STEP statement on the G20

The G20 today has discussed the need for better regulation of cross-border financial services. STEP believes that the G20 leaders should work with the private sector to improve the regulation of cross-border financial services globally and to universally agreed standards. Such standards should be also applied universally and be assessed objectively by the International Monetary Fund, the Financial Action Task Force and the Financial Stability Forum.

David Harvey CEO of STEP said:

"STEP has concerns that, historically, regulatory standards espoused by OECD member states as international standards have not been applied in those very same states. Where standards of regulation are applied selectively, or warnings of risk are ignored, the global regulatory system will be inadequate.

“STEP urges the G20 to ensure that if regulation is to be effective it must be extended to the G20’s own membership. Indeed the IMF has made it clear that large economies often lag behind well-regulated offshore centres.

“The G20 debates are a product of important changes underway in the global financial services sector, particularly for the purposes of facilitating enhanced law enforcement and tax collection. STEP remains committed to its position that all financial centres should co-operate in cross-border information exchange and that, when this happens, discriminatory barriers to market access should be reduced.”

The request for “mutual benefits” through reduction of discriminatory barriers has met with formal approval from OECD countries in the communiqués of the Global Forum, a body organised by the OECD to progress its agenda on tax information exchange.

However, with the notable exception of agreements with the Netherlands, the expression of this OECD commitment on exchange of information has generally been in the form of offers of benefits, which in STEP’s view would do little to normalise economic relations or assist integration of the smaller economies into the global system.

STEP believes that the G20 leaders should further recognize, as the IMF has done, that most Offshore Finance Centres (OFCs) are well regulated in comparison to international standards and as measured against the G20 countries themselves. The IMF has noted that “compliance levels for OFCs are, on average, more favourable than those for other jurisdictions assessed by the Fund in its financial sector work” (IMF Assessment Program, Update, 2004).

The UK Prime Minister acknowledged yesterday in the House of Commons that many smaller jurisdictions have recently signed up to international agreements facilitating tax data exchange. The absence of matching progress on transparency in key G20 states active in cross-border financial services has led to tensions as G20 leaders pressure small OFCs whilst governments in G20 jurisdictions have still failed to move to the basic collection of data.

This means that the exchange of tax information is not and cannot be carried out in key G20 countries and erodes global regulatory effectiveness.

STEP supports the approach that would see the scope of regulation expanded to any institution, market or product that is systemically important to the international financial system. In order to maintain the legitimacy of international regulatory standards this must be done on a fair and equal basis and compliance with standards must be followed by a concomitant reduction of discriminatory barriers to fair trade.