IMF Issues Assessment of Offshore Financial Centers

On August 29, 2002, the Monetary and Exchange Affairs Department of the International Monetary Fund issued a report on its assessment program concerning offshore financial centers (OFCs). The report observed that the assessments conducted up to the end of 2001 revealed that weaknesses in banking supervision resulted from inadequate anti-money laundering (AML) measures, insufficient independence of the regulator, and weak onsite and offsite surveillance. The report explained that insurance supervision was weaker in general. In this regard, in particular need of improvement were market conduct, on-site inspection, and information sharing and cooperation. Oversight of the company and trust service providers section was still undergoing development. Among the elements in all sections that required improvement were legal frameworks for anti-money laundering and counter-terrorism financial enforcement. The report criticized supervisory capabilities as restricted by high costs and skill shortages. Cross-sectoral information required improvement. In 2002, the IMF conducted a Financial Sector Assessment Program (FSAP) mission for one jurisdiction and Module 2 OFC assessment missions for seven jurisdictions. The IMF is scheduled to start four additional FSAPs for countries with international financial centers in 2002. According to the report the observance of the principles of effective banking supervision is quite modest in small, low income jurisdictions where antiquated legal frameworks and legislation, inadequate budgetary resource sand limited supervisory skills constrain regulators. The limitations especially hinder regulating the offshore sector. The knowledge of regulators of the activities of corporate entities registered in their jurisdictions is too limited.