1086 Challenges of the Knowledge Society. Finance and Accounting

Source: Report of OFC, Module 2 and FSAP Assessment: Offshore Financial Centers The assessment program: An Information Note. http://www.imf.org/external/np./mae /offshore/2009/eng/082902.htm

The chart list contains 25 principles. The results regard banking surveillance in 27 offshore centers⁸⁾ which were compared with the assessment results from 60 countries (9 developed countries, 15 transition countries, 36 developing countries). The obtained results show the compatibility degree level with the principles, in 60 international financial centers and 27 offshore centers, which is relatively high. In certain cases, it is higher in the offshore centers just as in the cases of those 60 countries assessed within the program.

If we consider the compatibility level with the basic principles, two groups of countries distinguish in the offshore centers: countries with high compatibility level and countries with reduced compatibility.

About 35% from the countries show a reduced compatibility level with the Basel Committee Principles. These are countries with 1% offshore total assets. In average, these are not offshore banks and the assessment results show that the national banks surveillance principle is followed.

The great offshore centers, with an important activity, won’t lose their good reputation and focus on the surveillance of the sectors which are connected to their cross-border activity and their business. Most of the centers are according to the surveillance principle exercised through the receiving countries (principle 24), and also with the consolidated surveillance principle (principle 20) and global consolidated surveillance (principle 23). Such a correspondence takes place in the case of the principle regarding the fight against capital laundry (principle 15).

When the activity of the offshore banks as lenders is reduced, the principles regarding the credit policy and loans classification are not met (principles 7 and 8).

The smaller centers are the ones who ignore the national banks surveillance principles (principle 16) and the market risk (principle 12).

In the same time, the centers are encouraged to increase their internal and external surveillance funds. On their side, the financial institutions wish to increase the services range which is a need of a greater correspondence to the principles limited to the market and credit risks.

The often cities lack in Basic Principles implementation for an effective banking control, concern the following fields:

• caution regulations and adequate capital (principles 6-14);

• control implementation methods (principles 16-19);

• place for the control authorities in the structure (principle 1).

Reductively, in about half of the organizations, the need for intensive activities in the field of bank risk management control was noticed. The banking customers’ experience in the field of loans is reduced.

The control representatives have much knowledge on banking activities and banks, enhancing their use and complementary expertise use regarding, for example, the risks.

Fight against capital laundry and terrorism financing

After 2002, IMF and the World Bank intensified the assessments regarding the fight against capital laundry and terrorism financing. The assessments for the offshore centers involve from now on a shield committed to the fight against money laundry and terrorism financing. The mission of offshore financial centers assessment allowed to raise certain points in drawing the national

⁸ Which are: Andorra, Anquilla, Aruba, Barbade, Belize, Iles Vierges britaniques, Costa Rica, Chypre, Gibraltar, Guernsey, Ile de Man, Jersey, Labuan (Malaesic), Lichtenstein, Macao, SAR, Luxemburg, Iles Marshall, Monserrat, Antilles neerlandaises, Polau, Panama, Sarura, Seychelles, Swiss, Bahamas, Vanuatu.

Mădălina Antoaneta Rădoi, Alexandru Olteanu	1087

authorities intentions, of objective recommendations. Among the elements highlighted by the assessment, there are: the failure of the juridical frame and lack of efficiency against money laundry.

The most important lack of compatibility with the principles FATF HO + 8 standards is the surveillance weakness. The field whose demand is a control restatement belongs to the cooperative inter-agencies (home and cross-border) and the terrorism financing crime. The countries have the duty to take measures to reform the devices for fight against capital laundry and terrorism financing. The IMF action plan resorts to paying more attention to this fight, by consulting art. IV. But the quality and the effectiveness of the fight against terrorism financing were questioned.

IMF supports the jurisdictions by technical expertise and regulations and law forming drawing and enforcement.

The great countries can agree on taking some discriminating measures against the centers which don’t follow the norms, for instance in the fiscal or financial field (market access, norms for inherent funds and special waivers).

The launched CFO assessment program was drawn to carry out two stages of achievement. The IMF managers decided that a second stage contains 4 elements:

• permanent surveillance of the CFO activities and standards conformity;

• surveillance system and CFO activities transparency;

• technical expertise development;

• increased collaboration among the organisms fixed by the norms and national and extraterritorial control bodies.

The existent weak points are still in more fields, such as:

• fight against capital laundry and terrorism financing;

• cross-border cooperation;

• exchange of information between jurisdictions.

The detection of the weak points supports the priority definition for future assessments.

Conclusions

All of the above underline the idea that the offshore financial centers can cause risks for the stability of the entire international financial system. The international financial system destabilization risk, caused by the CFO, increases together with the increase of the financial markets and their activities in CFO. The assembly study confirms the thesis according to which the CFO surveillance and control are needed in order to diminish the risks.

The international norms implementation is an important factor in risk reduction. The implementation process of the international norms in CFO is advanced, but applying those norms is not identical in all the centers.

The assessment program of the offshore centers allowed obtaining needed information to identify risks. It is essential for the assessment results to be made public. The information transparency over the CFO activities and the international norms enforcement influences risk reduction connected to the centers and comes to replace CFO surveillance and control. The great

CFO’s are more advanced in the implementation of norms for their function which creates o better opinion over the international markets.

The offshore financial centers analyzes allow us to draw certain detailed conclusions:

It can be underlined that before the launching of the assessment programs of the offshore financial centers, there wasn’t much information on the CFO activities and risks.

The assessment program identifies the risk and the weak points in CFO, but, in general, all the weak points are still hidden.

Assessment at the level of international norm conformation shows that norm obedience is increasing, but differentiated according to the activity forms and country. There are fields in which there is control reinforcement.