Offshore Financial Centres - Treasury Contents


Memorandum from the Montserrat Financial Services Commission

EXECUTIVE SUMMARY

  In June 2000 the International Money Fund published a paper "Offshore Financial Centres—IMF Background Paper". The publication listed countries, territories and jurisdictions which are regarded as Offshore Financial Centres and Montserrat is included on the list. As a consequence, it is important that Montserrat provides evidence to this inquiry.

  Although Montserrat does not tick all the boxes that define an offshore financial centre, in that it does not have relatively large numbers of financial institutions engaged primarily in business with non-residents; nor moderate or light financial regulation, nor banking secrecy and anonymity, it is important Montserrat supports the existence of Offshore Financial Centres as they facilitate the movement of capital markets and the growth of investment.

  The benefits and services can be measured by the increase use of offshore financial centres by multi-national companies and governments and the growth of gross domestic products in successful Offshore Financial Centres' jurisdictions.

  Since the year 2000 when the Financial Stability Forum published its findings the offshore centres have been under scrutiny and to date that there has been no evidence that the centres are a threat to financial stability.

  Most Offshore Financial Centres, including Montserrat have adopted international standards in their regulatory framework and Montserrat has welcomed the assessment carried out in its jurisdictions by the International Monetary Fund in 2002. The assessment provided confirmation and/or made recommendations concerning the state of compliance to international standards and provided an impetus for implementing international standards and building up capacity.

  Montserrat's Offshore Financial Centre is transparent in that it has enacted legislation and entered into agreements to provide gateways for international co-operation and the exchange of information. This includes entering into agreements with all EU Member States for automatic exchange of information under the EU Savings Directive.

  In the matter of deterring the financing of terrorism Montserrat has enacted relevant legislation for combating terrorist financing and implemented reporting procedures for entities regulated by the Financial Services Commission.

UK TREASURY COMMITTEE INQUIRY INTO OFFSHORE FINANCIAL CENTRES

INTRODUCTION

  Montserrat's financial services industry is regulated by the Financial Services Commission. The Commission was established by the Financial Services Commission Act which came into force in 2001.

  The functions of the Commission are legislated in the Act and include duties to:

    —  administer the financial services legislation, including the granting and revoking of licences;

    —  supervise financial institutions in accordance with internationally accepted standards;

    —  monitor compliance by financial institutions with the Anti-Money Laundering Regulations 2000 and such other legislation or guidelines relating to money laundering as may be prescribed;

    —  monitor financial services business carried on, in or from Montserrat and to take action against persons carrying unlicensed financial services business, in respect of which licences are required to be obtained;

    —  take such regulatory measures as it considers appropriate to protect the financial services industry in Montserrat;

    —  monitor the effectiveness of the financial services legislation in providing for the supervision and regulation of financial services business in Montserrat to internationally accepted standards;

    —  advise the Governor on matters relating to financial services business;

    —  make recommendations to the Government of Montserrat on such amendments to the financial services legislation or such new legislation relating to financial services business as the Commission may consider necessary or appropriate;

    —  maintain contact and develop relations with persons engaged in financial services business in or from within Montserrat with a view to encouraging the development of high professional standards within the financial services industry, and promoting industry codes of conduct; and

    —  maintain contact and relations with foreign regulatory authorities and international associations of regulatory authorities and to provide regulatory assistance to foreign regulators authorities.

  With regard the request for evidence the Financial Services Commission as the regulatory body provides the following responses to the questions raised by the Treasury Committee in its invitation of 30 April 2008.

  1.  In response to what extent, and why are Offshore Financial Centres (OFCs) important to worldwide markets:

    Montserrat regards the existence of OFCs important to worldwide financial markets in that benefits are derived from corporate entities who achieve higher growth rate in jurisdiction where their fiscal obligations are not subject to annual changes. The benefits include higher income yields which are reinvested creating jobs and investment opportunities where the capital is employed.

    The effect is that financial markets do not remain immobile and OFCs contribute to the economic growth of the home jurisdiction where the capital is employed and growth of the gross national product of OFCS.

  2.  In response to the question to what extent does the use of OFCs threaten financial stability:

    There is no evidence to support this assertion. In fact, the Financial Stability Forum in April 2000 report[390] stated that OFCs do not appear to have been a major casual factor in the creation of system financial problems.

    At the request of the Financial Stability Forum the IMF carried out assessments of OFCs and observed non-compliance of international standards in some of the jurisdictions, including Montserrat and, as a result of their recommendations Montserrat has enhanced its compliance with internationals standards by strengthening its legislative framework and increasing capacity in the regulatory regime.

  3.  1.  In response to the question how transparent are OFCs:

    Montserrat's OFC is transparent in that the jurisdiction has enacted legislation that introduced gateways for providing international co-operation and exchange of information. These include the following:

    i.  Montserrat Reporting of Savings Income Information Order 2005 (European Savings Directive).

    ii.   Exchange of Information Act.

    iii.  The Financial Services Commission Act.

    iv.   International Bank and Trust Companies Act.

    v.  Criminal Justice (International (Co-operation) Act).

    vi.   The Company Management Act.

    vii.  Mutual Legal Assistance Criminal Matters (U.S.A.) Act.

    2. With regard the question how transparent are the transactions that pass through its financial institutions:

    In Montserrat, under the EU Directive has adopted the automatic exchange of information policy and as a consequence regulated entities are obliged to report to the relevant EU authorities transactions which subject to be declared under the EU Savings Directive.

    It should be noted that Montserrat was not listed on the Financial Action Task Force (FATF) list of "Non-cooperative Countries and Territories[391].

  4.  In response to the question as to what extent does the growth in complex financial instruments rely on OFCs:

    There is no evidence that the growth in complex financial instruments rely on OFCs. For example, the growth in U.S. sub-prime market did not depend on the use of OFCs to reach a stage where it caused financial markets worldwide to become unstable.

  5.  In response to the question how important the levels of transparency and taxation in OFCs been in explaining their current position in worldwide financial markets:

    Montserrat OFC is very small; however, it is subject to the obligations in the EU Savings Directive and the individual agreements signed with EU Member Countries which ensures that in relation to the EU Tax Authorities its current position is reported.

  6.  In response to the question how do taxation policies of OFCs impact on UK tax revenue and policy:

    The position in Montserrat is that under EU Savings Directive and the agreement reached with the United Kingdom residents of the U.K. whose income subject to EU Savings Directive is reported to the relevant reporting authority in the U.K.

  7.  In response to the question, are British Overseas Territories and Crown Dependencies well-regarded as OFCs, both in comparison to their peers and international standards:

    The U.K. has recently published the House of Commons Committee of Public Accounts 17th Report on Foreign and Commonwealth Office: Managing Risk in the Overseas Territories and the National Audit Office Report—Managing Risk in the Overseas Territories and this regard the reports provide evidence of how the U.K. regard its territories.

    The reports informed public opinion and in respect of Montserrat they do not reflect the current position in relation to its legislative framework and the regulatory regime. Unfortunately the reports, though published in 2008 were based on information gathered by a third party, the IMF in their assessment of the jurisdiction in 2002 and its report which was published in 2003.[392]

    In this regard a copy of the Montserrat's response to the House of Commons Committee Report is attached for reference.

  8.  In response to the question to what extent have OFCs ensured that they cannot be used in terrorist financing?

    In implementing measures to ensure its jurisdiction, Montserrat has complied with international standards and introduced legislation to combat financing of terrorism. In this regard the following legislation have been introduced:

    i.  The Anti-Terrorism (Financial and Other Measures) (Overseas Territories) Order.

    ii.   The Al-Qa'ida and Taliban (United Nations Measures) Order.

    iii.  The Criminal Justice (International Co-operation) Act.

    iv.  The Terrorism (United Nations Measures) (Overseas Territories) Order 2001

    In addition, the regulatory body in Montserrat, the Financial Services Commission, periodically circulate to relevant regulated entities the United Nations revised list of persons and entities listed pursuant to UNSCR 1390 (2002).

    Further, all regulated entities are mandatorily obliged under the Proceeds of Crime Act to submit Suspicious Transaction Reports to the Reporting Authority and, under Anti-Terrorism (Financial and Other Measures) (Overseas Territories) Order, to disclose information where there is suspicion that an offence has been committed.

  9.  In response to the question what are the implications for the policies of HM Treasury arising from OFCs:

    In our opinion, the implications for the policies of HM Treasury arising from OFCs should reflect and recognise the co-operation received from Offshore Financial Centres in responding to matters concerning transparency, the legislative framework OFCs established to international co-operation, the value of interdependence and the conclusion of the Financial Stability Forum that well regulated offshore financial centres do not destabilise financial markets.

  10.  In response to the question, what has been and is the extent and effect of double taxation treaty abuse within OFCs:

    Montserrat recently entered into Double Taxation Agreement with the U.K. However, its economy is small and therefore it would not be in position to disregard its obligations under the agreement.

  11.  In response to question as to what extent do OFCs investigate businesses and individuals that appear to be evading UK taxation:

    It should be noted that the Government of Montserrat is committed to co-operating in any investigation or complaints from the U.K. Inland Revenue that individuals or businesses domiciled in Montserrat are evading UK Taxation.

June 2008








390   Financial Stability Forum Report of the Working Group on Offshore Centres-April 2000 Back

391   FATF Report on Non-Cooperative Countries and Territories-February 2000 Back

392   IMF Assessment of the Supervision and Regulation of the Financial Sector: Volume II: Detailed Assessment of Observance of Standards and Codes-Montserrat-October 2003 Back


 
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