- ### Introduction and program proposal - The IMF provides an update and overview of the Offshore Financial Center (OFC) program and proposes integration of the OFC program with the Financial Sector Assessment Program (FSAP) for three reasons: - it would facilitate a more uniform and risk-based approach to financial sector surveillance and improve coordination of Fund analysis across jurisdictions; - it would allow for a better allocation of Fund resources, focusing on the small number of OFCs that account for the overwhelming volume of offshore activity and could be expected to pose any major financial system risks; and - it would eliminate the need to maintain a potentially discriminatory OFC list. - The Executive Board indicated the next review of the OFC program should be in 2–3 years and requested periodic updates; progress reports have been issued annually, the most recent in February 2006. - The Fund notes care would still be needed to give anti-money laundering/combating the financing of terrorism (AML/CFT) vulnerabilities adequate attention. ### Background and structure of the OFC program - The OFC program began in 2000 in response to concerns about weaknesses in OFC financial supervision and limited information on OFC business. - The program has three assessment modules: - Module 1: self-assessments, assisted by outside experts; - Module 2: stand-alone Fund assessments against standards: Basel Core Principles for Effective Banking Supervision (BCP), IAIS Insurance Core Principles (ICP), IOSCO Objectives and Principles of Securities Regulation, and the FATF 40+9 Recommendations for AML/CFT; and - Module 3: comprehensive assessments of risks and vulnerabilities akin to the FSAP. - The first phase focused on 44 jurisdictions (42 assessed) and was completed in 2005. First-phase findings: adherence to the four international standards among OFCs was broadly comparable or better, on average, than other countries assessed in the FSAP; compliance was weaker in securities and insurance sectors than in banking. ### Second-phase status, scope and pacing - Second-phase assessments began in 2005; pace affected by bunching of first-phase assessments in 2002. - Key counts and status: - Completed second-phase reports: 13 - Reports in progress: 3 - Total jurisdictions assessed (second phase): 16 - FSAP assessments included: 7 - Module 2 assessments included: 9 - Published reports: 9 - Jurisdictions listed among completed reports include: Uruguay; Ireland; Switzerland; UAE (Dubai); Mauritius; Botswana; Cyprus; Panama; Vanuatu; Samoa; Gibraltar; Andorra; Liechtenstein. - Jurisdictions in progress include: Barbados; Bermuda; Monaco. - The bunching in 2002 (22 assessments in 2002) and the agreed four–five year cycle diminished the number of second-phase assessments during 2005–07; a large number of assessments are due in 2008–09 and may be difficult to complete given resource constraints. ### Monitoring focus and methodology (second phase) - Second-phase assessments are more focused and targeted, emphasizing: - progress in addressing weaknesses identified in previous assessments; - issues of cross-border cooperation; and - relevant areas not covered in previous assessments. - Typical assessment elements: - evaluation of banking supervision either through a full reassessment vis-à-vis the BCP or through a factual update; - similar assessments of insurance supervision and securities regulation when these sectors are significant; - under Fund AML/CFT policies, a full assessment against the FATF 40+9 Recommendations is always undertaken by the Fund, the Bank, the FATF, or FSRBs. ### Findings — compliance, improvements and cooperation - Overall: - Second-phase results suggest improvement in compliance with the three prudential standards (BCP, IAIS, IOSCO), though sample sizes are small. - Banking (BCP): - Six jurisdictions had detailed reassessments against the 1997 BCP; compliance improved in those six jurisdictions. - There was 100 percent (full or large) compliance among high-income jurisdictions except in BCP 25, where one jurisdiction needed to reach formal agreements with home supervisors. - In the larger sample of 11 jurisdictions (including reassessments and updates), remedial powers and risk monitoring remained areas requiring work. - A seventh jurisdiction was assessed under the revised BCP of 2006. - Insurance (IAIS): - Six jurisdictions had an IAIS assessment or partial assessment; compared with the earlier phase, there were substantial improvements in observance. - The four high-income jurisdictions had higher observance than the 11 non-OFC jurisdictions in 19 of the 28 IAIS principles. - Only four IAIS assessments were reassessments; Cyprus and Panama had insurance assessments for the first time in the second phase. - Securities (IOSCO): - Three OFCs had IOSCO assessments for the first time, and one had a partial reassessment; sample too small for meaningful cross-jurisdiction comparison. - Updated IOSCO assessments showed improvements in regulators’ mandate, staffing and inspection, and cooperation. - Cooperation and information exchange: - Offshore jurisdictions have made progress on prudential cross-border cooperation and information exchange issues. - Consultations with supervisors in home jurisdictions and with standard-setters in second-phase assessments have not uncovered significant issues or concerns. ### AML/CFT assessments, vulnerabilities and publication - AML/CFT assessment coverage and vulnerabilities: - Twenty one OFCs have been assessed for AML/CFT under the current FATF methodology; eight of these assessments have been conducted by the Fund. - Assessments show compliance generally comparable to non-OFC jurisdictions, but OFCs show relatively low compliance levels in key FATF 40+9 areas: - customer identification; - monitoring of transactions; - international cooperation (FATF Recommendations 35-40). - International cooperation compliance: the proportion of assessed OFCs found compliant or largely compliant with Recommendations 35-40 is 68 and 48 percent for high income and middle income jurisdictions, respectively; this compares to 86 and 65 percent for non-OFCs. - These weaknesses create ML/FT vulnerabilities both for the OFCs in question and for other jurisdictions with which they interact. - Publication and transparency: - Of the 13 jurisdictions that have completed second phase OFC reports, nine have published their main report (four FSSAs and five AFSSRs). - Of the five jurisdictions that published their AFSSR, four also chose to publish their detailed assessment reports. - Publication policy: voluntary for the main reports; jurisdictions can publish detailed assessments with management’s consent. - All but one of the OFCs assessed under the current FATF methodology have published or indicated agreement to publish their detailed AML/CFT assessments. - Information Framework participation and statistics: - Of the 46 jurisdictions invited to participate in the Information Framework, 28 jurisdictions have submitted some data, up from 16 reported in the February 2006 Board paper. - Another seven have committed or indicated their intent to participate but have yet to submit any data. - Three have yet to confirm participation. - Eight jurisdictions refused participation for reasons including reluctance to be associated with the term “offshore,” already publishing such data, participation in other Fund initiatives, or no longer having OFC activity. - Participation of OFCs in the CPIS exercise has risen to 25 jurisdictions compared with 22 in 2001. - Technical assistance (TA): - Technical assistance has been provided to 37, mainly middle-income, jurisdictions. Data on TA are limited to TA related to enhancing financial sector supervision and AML/CFT (data to 31 October 2007). - Regional concentration: Asian-Pacific region and Caribbean countries have received the bulk of the TA. - TA focus areas: bank supervision; AML/CFT (generally delivered through regional workshops and training seminars); governance of supervisory bodies; insurance supervision. - Delivery channels: much TA delivered through regional centers (Pacific Financial Technical Assistance Centre and Caribbean Regional Technical Assistance Centre); coordination and support from donor governments and agencies such as the JSA. ### Case for integration with FSAP — recommendation and rationale - Staff recommends integration of the OFC program into the FSAP, with stand-alone activities that would continue outside formal FSAP integration: - AML/CFT assessments and TA; - The Information Framework Initiative; - Collaboration with other agencies. - Factors favoring integration: - Improved consideration of systemic and other risks: FSAP assessments address macro-financial linkages, capital flows, contagion, and supervisory cooperation that OFC-module assessments typically do not cover. - Difficulty in maintaining a credible distinction between OFCs and other jurisdictions: absence of agreed objective criteria and globalization have blurred distinctions. - Reducing perceived discriminatory treatment: integration would blunt stigma attached to the OFC label. - More effective prioritization and use of resources: an integrated program would permit broader FSAP criteria for prioritization and more judicious timetabling. ### Coverage, prioritization, scheduling and transition - Coverage and prioritization under the proposed integrated OFC-FSAP: - The FSAP would be extended to encompass all OFCs, including the four nonmembers assessed under the OFC program: Andorra, Liechtenstein, Monaco, and Nauru. - Of the 46 jurisdictions identified in the first phase as OFCs, 15 have already opted for FSAP assessments; of the remaining 27 jurisdictions, 8-9 account for the overwhelming volume of activity and would be considered priorities for assessment every 5-7 years. - The remaining 18–19 OFCs are small and would be assessed less frequently under the integrated OFC-FSAP program. - FSAP prioritization exercise takes place every six months, allowing rolling reconsideration. - Smaller jurisdictions: most are subject to Article IV consultations; nonmember and member territories not receiving Article IV would be monitored offsite as part of the Information Framework Initiative. - AML/CFT assessments: all of the smaller jurisdictions save one would be subject to AML/CFT assessments about every five years under global arrangements. - Transition arrangements if the Executive Board integrates the programs: - OFC assessment missions planned for FY2009 would be scoped as Module 2s where planning with authorities is relatively advanced, or as FSAPs taking account of relevant risks. - From FY2010, all assessment missions to OFCs would be included in the FSAP. - FSAP standards assessments of OFCs in the integrated program would be treated as FSAP Updates if the jurisdiction had already received an assessment under the OFC program; the update would follow up on implementation of the initial assessment as part of standards and codes work. ### Scope of integrated assessments and role of other institutions - Integration expands scope: - Module 2 OFC assessments typically include only standards assessments; the FSAP includes a broader vulnerability analysis covering macro-financial linkages, financial safety nets, and a potentially larger set of standards and codes. - Systemically important OFCs would undergo vulnerability analyses and reviews of contingency mechanisms targeted to underlying risks. - Assessments would be tailored to risk profiles and emphasize evaluation of cooperation and cross-border information sharing. - Role of the World Bank and other agencies: - The World Bank would have a limited role in OFC assessments in an integrated program; large systemically relevant OFCs are mainly high income jurisdictions where the Bank typically would not be involved. - For middle-income member OFCs, joint assessments would be undertaken in line with current FSAP policy. - Staff will continue to work closely with the FSF and standard setters; Fund-sponsored Roundtables for offshore and onshore supervisors and standard setters would continue though annual frequency may be reconsidered. - Continued cooperation with the BIS to avoid duplication and continuation of the Information Framework Initiative. ### Transparency, publication, technical assistance and AML/CFT policy under integration - Publication and reporting: - No material change expected: progress on OFC assessments would be covered in periodic FSAP reviews typically published; Board receives an annual report on FSAP participation; country reports are published on a voluntary basis. - Technical assistance: - Integration is not expected to affect TA provision to OFCs, though overall TA volume must be considered in the broader context of the Fund’s downsizing and refocusing. - TA would continue to focus on weaknesses identified in AML/CFT assessment reports and emphasize cross-border ML and FT risk management and international cooperation. - TA financing: through the Fund’s internal budget (limited resources reserved to support AML/CFT assessments) or through external financing. - AML/CFT assessments and modalities: - OFCs would continue to be subject to assessments against the FATF 40+9 Recommendations; a full AML/CFT assessment is expected for all jurisdictions approximately every five years. - For OFCs undergoing FSAP every 5–7 years, full AML/CFT assessments would take place within a reasonable period (i.e., 18 months) of the FSAP mission. - AML/CFT assessments would continue to be conducted by the Fund, the Bank, the FATF or an FSRB under existing burden-sharing arrangements. - Fund staff will pay particular attention to jurisdictions not members of FATF or an FSRB and to jurisdictions whose FSRB assessment capacity is believed to be particularly weak. - AML/CFT issues will continue to be addressed in Article IV consultations where appropriate. ### Budgetary implications and cost estimates (summary of Table 4) - Key scenarios and assumptions: - Scenario based on the FY2008 budget envelope indicates higher cost of FSAP-style assessments offset by reduced frequency for smaller jurisdictions. - Of the 46 jurisdictions, 19 are already assessed under the FSAP; of the remaining 27, roughly 8–9 would warrant FSAP-style assessments roughly every six years; remaining 18–19 would be assessed on average every 12 years under assumed budget constraint. - Under tighter budget envelopes (FY2009 and beyond), stricter risk-based criteria for scope and frequency are preferable; integration provides a common platform for prioritization. - Extracted estimated annual cost (In Person Years; costs excluding travel; costs including travel): - Module 2 assessments — Planned 5-year assessment cycle: In Person Years 3.9; Excluding Travel 0.8; Including Travel 1.1 - Module 2 assessments — Assuming 5-and 7-year assessment cycles: In Person Years 3.2; Excluding Travel 0.6; Including Travel 0.9 - Integrated FSAP Updates (6- and 12-year cycles): In Person Years 2.9; Excluding Travel 0.6; Including Travel 0.8 - AML/CFT assessments: In Person Years 4.5; Excluding Travel 0.8; Including Travel 1.0 - Table 4 notes: Planned 5-year cycle implies an average of 5.4 assessments per year; 5-and 7-year cycles imply an average of 4.4 assessments per year; integrated FSAP assumptions imply an average of 3 assessments per year. ### Questions for Executive Directors (issues for discussion) - Agreement with staff’s proposal to integrate OFC assessments into the FSAP (paragraphs 26, and 27–36)? - Agreement that the four nonmember jurisdictions, Andorra, Liechtenstein, Monaco and Nauru can be considered for the FSAP, AML/CFT assessments and technical assistance (paragraphs 27–36)? - Agreement with the approach proposed for AML/CFT issues described in paragraphs 37–39? - Concurrence with the transition and other proposals described in paragraphs 40 and 41? ### Appendix highlights — compliance and implementation of first-phase recommendations - Appendix I provides detailed compliance proportions with standards and codes; selected highlights include: - Basel Core Principles (1997) — selected principle profiles show high variation across principles (examples: CP1(1): 95, 73, 100, 87, 22, 15, 19, 62; CP6: 86, 40, 89, 55, 22, 15, 19, 62; CP25: 95, 75, 95, 70, 21, 12, 19, 61). - IAIS Insurance Core Principles — selected observance figures (examples: C1: 76, 0; C2: 100, 50; C8: 88, 25; C17: 100, 75). - IOSCO Objectives and Principles — selected implementation proportions reported in raw series (examples: Q01: 82941717; Q05: 94881717; Q27: 91881117). - FATF Recommendations (2003) — selected observance proportions reported in raw series (examples: R1: 5729683014 7 1930; R5: 71421101471930; R35: 574363331471930). - Appendix I and the summary of measures taken document substantial remedial progress across BCP, IAIS and IOSCO domains, including legislative reforms, requirements for physical presence for licenses, strengthened on-site inspection programs, expanded remedial powers, improved information sharing, increased supervisory staffing and training, and adoption of corporate governance and AML checklists. *Source: International Monetary Fund (IMF) — Offshore Financial Centers Program — Second Phase status and assessments.* ### 1. Status of IMF Second-Phase Offshore Financial Center Assessments..................................8 ### 1. Status of IMF Second-Phase Offshore Financial Center Assessments ### Introduction - The IMF provides an update and overview of the Offshore Financial Center (OFC) program. - The Executive Board indicated the next review of the OFC program should be in 2–3 years and requested periodic updates; progress reports have been issued annually, the most recent in February 2006. - The paper proposes integration of the OFC program with the Financial Sector Assessment Program (FSAP) for three reasons: - it would facilitate a more uniform and risk-based approach to financial sector surveillance and improve coordination of Fund analysis across jurisdictions; - it would allow for a better allocation of Fund resources, focusing on the small number of OFCs that account for the overwhelming volume of offshore activity and could be expected to pose any major financial system risks; and - it would eliminate the need to maintain a potentially discriminatory OFC list. - The IMF notes care would still be needed to give anti-money laundering/combating the financing of terrorism (AML/CFT) vulnerabilities adequate attention. ### Background of the OFC Program - The OFC program began in 2000 in response to concern regarding weaknesses in OFC financial supervision and a dearth of information about OFC business. - The program has three assessment modules: - Module 1: self-assessments, assisted by outside experts; - Module 2: stand-alone Fund assessments against standards: Basel Core Principles for Effective Banking Supervision (BCP), IAIS Insurance Core Principles (ICP), IOSCO Objectives and Principles of Securities Regulation, and the FATF 40+9 Recommendations for AML/CFT; and - Module 3: comprehensive assessments of risks and vulnerabilities akin to the FSAP. - The first phase of the program was completed in 2005. It focused on the 44 jurisdictions that were initially contacted (42 of which were assessed). - First-phase findings: adherence to the four international standards among OFCs was broadly comparable or better, on average, than other countries assessed in the FSAP, reflecting higher average incomes of OFC jurisdictions. Compliance was weaker in securities and insurance sectors than in banking; deficiencies were often related to inadequate resources or skills. - In 2003 the Executive Board decided monitoring of OFC activities and compliance with supervisory standards should be a standard component of the Fund’s financial sector work. The second phase was to incorporate four elements: - regular monitoring of OFCs’ activities and compliance with supervisory standards; - improved transparency of OFC supervisory systems and activities; - technical assistance (TA) in collaboration with bilateral and multilateral donors; and - collaboration with standard-setters and onshore and offshore supervisors to strengthen standards and the exchange of information. - The Executive Board agreed that, for the time being, the OFC program would remain separate from the FSAP because the OFC program allows more frequent monitoring (assessments every four to five years). ### The OFC Program — Second Phase: Status and Scope - Second-phase assessments began in 2005; the pace has been affected by bunching of first-phase assessments in 2002. - Key counts and status: - Completed second-phase reports: 13 - Reports in progress: 3 - Total jurisdictions assessed (second phase): 16 - FSAP assessments included: 7 - Module 2 assessments included: 9 - Published reports: 9 - Jurisdictions listed among completed reports include: Uruguay; Ireland; Switzerland; UAE (Dubai); Mauritius; Botswana; Cyprus; Panama; Vanuatu; Samoa; Gibraltar; Andorra; Liechtenstein. - Jurisdictions in progress include: Barbados; Bermuda; Monaco. - Footnote clarification: the jurisdictions taken into account include both the 46 jurisdictions considered in the first phase of the program, and additional jurisdictions where staff is aware of significant international and offshore financial activity. Only 13 of the 16 assessed were included in the first phase of the OFC program. - Publication: Financial System Stability Assessments (FSSAs) and Assessments of Financial Sector Supervision and Regulation (AFSSRs) publication is voluntary; publication of other FSAP and Module 2 documents (including detailed assessments) is also voluntary but IMF management consent must first be obtained. ### Monitoring: Focus and Methodology in Second Phase - Second-phase assessments are more focused and targeted, emphasizing: - progress in addressing weaknesses identified in previous assessments; - issues of cross-border cooperation; and - relevant areas not covered in previous assessments. - Assessments typically include an evaluation of banking supervision either through a full reassessment vis-à-vis the BCP or through a factual update, and similar assessments of insurance supervision and securities regulation when these sectors are significant. - Under Fund AML/CFT policies, a full assessment against the FATF 40+9 Recommendations is always undertaken by the Fund, the Bank, the FATF, or FATF-Style Regional Bodies (FSRBs). ### Findings — Compliance and Improvements (Second Phase) - General assessment of progress: - Second-phase results suggest improvement in compliance with the three prudential standards (BCP, IAIS, IOSCO), though sample sizes are small. - Banking (BCP) findings: - Six jurisdictions had detailed reassessments against the 1997 BCP. - Compliance improved in those six jurisdictions. - There was 100 percent (full or large) compliance among high-income jurisdictions except in BCP 25, where one jurisdiction needed to reach formal agreements with home supervisors. - In the larger sample of 11 jurisdictions (including reassessments and updates), remedial powers and risk monitoring remained areas requiring work. - A seventh jurisdiction was assessed under the revised BCP of 2006. - Insurance (IAIS) findings: - Six jurisdictions had an IAIS assessment or partial assessment. - Compared with the earlier phase, there were substantial improvements in observance. - The four high-income jurisdictions had higher observance than the 11 non-OFC jurisdictions in 19 of the 28 IAIS principles. - Appendix II shows a high degree of implementation of earlier recommendations, with significant improvements observed in the organization of the supervisor, prudential rules and inspection. - Only four IAIS assessments were reassessments; Cyprus and Panama had insurance assessments for the first time in the second phase. - Securities (IOSCO) findings: - Three OFCs had IOSCO assessments for the first time, and one had a partial reassessment. - The sample is too small to allow meaningful cross-jurisdiction comparison. - In jurisdictions with updated IOSCO assessments, implementation of recommendations produced improvements in the regulators’ mandate, better staffing and inspection, and improved cooperation. - Cooperation and information exchange: - Offshore jurisdictions have made progress on prudential cross-border cooperation and information exchange issues. - Second-phase assessments typically involved consultations with supervisors in home jurisdictions of the assessed center and with main standard-setters, facilitating a “third-party” view of OFCs’ information exchange; these consultations have not uncovered significant issues or concerns. - Table summary on progress in cooperation and information exchange (second phase): - Basel Core Principles (1997, 2006): assessed in 7 jurisdictions among high-income OFCs and 3/4 among upper and lower middle income OFCs; progress noted in 4 high-income OFCs and 3 upper/lower middle-income OFCs where updates or detailed assessments were conducted. - IAIS Core Principles (2003): assessed in 7/8 jurisdictions among high-income and 1/2 among upper/lower middle-income OFCs; progress noted in 4 high-income OFCs and 2 upper/lower middle-income OFCs where updates or detailed assessments were conducted. - IOSCO Objectives and Principles: assessed in 3/4 jurisdictions among high-income and 0/1 among upper/lower middle-income OFCs; progress noted in 1 high-income OFC and 1 upper/lower middle-income OFC where updates or detailed assessments were conducted. - The dataset is preliminary since some documents used were in draft. ### Program Pace, Resourcing, and Scheduling - The bunching of first-phase assessments in 2002 (22 assessments in 2002) and the agreed four–five year cycle diminished the number of second-phase assessments during 2005–07. - A large number of assessments are due in 2008–09; these could prove difficult to complete given resource constraints. ### Implementation and Technical Assistance - The OFC program second phase includes enhanced transparency and technical assistance in collaboration with donors, and cooperation with standard-setters and onshore supervisors to strengthen standards and information exchange. - Appendix II documents implementation of recommendations from the first phase and shows areas of remedial progress, particularly in organization of supervisors, prudential rules, and inspection. *Source: IMF Offshore Financial Centers Program — Second Phase status and assessments.* ### 13. Anti-money laundering and counter terrorism regimes: One area where concerns ### Anti-money laundering and counter terrorism regimes: One area where concerns remain is AML/CFT ### AML/CFT assessment findings and vulnerabilities - Twenty one OFCs have been assessed for AML/CFT under the current FATF methodology; eight of these assessments have been conducted by the Fund. 15 - Assessments demonstrate compliance that is generally comparable to that of non-OFC jurisdictions, but OFCs show relatively low compliance levels in key FATF 40+9 areas: - customer identification; - monitoring of transactions; - international cooperation (FATF Recommendations 35-40). - International cooperation compliance: the proportion of assessed OFCs found compliant or largely compliant with Recommendations 35-40 is 68 and 48 percent for high income and middle income jurisdictions, respectively; this compares to 86 and 65 percent for non-OFCs.16 - These weaknesses create ML/FT vulnerabilities both for the OFCs in question and for other jurisdictions with which they interact. ### Enhancing transparency and assessment publication - Most jurisdictions have published their assessment reports. - Of the 13 jurisdictions that have completed second phase OFC reports, nine have published their main report (four FSSAs and five AFSSRs)17. - Of the five jurisdictions that published their AFSSR, four also chose to publish their detailed assessment reports. - Publication policy: voluntary for the main reports; jurisdictions can publish detailed assessments with management’s consent. - All but one of the OFCs assessed under the current FATF methodology have published or indicated agreement to publish their detailed AML/CFT assessments. - A data collection exercise, the Information Framework, was initiated for OFCs in 2004 to provide a common statistical template to aid jurisdictions’ dissemination and the Fund’s monitoring. ### Information Framework participation and statistics - Of the 46 jurisdictions invited to participate in the Information Framework, 28 jurisdictions have submitted some data, up from 16 reported in the February 2006 Board paper (Table 3). - Another seven have committed or indicated their intent to participate but have yet to submit any data. - Three have yet to confirm participation. - Eight jurisdictions refused participation for reasons including reluctance to be associated with the term “offshore,” already publishing such data, participation in other Fund initiatives, or no longer having OFC activity. - The data collected complement CPIS and include aggregate structural and activity indicators for banking, insurance, and securities sectors; they have enabled cross-country comparisons, helped prioritize second phase assessments, and supported monitoring of developments.18 - To avoid duplication, jurisdictions that provide data to the BIS authorize the BIS to transmit relevant locational banking statistics to the Fund. - Participation of OFCs in the CPIS exercise has risen to 25 jurisdictions compared with 22 in 2001. ### Technical assistance (TA) - Technical assistance has been provided to 37, mainly middle-income, jurisdictions (Figure 3).19 - Regional concentration: Asian-Pacific region and Caribbean countries have received the bulk of the TA. - TA focus areas: - bank supervision; - AML/CFT (AML/CFT TA generally delivered through regional workshops and training seminars)20; - governance of supervisory bodies; - insurance supervision. - Delivery channels: much TA delivered through regional centers (Pacific Financial Technical Assistance Centre and Caribbean Regional Technical Assistance Centre); coordination and support from donor governments and agencies such as the JSA. - TA also provided to improve monetary and financial statistics and balance of payments data; Fund worked with OFCs on CPIS seminars. - Data on TA are limited to TA related to enhancing financial sector supervision and AML/CFT. Note: Data to 31 October 2007. ### Cooperation and standard-setter engagement - The Fund organizes an annual Roundtable to foster collaboration among OFCs, home supervisors, and standard-setters. - The 2006 Roundtable (hosted by the Cayman Islands Monetary Authority) focused on risks in global financial markets and OFCs, including misuse of corporate vehicles, lack of transparency in risk transfer, and institution failure. - The Fifth Annual Roundtable in early 2008 (hosted by the BIS) focused on transparency issues. - Fund staff participated in the FSF’s Offshore Review Group (formed 2005) to review OFCs’ progress; the Group’s September 2007 report acknowledged progress but noted a few remaining concerns. The FSF decided the Review Group need not meet prior to each FSF meeting but remained ready to address material concerns.21 - Staff is following the IOSCO initiative to remove legislative and practical obstacles to cooperation and information exchange; the confidential process engages jurisdictions in assessing their ability to sign IOSCO’s multilateral memorandum of understanding and has made substantial progress. - Staff has worked closely with the FATF and FSRBs to coordinate AML/CFT assessment programs and provided TA to strengthen the assessment capacity of FSRBs. ### Case for integration of the OFC program with the Financial Sector Assessment Program (FSAP) - Background: - The Fund’s Executive Board discussed integrating the OFC program with the FSAP at the November 2003 review and requested the next review to reevaluate the need for a separate program. - Participants in the December 2006 Fourth Annual IMF Roundtable suggested consideration of an integrated program. The FSF’s Offshore Review Group considered the issue in July 2007 and acknowledged potential merit while urging commensurate monitoring of systemic risks. - Factors favoring integration: - Improved consideration of systemic and other risks: - OFC program assessments have mainly centered on supervisory and regulatory practices; FSAP assessments address a broader range of financial stability and development issues that inform surveillance, including cross-border issues such as capital flows, contagion, and supervisory cooperation. Integrating programs would help ensure broader systemic issues are routinely considered, especially for larger jurisdictions with significant cross-border financial flows.23 - Difficulty in maintaining a credible distinction between OFCs and other jurisdictions: - Absence of agreed objective criteria for defining an OFC (see Box 1) and the FSF no longer maintaining a list of OFCs. - Globalization and active promotion of offshore business by some countries have blurred distinctions. - Reducing perceived discriminatory treatment: - Some OFC officials expressed concern about stigma attached to the OFC label and that the Fund’s OFC program singles out OFCs; a unified approach would blunt such concerns while underscoring expectation that OFCs meet commonly agreed international standards. - More effective prioritization and use of resources: - Both FSAP and OFC assessments are intended to occur roughly on a five-year cycle,24 but resource constraints prevent observing this timing in FSAP in practice. - FSAPs are prioritized based on systemic importance and vulnerability; OFC prioritization is more mechanical (size and past assessments). - An integrated program would permit use of broader FSAP criteria for all jurisdictions, enable more judicious timetabling of assessments, and improve allocation of resources across jurisdictions. ### Definition issues: What is an Offshore Financial Center? (Box 1) - Multiple criteria have been used to describe an OFC, including: - orientation of business primarily toward nonresidents; - favorable regulatory environment; - low or zero tax rate; - offshore banking as an entrepôt business. - IMF Statistics Department (2002) proposed a characterization: “a jurisdiction in which international investment position assets, including as resident all entities that have legal domicile in that jurisdiction, are close to or more than 50 percent of GDP and in absolute terms more than $1 billion.” - Zoromé (2007) proposes a data-based indicator: the ratio of net financial services exports to GDP. Practical complications arise because many jurisdictions lack sufficiently detailed balance of payments data and net financial services sometimes had to be inferred from CPIS and International Investment Position data. - Zoromé’s examination of 104 jurisdictions identified 16 of 40 high-income countries, and 6 of the 64 middle/low-income jurisdictions, as having significantly higher levels of net financial services exports than peers. The sample included 23 of the 46 OFCs covered by the IMF’s OFC Program; the filter captured 19 of these jurisdictions while identifying three additional jurisdictions. *International Monetary Fund (IMF) — chapter on Offshore Financial Centers and AML/CFT issues* ### 25. At the same time, care would be needed to avoid the impression of a ### 050808 - 25. At the same time, care would be needed to avoid the impression of a ### Recommendation: integrate OFC assessments into the FSAP - Staff recommends integration of the two programs: Fund’s assessments of OFCs would be integrated into the FSAP program (paragraph 26). - Stand-alone activities that would continue outside formal FSAP integration: - AML/CFT assessments and TA. - The Information Framework Initiative. - Collaboration with other agencies. ### Coverage, prioritization, and scheduling - Coverage changes: - The FSAP would be extended to encompass all OFCs, including the four nonmembers assessed under the OFC program (paragraph 27). - The four nonmembers are Andorra, Liechtenstein, Monaco, and Nauru (footnote). - Prioritization and frequency: - Of the 46 jurisdictions identified in the first phase as OFCs, 15 have already opted for FSAP assessments; of the remaining 27 jurisdictions, 8-9 account for the overwhelming volume of activity and would be considered priorities for assessment every 5-7 years (paragraph 28). - The remaining 18–19 OFCs are small and would be assessed less frequently under the integrated OFC-FSAP program (paragraph 28). - FSAP prioritization exercise takes place every six months, allowing rolling reconsideration (paragraph 29). - Smaller jurisdictions: most are subject to Article IV consultations; nonmember and member territories not receiving Article IV would be monitored offsite as part of the Information Framework Initiative (paragraph 29). - AML/CFT assessments: all of the smaller jurisdictions save one would be subject to AML/CFT assessments about every five years under global arrangements (paragraph 29). ### Scope of assessments and vulnerability analysis - Integration expands scope: - Module 2 OFC assessments typically include only standards assessments; the FSAP includes a broader vulnerability analysis covering macro-financial linkages, financial safety nets, and a potentially larger set of standards and codes (paragraph 30). - Systemically important OFCs would undergo vulnerability analyses and reviews of contingency mechanisms targeted to underlying risks (paragraph 30). - Tailoring to risk profiles: - OFC institutions often hold much larger cross-border positions, are frequently branches or subsidiaries of internationally active banks, and contribute a larger share of GDP through financial services—heightening exposure to operational and reputation risks such as money laundering (paragraph 31). - Emphasis on evaluation of cooperation and cross-border information sharing in assessments (paragraph 31). ### Role of the World Bank and other agencies - World Bank role: - The Bank would be expected to have a limited role in OFC assessments in an integrated program; large systemically relevant OFCs are mainly high income jurisdictions where the Bank typically would not be involved (paragraph 32). - For middle-income member OFCs, joint assessments would be undertaken in line with current FSAP policy (paragraph 32). - Collaboration: - Staff will continue to work closely with the FSF and standard setters; Fund-sponsored Roundtables for offshore and onshore supervisors and standard setters would continue though annual frequency may be reconsidered (paragraph 36). - Continued cooperation with the BIS to avoid duplication and continuation of the Information Framework Initiative (paragraph 34). ### Transparency, publication, and technical assistance - Publication and reporting: - No material change expected: progress on OFC assessments would be covered in periodic FSAP reviews typically published; Board receives an annual report on FSAP participation; country reports are published on a voluntary basis (paragraph 33). - Access to OFC assessments would continue to be available on the Fund’s website, with new reports accessible through the Fund’s FSAP page (footnote). - Technical assistance (TA): - Integration is not expected to affect TA provision to OFCs, though overall TA volume must be considered in the broader context of the Fund’s downsizing and refocusing (paragraph 35). - Technical assistance would continue to focus on weaknesses identified in AML/CFT assessment reports and emphasize cross-border ML and FT risk management and international cooperation (paragraph 39). - TA financing: through the Fund’s internal budget (limited resources reserved to support AML/CFT assessments) or through external financing (paragraph 39). ### AML/CFT assessments and policies - Continued coverage: - OFCs would continue to be subject to assessments against the FATF 40+9 Recommendations; a full AML/CFT assessment is expected for all jurisdictions approximately every five years (paragraph 38). - For OFCs undergoing FSAP every 5–7 years, full AML/CFT assessments would take place within a reasonable period (i.e., 18 months) of the FSAP mission (paragraph 38). - Other OFCs would receive full AML/CFT assessments approximately every five years, where necessary on a stand-alone basis (paragraph 38). - Assessment modalities: - AML/CFT assessments would continue to be conducted by the Fund, the Bank, the FATF or an FSRB under existing burden-sharing arrangements and procedures (paragraph 38). - Fund staff will pay particular attention to jurisdictions not members of FATF or an FSRB and to jurisdictions whose FSRB assessment capacity is believed to be particularly weak (paragraph 38). - AML/CFT issues will continue to be addressed in Article IV consultations where appropriate (paragraph 38). ### Transition arrangements if Executive Board integrates the programs - Proposed transition (paragraph 40): - OFC assessment missions planned for FY2009 would be scoped as Module 2s where planning with authorities is relatively advanced, or as FSAPs taking account of relevant risks. - From FY2010, all assessment missions to OFCs would be included in the FSAP. - FSAP standards assessments of OFCs in the integrated program would be treated as FSAP Updates if the jurisdiction had already received an assessment under the OFC program; the update would follow up on implementation of the initial assessment as part of standards and codes work (paragraph 40). ### Board discussion and non-member assessments - Board submission practice: - FSSAs prepared for non-member jurisdictions would continue to be submitted to the Board for information with Board members having the option to request a discussion and to invite OFC representatives to participate (paragraph 41). ### Budgetary implications and cost estimates (Table 4) - Summary points (paragraphs 42–43): - Scenario based on the FY2008 budget envelope indicates higher cost of FSAP-style assessments offset by reduced frequency for smaller jurisdictions. - Of the 46 jurisdictions, 19 are already assessed under the FSAP; of the remaining 27, roughly 8–9 would warrant FSAP-style assessments roughly every six years; remaining 18–19 would be assessed on average every 12 years under assumed budget constraint (paragraph 42). - Under tighter budget envelopes (FY2009 and beyond), stricter risk-based criteria for scope and frequency are preferable; integration provides a common platform for prioritization (paragraph 43). - Table 4: Estimated Annual Cost of OFC Assessments — Annual Cost of OFC Assessments (In millions of U.S. dollars) - Module 2 assessments - Planned 5-year assessment cycle: In Person Years 3.9; Excluding Travel 0.8; Including Travel 1.1 - Assuming 5-and 7-year assessment cycles: In Person Years 3.2; Excluding Travel 0.6; Including Travel 0.9 - Integrated FSAP Updates (6- and 12-year cycles): In Person Years 2.9; Excluding Travel 0.6; Including Travel 0.8 - AML/CFT assessments: In Person Years 4.5; Excluding Travel 0.8; Including Travel 1.0 - Table 4 methodological notes (footnotes summarized): - Cost estimates comprise field and headquarters time for staff and experts plus overhead costs (estimated at 30 percent of staff time); exclude cost of work by other departments and of AML/CFT assessments (assessment type does not affect AML/CFT cost) (footnote 1). - Costs excluding travel are based on standard cost per person for FY08 of $213,800 for staff and $193,200 for short-term experts; costs including travel use standard travel costs of $10,000 per person per mission (footnote 1). - Average assessments per year implied: Planned 5-year cycle implies an average of 5.4 assessments per year; 5-and 7-year cycles imply an average of 4.4 assessments per year; integrated FSAP assumptions imply an average of 3 assessments per year (Table 4 notes). ### Issues for Executive Directors (questions for discussion) - Key discussion points posed to Executive Directors (paragraph 44): - Agreement with staff’s proposal to integrate OFC assessments into the FSAP (paragraphs 26, and 27–36)? - Agreement that the four nonmember jurisdictions, Andorra, Liechtenstein, Monaco and Nauru can be considered for the FSAP, AML/CFT assessments and technical assistance (paragraphs 27–36)? - Agreement with the approach proposed for AML/CFT issues described in paragraphs 37–39? - Concurrence with the transition and other proposals described in paragraphs 40 and 41? *Source: International Monetary Fund* ### Appendix I. IMF Offshore Financial Sector Program: Compliance with Standards and Codes ### Appendix I. IMF Offshore Financial Sector Program: Compliance with Standards and Codes ### Compliance with Basel Core Principles (1997) — Selected Principle Profiles - CP1: Objectives, Autonomy, Powers and Resources - CP1(1): Objectives — 95, 73, 100, 87, 22, 15, 19, 62 - CP1(2): Independence — 82, 40, 95, 50, 22, 15, 19, 62 - CP1(3): Legal Framework — 100, 60, 100, 87, 22, 15, 19, 62 - CP1(4): Enforcement Powers — 100679575 22151961 - CP1(5): Legal Protection — 95878952 22151962 - CP1(6): Information Sharing — 91677460 22151962 - Prudential and supervisory principles (selected) - CP2: Permissible Activities — 95, 93, 100, 95, 22, 15, 19, 62 - CP3: Licensing Criteria — 100739571 22151962 - CP4: Ownership — 100, 80, 84, 69, 22, 15, 19, 62 - CP5: Investment Criteria — 91, 27, 79, 73, 22, 15, 19, 62 - CP6: Capital Adequacy — 86, 40, 89, 55, 22, 15, 19, 62 - CP7: Credit Policies — 91, 27, 89, 66, 22, 15, 19, 62 - CP8: Loan Evaluation and Loan-Loss Provisioning — 86, 40, 89, 68, 22, 15, 19, 62 - CP9: Large Exposure Limits — 91, 40, 95, 66, 22, 15, 19, 62 - CP10: Connected Lending — 86338456 22151962 - CP11: Country Risk — 86, 14, 84, 28, 22, 14, 19, 53 - CP12: Market Risks — 73, 21, 84, 33, 22, 14, 19, 61 - CP13: Other Risks — 86, 20, 89, 39, 22, 15, 19, 62 - CP14: Internal Control and Audit — 91409558 22151962 - CP15: Money Laundering — 91, 47, 84, 36, 22, 15, 19, 58 - CP16: On-Site and Off-Site Supervision — 82338981 22151962 - CP17: Bank Management Contact — 91, 60, 100, 76, 22, 15, 19, 62 - CP18: Off-Site Supervision — 86609568 22151962 - CP19: Validation of Supervisory Information — 95, 33, 100, 77, 22, 15, 19, 62 - CP20: Consolidated Supervision — 95, 13, 89, 22, 20, 8, 19, 55 - CP21: Accounting Standards — 95, 40, 100, 63, 22, 15, 19, 62 - CP22: Remedial Measures — 95, 60, 84, 52, 22, 15, 19, 62 - CP23: Globally Consolidated Supervision — 100, 38, 94, 48, 17, 8, 18, 46 - CP24: Host Country Supervision — 100, 43, 89, 64, 19, 7, 19, 50 - CP25: Supervision Over Foreign Banks' Establishments — 95, 75, 95, 70, 21, 12, 19, 61 - Sources for compliance proportions: FSAPs and Module 2 detailed assessment reports. 1/ In percentage of the number of jurisdictions in which the principle was found to be applicable and was assessed. ### Compliance with IAIS Insurance Core Principles (2000) — Selected Profiles - Selected principle observance proportions (presented as raw figures in the assessment): - C1: Organisation of an Insurance Supervisor — 76, 0 - C2: Licensing — 100, 50 - C3: Changes in Control — 94, 50 - C4: Corporate Governance — 67, 0 - C5: Internal Controls — 76, 0 - C6: Assets Standards — 822, 8 - C7: Liabilities — 88, 25 - C8: Capital Adequacy and Solvency — 88, 25 - C9: Derivatives — 69, 50 - C10: Reinsurance — 88, 0 - C11: Market Conduct — 802, 6 - C12: Financial Reporting — 94, 0 - C13: On-site Inspection — 59, 0 - C14: Sanctions — 100, 50 - C15: Cross-border Business — 100, 0 - C16: Coordination and Cooperation — 94, 25 - C17: Confidentiality — 100, 75 - Sources: FSAPs and Module 2 detailed assessment reports. 1/ In percentage of the number of jurisdictions in which the principle was found to be applicable and was assessed. ### Compliance with IOSCO Objectives and Principles of Securities Regulation — Selected Profiles - Selected implementation proportions (raw series as reported): - Q01: Clear Responsibilities — 82941717 - Q02: Operational Independence — 53711717 - Q03: Adequate Powers — 47711717 - Q04: Clear Regulatory Processes — 88881717 - Q05: Professional Standards — 94881717 - Q06: Self-Regulatory Organizations (SROs) — 100861014 - Q07: SRO Oversight — 50771013 - Q08: Inspection and Investigation — 71941716 - Q09: Comprehensive Enforcement Powers — 76751716 - Q10: Effective Compliance Program — 76761717 - Q11: Information Sharing — 76711717 - Q12: Information Sharing Mechanism — 71811716 - Q13: Assistance to Foreign Regulators — 82691716 - Q14: Disclosure of Financial Results — 71761417 - Q15: Treatment of Holders of Securities — 71881417 - Q16: Accounting and Auditing Standards — 88821717 - Q17: Standards for Collective Investment Schemes — 76651717 - Q18: Legal Form of Collective Investment Schemes — 82761717 - Q19: Suitability of a Collective Investment Scheme — 82821717 - Q20: Asset Valuation of Collective Investment Schemes — 76761717 - Q21: Minimum Entry Standards — 81881616 - Q22: Capital and Other Prudential Requirements — 88591617 - Q23: Standards for Internal Organization — 75761617 - Q24: Failure of a Market Intermediary — 50711617 - Q25: Regulatory Authorization of Trading Systems — 90881017 - Q26: Supervision of Trading Systems — 90761017 - Q27: Transparency of Trading — 91881117 - Q28: Unfair Trading Practices — 86821417 - Q29: Management of Large Exposures — 55881117 - Q30: Clearing and Settlement of Securities Oversight — 6773911 - Sources: FSAPs and Module 2 detailed assessment reports. Proportion of jurisdictions found to have implemented or broadly implemented. Number of jurisdictions in which principle assessed shown in the assessment tables. ### Compliance with Financial Action Task Force (FATF) Recommendations (2003) — Selected Profiles - Selected FATF recommendation observance proportions (raw series as reported): - R1: ML offence — 5729683014 7 1930 - R2: ML offence–mental element and liability — 935779631471930 - R3: Confiscation and provisional measures — 715784501471930 - R4: Secrecy laws — 937189871471930 - R5: Customer due diligence — 71421101471930 - R6: Politically exposed persons — 431416101471930 - R7: Correspondent banking — 291432271471930 - R8: Non face-to-face business etc — 361453271471930 - R9: Third parties and introducers — 36033261461523 - R10: Record keeping — 865779501471930 - R11: Unusual transactions — 361453301471930 - R12: DNFBP–R.5, 6, 8-11 — 7003 1471930 - R13: Suspicious transaction reporting — 432953201471930 - R14: Protection & no tipping-off — 647184631471930 - R15: Internal controls, compliance & audit — 501463301471930 - R16: DNFBP–R.13-15 & 2 — 1701601471930 - R17: Sanctions — 362953231471930 - R18: Shell banks — 712947501471930 - R19: Other forms of reporting — 798684701471930 - R20: Other NFBP & transactions — 794384471471930 - R21: Special attention for higher risk countries — 291447201471930 - R22: Foreign branches & subsidiaries — 361742251461928 - R23: Regulation, supervision and monitoring — 571437201471930 - R24: DNFBP - regulation, supervision etc — 2101131471930 - R25: Guidelines & Feedback — 50042231471930 - R26: The FIU — 7929634314 7 1930 - R27: Law enforcement authorities — 794389571471930 - R28: Powers of competent authorities — 9357100871471930 - R29: Supervisors — 644368501471930 - R30: Resources, integrity and training — 50042401471930 - R31: National co-operation — 712995401471930 - R32: Statistics — 291447271471930 - R33: Legal persons–beneficial owners — 641426201471930 - R34: Legal arrangements – beneficial owners — 751710351261017 - R35: Conventions — 574363331471930 - R36: Mutual legal assistance (MLA) — 644395771471930 - R37: Dual criminality — 865789801471930 - R38: MLA on confiscation and freezing — 645789471471930 - R39: Extradition — 715795871471930 - R40: Other forms of co-operation — 642984671471930 - SRI: UN instruments — 432947131471930 - SRII: Criminalize terrorist financing — 711474131471930 - SRIII: Freeze & confiscate terrorist assets — 3604271471930 - SRIV: STRs related to terrorism — 572968101471930 - SRV: International cooperation on TF — 641489301471930 - SRVI: Alternative Remittance — 711453301471930 - SRVII: Wire transfers — 211432171471930 - SRVIII: NPOs — 29058171471930 - SRIX: Cash Couriers — 14033211471829 - Sources: IMF, World Bank, FATF and FSRB detailed assessment reports. 1/ In percentage of the number of jurisdictions in which the principle was found to be applicable and was assessed. ### Summary of Measures Taken to Implement First-Phase Recommendations (by Prudential Standard) - General recommendations - Introduce new legislation for the supervision of the offshore sector that would, inter alia, require a physical presence. - Outcome: In all cases, new legislation and reformed supervision, which required a physical presence, was put in place. - Basel Core Principles (selected measures) - BCP 1: Objectives, autonomy, powers and resources - Expand powers to regulate and supervise. - Provide full budgetary independence for the supervisor. - Increase staff, training for staff and supervisory resources generally. - Remove requirement that the minister approve licensing and remedial actions. - Improve access to customer information, formalize information exchange. - Outcomes: - New laws expanded the powers of the supervisor, providing it with budgetary independence, full licensing and remedial authorization, security of tenure plus transparent rules for removal of head. - Staff, training and overall resources were increased. - Legislation clarified supervisory access, provided gateways, supervisor improved outreach to foreign supervisors. - Need legislation for budgetary independence not universally accepted. - BCPs 2–5: Licensing and ownership structure - Disallow nonbank deposit taking. - Require physical presence for license. - Increase investigations; increase or clarify formal license requirements. - Limit bank equity holdings and increase analysis for bank purchase. - Outcomes: - Monitored for consistency with BCP. - New law requiring physical presence. - New regulations requiring police clearance, robust criteria. - Limits imposed and increased analysis. - BCPs 6–15: Prudential regulations and requirements - Improve capital requirement system; supervision of credit policy; loan classification systems; policy on connected lending; onsite inspection and loan loss reserve evaluation; reporting/limits on country risk; supervision of risk management and liquidity monitoring. - Outcomes: - More formal/standardized approach to AML supervision. - Measures improve internal controls and audit. - Corporate governance standard introduced. - Risk framework put in place. - Onsite inspection paying more attention to credit policy; improved data collection. - Guidelines for classification, detailed credit analysis; revised rules and guidance on connected lending. - Guidelines and onsite/offsite improved; more intense monitoring, ad hoc reports. - Revised guidelines on risk management, prudential reporting; 2cases where more reporting and monitoring called for. - Increased regulation, supervision; supervisory review internal controls. - BCPs 16–20: Methods of ongoing banking supervision - Improved onsite capacity; more frequent onsite; increase discussion with bank management; more bank data analysis; mandate material adverse change reporting, early warning; expand auditors’ complementary work; implement group-wide supervision. - Outcomes: - Dedicated onsite unit, increased staff and training, improvement onsite and offsite. - Instituted regular meetings senior management. - Increased analysis, dedicated risk analysis unit. - Law reformed, financial crisis committee formed. - Work expanded, more evaluation of external auditor work, discussions with accountants. - Supervisors started insurance supervision, including group members in bank analysis. - BCP 22: Corrective measures - Increase authority to take remedial measures; publish decisions. - Require physical presence to permit implementation remedial measures; share supervisory reports with bank management. - Outcomes: - Law amended, guidelines under consideration; bill providing for enforcement, including right to publish. - Physical presence now required. - Formal sharing now underway. - BCPs 23–25: Control of cross-border banking - Apply same supervisory standards for offshore and onshore banks; more formal information sharing; strengthened cooperation with foreign supervisors through legislation, onsite supervision and strengthened capacity. - Outcomes: - New banking laws and arrangements. - Enhanced arrangements in place; stronger capacity for cooperation. - Attempted to enter into MOUs. - IAIS Insurance Core Principles (selected measures) - ICP 1: Organization of an insurance supervisor - Legal changes; improve IT systems and actuarial techniques; increase staff and staff planning. - Outcomes: - Jurisdictions brought new acts or amendments in place. - New IT systems and database. - Staff increased sharply in all jurisdictions. - ICPs 2–3: Licensing and changes in control - Develop fit and proper licensing criteria and checklist; take structured approach to exposure analysis; stress and scenario testing introduced. - Outcomes: - Act amended to introduce minimum licensing criteria, application checklist and fitness and propriety criteria introduced. - Stress and scenario testing introduced, introduction of exposure analysis. - ICPs 4–5: Corporate governance and internal controls - Require internal controls; adopt corporate governance guidelines. - Outcomes: - Requirements and guidance on internal controls; proposal on corporate governance under review. - ICPs 6–10: Prudential rules - Require more detailed reporting from the industry; strengthen supervision of risk management. - Outcomes: - More detailed filings required, new regulations introduced. - Significant progress made on supervision of risk management. - ICP 11: Market conduct - Review market conduct. - Outcomes: - Introduced code of conduct, considering ombudsman. - ICPs 12–14: Monitoring, inspection and sanctions - More detailed financial reporting; more staff in onsite inspections; structured onsite program with AML checklist. - Outcomes: - Staff sharply increased, and reporting requirements expanded; checklists for onsite introduced including AML. - ICPs 15–17: Cross-border business operations, supervisory cooperation, coordination and confidentiality - Implement MOUs with foreign supervisors; increase remedial powers to supervisor; increase information exchange with FIU re AML. - Outcomes: - MOU not necessary for cooperation; considering necessary actions; regular meetings held with FIU. - IOSCO Objectives and Principles (selected measures) - SCPs 1–5: Principles relating to the regulator - Expand and/or clarify supervisory mandate and authority in law, including authority to make binding regulations; improve criteria and rules governing executive appointment and actions; increase transparency; increase staff resources and training; provide budgetary autonomy. - Outcomes: - New laws passed or prepared with supervisory responsibility for investor protection, systemic risk; authority for licensing. - Laws provided criteria for board and management appointment. - Website now has all laws, guidelines etc. - Increased staff, staff training. - Budgetary independence increased; one jurisdiction judged, after review, that law did not require change. - SCPs 6–7: Principles relating to self-regulation - Adopt more oversight of SROs. - Outcomes: - More proactive approach adopted and rules and codes for self regulation adopted. - SCPs 8–10: Principles relating to enforcement - Improve inspection of CISs, increase direct supervision, formalize process; obtain authority to supervise trustees who undertake asset management; provide more administrative sanctions, ability to remove license and fine, strengthen enforcement. - Outcomes: - Regulator adopted legislation with wider range of powers including wide inspection and sanctions. - Trustees no longer able to do asset management without license. - New sanctions regime, increase enforcement powers, new act provided new powers. - SCPs 11–13: Principles relating to cooperation - Adopt policies and procedures to share information; make information sharing agreements with key counterparts; strengthen cooperation with counterparts. - Outcomes: - New legislation provided for information sharing. - Signed MoUs with other supervisors, discussing information sharing agreements with others. - SCPs 14–16: Principles relating to issuers - Grant authority and responsibility for issuer regulation; develop rules on insider trading, reporting requirements, takeover bids, more oversight. - Outcomes: - New regulations introduced. - SCPs 17–20: Principles relating to collective investment schemes - Develop staff’s technical skills; additional guidance to CIS; better asset valuation, NAV rules; more rules for investment undertakings, custodians. - Outcomes: - New teams with more skill, additional staff made available. - Amended regulations put NAV rules in place. - New laws, regulations for CIS. - SCPs 21–24: Principles relating to intermediaries - Better inspection rights, supervision, onsite; better rules for asset managers. - Outcomes: - New acts to improve inspection rights and staff to implement; onsite program introduced. - New laws to cover asset managers, allowing regulators to make binding rules. - SCPs 25–29: Principles relating to secondary markets - Develop staff skills; strengthen supervisory role in secondary markets. - Outcomes: - New training, head of department; working group revising regulations. - SCP 30: Principle related to securities settlement - Increase oversight clearing and settlement systems, develop standards. - Outcomes: - Staff training increased. *Source: IMF Offshore Financial Sector Program — compliance assessments, summary of measures taken to implement first-phase recommendations.* ### Appendix III. Comparison of the Offshore Financial Center and ### Appendix III. Comparison of the Offshore Financial Center and the Financial Sector Assessment Programs and Integration Implications ### Jurisdictions assessed - OFC: List of jurisdictions under the program maintained by staff based on an initial FSF list of 42 jurisdictions. Currently 51 jurisdictions are monitored, including four nonmembers. - FSAP: All members and member territories or dependencies. - Integration Implications: - Pro: Uniform treatment across participating jurisdictions based on a risk-focused approach. - Pro: Enhance the targeting of Fund resources to stability concerns. - Con: Reduced frequency of assessments of smaller OFC jurisdictions. - Participation: OFC participation voluntary, staff adopts a pro-active stance in encouraging non participants to volunteer, supported by efforts to name nonparticipants that are on the FSF list of OFCs. - Participation: FSAP participation voluntary, members write a letter to request assessment; where countries are on the FSAP surveillance priority list, staff also take a proactive stance vis-à-vis the authorities. - Integration Pro: Eliminate need to maintain separate and difficult to define list of OFC list. - Integration Pro: Consistent prioritization would help ensure resources allocated toward systemically important and/or vulnerable cases. - Integration Con: Lessened pressure to participate, especially among smaller jurisdictions. ### Content of assessments - OFC: Discussion of compliance with standards assessed and overall supervisory conditions. Evaluation of overall cooperation and information exchange. - FSAP: Assessment of macro and financial linkages and financial sector risks and vulnerabilities, including potential spillovers, effectiveness of financial sector infrastructure, and safety nets and crisis management arrangements. For FSAP Updates, progress report on FSAP recommendations; more focused risk analysis based on financial sector developments and its infrastructure. - Integration Implications: - Pro: Integrated financial surveillance framework allows to better tailoring vulnerability analysis. - Pro: Better use of resources, taking into account Fund resource constraints. - Pro: Specific assessment of financial sector risks and vulnerabilities. ### Standards assessed - OFC: BCP, IAIS and IOSCO core principles; FATF 40+9; recent OFC assessments include updates for less significant sectors. - FSAP: These four plus IMF Code of Good Practices on Transparency in Monetary and Financial Policies; Core Principles for Systemically Important Payment Systems (CPSS), Recommendations for Securities Settlements Systems. World Bank involvement includes attention to accounting and corporate governance standards in some FSAPs. For FSAP Updates, mainly factual updates on the standards, unless major reforms have taken place since FSAP, in which case full assessment of selected standards possible. AML/CFT treatment same as under initial FSAPs. - Integration Implications: - Pro: Greater flexibility in choice of standards and codes based on underlying risks and vulnerabilities. - Con: Greater use of factual updates, which do not include ratings, could reduce objective measures of gauging compliance. - Observation: Focus on codes and standards assessments has not required an emphasis on collecting data and indicators of financial sector performance. - Observation: Attention to risk and vulnerabilities involves priority to data analysis of financial systems, including stress testing. - FSAP Updates build on financial data and indicators generated during FSAP (FSIs, stress tests, etc.). - Pro: Uniform treatment with more transparency and data requirements for OFCs consistent with other jurisdictions. ### Assessment Reports - OFC: AFSSRs go to the Board only for information and are not discussed. - FSAP: FSSAs are circulated to the Board as background information for Article IV reports. - Publication: - OFC: Publication, including of detailed assessments, is voluntary but recommended by staff and monitored by the FSF. (All but one of the AFSSRs has been published.) - FSAP: Fund policy of voluntary publication prevails, with only implicit encouragement to publish (FSSA publication rates are 70-75 percent). - Integration Implications: - Pro: The FSAP approach would be applied to all jurisdictions. - Pro: FSAP participants may be under greater pressure to publish their detailed assessments, in line with current practice under the OFC program. - Con: OFCs may align themselves to current FSAP practices. ### Participating Institutions - OFC: IMF staff with experts drawn from participating supervisory authorities. AML/CFT assessments conducted by FATF/FSRBs are accepted. - FSAP: IMF in all member countries and teams including both World Bank and IMF staff in middle and low-income countries. AML/CFT treatment is similar. - Integration Implications: - Pro: Some jurisdictions would be eligible for World Bank involvement. --- _Source: https://www.imf.org/-/media/files/publications/ofca/english/050808.pdf_