Public Information Notice: IMF Executive Board Integrates the Offshore Financial Center Assessment Program with the FSAP
IMF News, July 9, 2008
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- Published: July 9, 2008
Overview
- Publication date: July 9, 2008
- PIN No.: 08/82
- Main decision: On May 30, 2008, the Executive Board agreed to integrate the offshore financial center (OFC) assessment program with the Financial Sector Assessment Program (FSAP).
- Aims of integration:
- Facilitate a more uniform and risk-based approach to financial sector surveillance and improve coordination of Fund analysis across jurisdictions.
- Provide for a better allocation of Fund resources, with a specific focus on the small number of OFCs that account for the overwhelming volume of offshore activity and could be expected to pose major financial system risks.
- Eliminate the need to maintain a potentially discriminatory list of OFC jurisdictions.
Background on the OFC Program
- Inaugurated in 2000.
- Of the forty-four jurisdictions that were initially contacted, 42 were assessed and two jurisdictions received technical assistance in lieu of assessment.
- First phase of assessment completed in 2005.
- Typical assessment coverage: compliance with supervisory standards in banking; AML/CFT; and, where applicable, supervisory and regulatory standards in the insurance and securities sectors.
- Publication of results: All but one jurisdiction assessed in the first phase published the results of their assessments.
Second-phase assessments and results
- Second-phase assessments began in 2005; a total of 14 second-phase assessments have been completed, three more are underway, and ten have thus far published their reports.
- Focus areas:
- Progress in addressing weaknesses identified in previous assessments.
- Issues of cross-border cooperation.
- Relevant areas not covered in previous assessments.
- Findings:
- Results suggest improvement in compliance with supervisory standards in the banking, insurance, and securities sectors (based on a limited sample).
- Progress achieved on prudential cross-border cooperation and information exchange issues.
- OFCs' compliance with the 2003 FATF 40+9 Recommendations for AML/CFT remains a source of concern.
- Based on a sample of 21 OFCs, compliance with AML/CFT is generally comparable to non-OFC jurisdictions, but relatively low compliance was shown in certain key areas such as customer identification, the monitoring of transactions, and international cooperation.
Data collection initiative
- Initiated in 2004 to help jurisdictions in data dissemination efforts and to provide the Fund with information for ongoing monitoring of financial developments in OFCs.
- Participation: Twenty eight jurisdictions are contributing data to the initiative and another seven are planning to participate.
- Findings from the initiative: The majority of offshore transactions are conducted in relatively few centers, although there are a large number of centers with low volumes of activity.
Executive Board assessment and guidance
- Directors welcomed progress implementing the four elements agreed in 2003:
- (i) monitoring of activities and compliance with international standards;
- (ii) enhancing transparency;
- (iii) technical assistance;
- (iv) cooperation with standard setters and other agencies.
- Directors encouraged further improvements, particularly in lower- and middle-income OFCs.
- Directors noted remaining weaknesses in AML/CFT frameworks and encouraged early and effective action by OFCs to address these issues.
- Publication and transparency:
- Directors welcomed that most OFC jurisdictions had published their assessment reports and encouraged all jurisdictions to publish their reports.
- Directors commended the 28 jurisdictions that have submitted data as part of the Information Framework Initiative and encouraged remaining jurisdictions to submit their data.
Decisions, implementation, and operational details
- Most Directors supported integration, with emphasis that it should not result in a less rigorous assessment of OFCs.
- Expected benefits of integration:
- Permit a more risk-focused approach to assessments.
- Eliminate the need for a separate list of OFCs.
- Broaden the range of issues covered compared with OFC assessments, strengthening Fund financial sector surveillance.
- Tailor analysis to the risk profile of each jurisdiction, including focus on cross-border issues as appropriate.
- Resource prioritization and frequency:
- Directors generally concurred to assess the nine or ten OFCs that account for the overwhelming volume of activity about every 5-7 years, and that smaller jurisdictions should be assessed less frequently.
- Frequency should remain flexible to respond to changing risks and information collected through continuous monitoring (or the non-provision of information).
- AML/CFT assessments:
- Integration would not affect the scope or cycle of AML/CFT assessments or the range of jurisdictions to be assessed, either in the context of an FSAP or on a stand-alone basis.
- Publication policy and monitoring:
- Under the integrated program, the publication policy would continue to be voluntary and guided by FSAP policies.
- Participation in the Information Framework Initiative would contribute to transparency.
- Timeline and treatment of existing work:
- All OFC assessments to be undertaken as part of the FSAP starting in FY2010.
- Jurisdictions scheduled to be assessed under the second-phase of the OFC program prior to FY2010 could receive a Module 2 assessment or FSAP.
- Jurisdictions already assessed under the OFC program would be treated as FSAP updates under the FSAP.
- Coverage extension:
- FSAP coverage would be extended to encompass the four non-member jurisdictions presently covered by the OFC program.
- The Board retains the option to request discussion of non-member assessments and to invite non-member representatives to attend the Board meeting.
- Some Directors suggested consideration of non-member financial contributions to cover the Fund's administrative expenses for such exercises.
- Technical assistance:
- Technical assistance would continue to be provided to strengthen supervision of the financial sector and address AML/CFT risks, including in non-members, while recognizing the need for prioritization within a tighter resource envelope.
- Continued monitoring:
- In addition to Article IV consultations, member countries could also be monitored outside the assessment cycle.
- Other jurisdictions will continue to be monitored by the staff, including through the Information Framework Initiative.
- Directors encouraged jurisdictions to continue to work with the Fund to improve data collection, compilation, and dissemination.
- Coordination with other bodies:
- As part of global arrangements for AML/CFT assessments involving the IMF, World Bank, FATF and FATF-Style Regional Bodies, attention will continue to be paid to money laundering and financing of terrorism vulnerabilities posed by OFCs.
International Monetary Fund — Public Information Notice No. 08/82 (July 9, 2008).