31 October 2012

Appleby: New Foundations Act Offers Structuring Opportunities in Mauritius


The long-awaited Mauritius Foundations Act 2012 (“the Act”) came into force on 1 July 2012. International investors are able to take advantage of this new vehicle to benefit from the large number of double taxation treaties to which Mauritius is a party. Foundations are able to apply for Category 1 Global Business Licence. The existence of this new wealth management product along with the many structuring opportunities that accompany it will be of interest to a wide variety of clients.

For additional information on the key aspects of the Act, please click here

Beyond Coal: The Dirty Truth about Coal

Why Yesterday’s Technology Should Not Be Part of Tomorrow’s Energy Future

Coal is one of the most polluting sources of energy available, jeopardizing our health and our environment. When coal is burned, carbon dioxide, sulfur dioxide, nitrogen oxides, and mercury compounds are released. Using coal for electricity scars lungs, pollutes water, devastates communities, and makes global warming worse. Learn about the damage coal does to air, water, and people.


30 October 2012

Priceless: The Role of Payments in Abuse-advertised Goods


Large-scale abusive advertising is a profit-driven endeavor. Without consumers purchasing spam-advertised Viagra, search-advertised counterfeit software or malware-advertised fake anti-virus, these campaigns could not be economically justified. Thus, in addition to the numerous efforts focused on identifying and blocking individual abusive advertising mechanisms, a parallel research direction has emerged focused on undermining the associated means of monetization: payment networks. In this paper we explain the complex role of payment processing in monetizing the modern affiliate program ecosystem and characterize the dynamics of these banking relationships over two years within the counterfeit pharmaceutical and software sectors. By opportunistically combining our own active purchasing data with contemporary disruption efforts by brand-holders and payment card networks, we gather the first empirical dataset concerning this approach. We discuss how well such payment interventions work, how abusive merchants respond in kind and the role that the payments ecosystem is likely to play in the future.

29 October 2012

OECD: Global Forum on tax transparency welcomes new members and reviews 12 countries


At the Global Forum in Cape Town, South Africa, delegates from 81 jurisdictions and 11 international organisations evaluated whether all  Forum members are exchanging tax information effectively.

The Forum’s Peer review report of South Africa, one of the the most active jurisdictions in the work towards transparency and exchange of information, finds the country’s legal framework and practices to be in accordance with the internationally agreed standard.

The importance of the Global Forum’s work in the region is highlighted by the election of its new Chair, Mr. Kosie Louw from South Africa. An increasing number of African countries are now members of the Global Forum, with Burkina Faso, Cameroon, Gabon, Tunisia and Uganda joining recently. In addition, Ghana and Kenya are engaged in a pilot project with the Global Forum’s progamme of technical assistance.

The work of the Global Forum is key for South Africa and the African region,” said Pravin Gordhan, South Africa’s Minister of Finance. “Tax evasion is a barrier to development, growth and healthy societies. Seeing so many countries around the table today in Cape Town, working together to build a transparent environment, is very encouraging.

On the occasion of the Global Forum meeting, the Czech Republic, Malta and New Zealand signed the Convention on Mutual Administrative Assistance in Tax Matters, following the signature by Romania earlier this month. Lithuania, Nigeria, Gabon, Kazakhstan and Latvia signed letters of intent to sign the Convention and such letters had earlier been received from Albania, Belize, Estonia, Morocco and Niue.  

In less than 2 years since the amendment to the Convention responding to a call from the G 20 more than 50 countries have either become signatories or have stated their intention to do so.

Especially in a time of austerity, we need to work together and ensure that everybody pays his or her share of taxes legally due”, OECD Deputy Secretary General Rintaro Tamaki said at the opening of the signing ceremony. “The Multilateral Convention on Mutual Administrative Assistance in Tax Matters is a powerful tool that reinforces international cooperation to target tax evasion and avoidance by both individuals and corporations.

Nine Peer Review Reports Adopted and Three Supplementary Reports

The Global Forum has adopted a further 7 Phase 1 reports (Dominica, Marshall Islands, Niue, Russia, Samoa, Sint Maarten and Slovenia), 2 Combined reports (Argentina and South Africa) and 3 Supplementary reports (Liechtenstein, Monaco and Uruguay). As a result of the Supplementary reports, the Global Forum has determined that Liechtenstein and Uruguay can now move to a Phase 2 review.

With 88 jurisdictions already reviewed, the Global Forum is reaching the end of the Phase 1 reviews. The stand-alone Phase 2 reviews, which examine whether countries are enforcing their tax-related legislation, was launched in the second quarter of 2012. These reviews will provide in-depth investigations into the procedures and resources available for the exchange of information The first stand-alone Phase 2 reviews will be published in 2013 and more than 50 Phase 2 reviews will be completed by the end of the same year

THE PEER REVIEW REPORTS AT A GLANCE

Report on the legal framework and on its application (Phase 1 and 2)

Argentina: This combined (Phase 1 and Phase 2) review shows that Argentina’s legal and regulatory framework ensures that ownership information in relation to all relevant entities is available directly in the databases of the tax administration and that the competent authority has broad powers to collect information. In general, inputs received from Argentina’s exchange of information partners suggest that since 2011 it has made significant progress in handling requests for information. In particular, response times are faster and several of Argentina’s EOI partners praised the quality of its co-operation since the restructuring of its EOI system. http://www.eoi-tax.org/jurisdictions/AR

South Africa: This combined (Phase 1 and Phase 2) review shows that South Africa fully endorses the international standard for transparency and exchange of information for tax purposes. South Africa’s legal framework ensures that ownership, accounting and bank information is available according to the standard. However, as the rules related to the availability of ownership information on partnerships only recently changed, South Africa should monitor its practical implementation. South Africa also has all the requisite access powers to obtain information, and its network of exchange mechanisms covers more than 90 jurisdictions. Inputs received from South Africa’s exchange of information partners attest to the high quality responses provided by the South African authorities in a swift and timely manner. http://www.eoi-tax.org/jurisdictions/ZA

Reports on the legal framework (Phase 1)

Dominica: The Phase 1 review of Dominica found that it has made significant progress in expanding its exchange of information network which currently covers 30 jurisdictions. The legal and regulatory framework generally ensures keeping of ownership information by all relevant entities. However, significant deficiencies are noted with regard to the maintenance of accounting records by offshore entities. The competent authority has  broad access powers but these powers cannot be used to obtain information from offshore entities. Due to significant deficiencies in the legal and regulatory framework, the report concludes that Dominica will not move to  a Phase 2 review until it has acted on the recommendations made in the report.  http://www.eoi-tax.org/jurisdictions/DM

Marshall Islands: Since its commitment to the international standard in 2007, the Marshall Islands has rapidly expanded its exchange of information network which currently covers 14 jurisdictions. However, its legal framework does not fully ensure ownership information for all entities, and mechanisms to identify the owner of bearer shares which can be issued by some entities are insufficient. Obligations to keep accounting records consistent with the standard for all relevant entities are not in place and there are concerns with regard to  Marshall Islands’ authorities’ power to access information in all cases. The report concludes that the Marshall Islands will not move to a Phase 2 review until it has acted on the recommendations made in the report. http://www.eoi-tax.org/jurisdictions/MH

Niue: The legal and regulatory framework for the availability of information is generally in place in Niue.  However, identity and ownership information may not consistently be available in respect of all domestic trusts and foreign trusts with Niuean trustees. Requirements to maintain accounting records in Niue generally meet the international standard, but certain aspects need improvement. Niue’s tax authority has broad powers to obtain bank, ownership and accounting information. Niue signed its first TIEA with New Zealand, which is Niue’s main trading partner. This agreement meets the foreseeably relevant standard but as it is not yet in force Niue is not able to effectively exchange information in accordance with the international standard. The Global Forum recommends that Niue not move to a Phase 2 Review until it has acted on the recommendations made in the report. Niue will report back on the steps taken to address the recommendations made in this review within 6 months http://www.eoi-tax.org/jurisdictions/NU

Russian Federation: Overall, Russia’s legal and regulatory framework generally supports the availability, access to, and exchange of all relevant information for tax purposes in accordance with the international standard. The report makes recommendations related to certain aspects of the framework which need improvement, including ensuring the identity of the holders of bearer savings books is known, and narrowing the scope of audit. Recent legislative reforms concerning secrecy of bank information now provide for access to all relevant bank information. Russia currently has a broad network of 50 double tax conventions that are in line with the international standard and has committed to ratify the multilateral Convention on Mutual Administrative Assistance in Tax Matters, which it signed in 2011. A Phase 2 Review in the 2nd half of 2013 will examine whether Russia has acted upon the recommendations made in this Phase 1 report.: http://www.eoi-tax.org/jurisdictions/RU

Samoa: The legal and regulatory framework for the exchange of tax information in Samoa is in place to a large extent. Samoa’s network of exchange of information agreements comprises TIEAs in line with the international standard with 14 jurisdictions. Ownership information is generally available, although a gap has been identified with regard to the availability of information concerning all beneficiaries of international trusts. Deficiencies have also been noted in relation to accounting records of international entities and arrangements as well as liquidated domestic and foreign companies. While secrecy provisions do not generally hamper the ability of Samoa’s competent authority to access information for exchange purposes, some uncertainties exist with regard to a newly passed law. Samoa’s response to the recommendations in this report, as well as the application of the legal framework to the practices of its competent authority, will be considered in detail in the Phase 2 Peer Review of Samoa which is scheduled for the first half of 2013. http://www.eoi-tax.org/jurisdictions/WS

Sint Maarten: The legal and regulatory framework for the availability of information is in place in Sint Maarten, though some areas need improvement.  The report identifies certain deficiencies and makes recommendations with respect to availability of information related to foreign incorporated companies effectively managed in Sint Maarten, limited partners of limited partnerships, and beneficiaries and holders of certificates of participation of private foundations, as well as access to information with regard to  appeal rights, and the lack of an exception to prior notification to taxpayers where it could undermine an investigation.  Sint Maarten continues to expand its network of exchange of information instruments - EOI agreements with 26 of Sint Maarten’s 50 EOI partner jurisdictions are currently in force.  Sint Maarten is encouraged to quickly bring all its EOI agreements into force and in line with the standard. Sint Maarten’s Phase 2 Peer Review is scheduled for the first half of 2014 http://www.eoi-tax.org/jurisdictions/SX

Slovenia: Slovenia’s Phase 1 review demonstrates the country’s high level of commitment to the international standard for transparency and exchange of information for tax purposes. Its legal framework generally ensures that ownership, accounting and bank information is available, although the requirements to keep underlying documentation should be clarified. Slovenia also has sufficient access powers to obtain this information upon request by any of its 69 information exchange partners, demonstrating that its network of information exchange mechanisms meets the  international standard. Slovenia’s response to the recommendations in this report, as well as the application of the legal framework to the practices of its competent authority, will be considered in detail in the Phase 2 Peer Review of Slovenia which is scheduled for the first half of 2013. http://www.eoi-tax.org/jurisdictions/SI

Supplementary reports

Liechtenstein: The supplementary report assesses the progress made by Liechtenstein since adoption of its Phase 1 report in August 2011. Liechtenstein has amended its corporation law to ensure that all relevant entities and arrangements are now obliged to maintain accounting records and underlying documents in accordance with the international standard. The country is improving laws that will increase the availability of ownership information which was found deficient in Phase 1 review. Further improvements to the legal and regulatory framework will be considered in detail during the Phase 2 Peer Review which is scheduled for the second half of 2014. http://www.eoi-tax.org/jurisdictions/LI

Monaco: Since its Phase 1 and supplementary reviews, Monaco has greatly improved its legal and regulatory framework as regards the availability of ownership and accounting information. By virtue of amendments adopted in late 2011 and early 2012, Monaco is able to ensure that ownership information pertaining to public companies is available in all circumstances. Monaco has removed all references to bearer shares in its laws.  All legal entities that have connections with Monaco are now required to keep accounting records in conformity with the international standard, so availability of ownership information and accounting records are now assessed to be “in place”. Monaco is nevertheless asked to conclude EOI agreements with more relevant partners. Any further developments in the legal and regulatory framework, as well as the application of the framework to Monaco’s EOI in practice will be considered in detail in the Phase 2 Peer Review which is now underway.: http://www.eoi-tax.org/jurisdictions/MC 

Uruguay: Uruguay’s authorities have taken a number of significant steps to respond to the recommendations of the Phase 1 report. As a result, Uruguay will progress to its Phase 2 Peer Review. The country expanded its network of EOI agreements with relevant partner jurisdictions. Uruguay also took positive steps to ensure the availability of ownership information on relevant foreign companies and adequate accounting information for all entities as well as to capture ownership information in relation to bearer shareholdings and provide for appropriate enforcement measures to ensure availability of ownership information. However, some gaps remain and Uruguay should act upon recommendations relating to bearer shareholdings and provision of relevant enforcement measures.. Uruguay’s Phase 2 Peer Review is scheduled for the first half of 2014.: http://www.eoi-tax.org/jurisdictions/UY

26 October 2012

Mauritius ranks 19th in Overall Ease of Doing Business 2013


Mauritius ranks 19th in global rankings on Overall Ease of Doing Business 2013 and tops Africa's Sub-Saharan economies, according to the World Bank group's Doing Business 2013 Report: Smarter Regulations for Small and Medium-size Enterprises launched on October 24.

Mauritius has climbed five positions from its previous ranking of 24th in the Doing Business 2012 report and now features among the top twenty economies on the overall ease of doing business out of the 185 economies rated by the International Finance Corporation and the World Bank. This is attributed mostly to the continuous reforms upon which the country has embarked thus transforming and improving the business climate into a more globally competitive one. Reforms have also made the investment procedures significantly easier for people to do business, the report points out.

Mauritius has also improved access to credit information by starting to collect payment information from retailers and distributing both positive and negative information. In addition, the country made property transfers faster following the  implementation of an electronic information management system at the Registrar-General’s Department.

Doing Business 2013 focuses on regulations applying to small and medium-size domestic companies in 11 areas of their life cycles mainly: starting a business, dealing with construction permit, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and employing workers.

According to the World Bank report, Sub-Saharan Africa is reforming at a fast pace. Since 2005, out of the 50 most improved economies in business regulation for domestic firms, 17 are in the Sub-Saharan Africa. From June 2011 to June 2012, 28 out of 46 governments in Sub-Saharan Africa have implemented at least one regulatory reform making it easier to do business.

Among the African economies that have improved since 2005 are: Rwanda, Burkina Faso, Mali, Sierra Leone, Ghana, Burundi, Guinea-Bissau, Senegal, Angola, Mauritius, Madagascar, Mozambique, Côte d’Ivoire, Togo, Niger, Nigeria, São Tomé and Principe.

Doing Business 2013 is the 10th in an annual series of reports issued by the International Finance Corporation and the World Bank and ranking 185 economies on the overall ease of doing business. The report outlines that much more can be done to enable African economies to build a strong and competitive private sector. The region’s average ranking on the ease of doing business is 140 out of 185 and Mauritius and South Africa are the only African economies among the top 40 in the global ranking.

Africa Centre of Excellence for Business

In the same line, to encourage investors to do business in Mauritius, the Board of Investment (BOI) launched on October 24 the Africa Centre of Excellence for Business, which is  a one-stop shop to explore investment opportunities in the African continent. The Centre which is located on the premises of the BOI, aims to position Mauritius as the business and investment platform for doing business in Africa.

The services to be provided are: real-time business insights on latest developments in Africa through continuous updates, a seamless platform for facilitating investment in Africa and potential partners and service providers in Mauritius. The Centre is also expected to become an essential contact point for investors seeking to use Mauritius as a platform for investing in Africa while bringing together market intelligence, investment partners, opportunities for networking and a business repository to the local and foreign investment community.

25 October 2012

Award hat trick for Jersey’s finance centre with latest international success


Jersey has secured a third international award in 2012 as the ‘outstanding international wealth financial centre’ in the Private Banker International Awards.

Zhaoan Li, Jersey Finance’s Head of Business Development Greater China, received the award in a prestigious awards gala ceremony in Singapore this week (Wednesday October 24)

Nicholas Moody, editor of Private Banker International who was on the judging panel, described Jersey as at the forefront of efforts by international finance centres to innovate, signing 29 Tax Information Exchange Agreements, the most recent one with India. He said;

In just over a year since the opening of an office by Jersey Finance in Abu Dhabi, as part of its drive to secure business in new markets, Jersey has seen an 11 per cent increase in the amount of bank deposits from the Gulf with a total of £21.2 billion at March 2012. It is the highest rated offshore jurisdiction in the latest global Financial Centres Index and makes it into the world’s top twenty global finance centres.

One of the leading journals for the global wealth management industry, Private Banker International was launched in 1987 and is the longest established international wealth industry title. It hosts an annual series of awards with winners chosen following a rigorous selection process. Nominations are sought from industry professionals including the readership of the publication. Nominees are short listed and a panel of judges assesses each entry and chooses the various winners.

Zhaoan Li, who also attended the magazine’s private banking conference held in Singapore the same day, thanked the magazine and judges when speaking after receiving the award. She told Singapore based finance professionals who attended the gala:

Although Jersey is many thousands of miles away from Asia, it is our proximity to Europe which is important. Jersey is acting as a gateway to international investors, including those in Asia, wanting to invest in the City of London and Western Europe. We continue to expand our international presence and I’m pleased to say that a number of Jersey based firms also have offices and practitioners working here in Singapore.

Geoff Cook commented:

It is the third time that Jersey has been recognised in 2012 with an award for the quality of its financial services industry and on this occasion we had the additional bonus that this was a truly international award with the presentation taking place in one of the leading and rapidly expanding financial centres in Asia.

In the summer Jersey was judged as the ‘best offshore centre’ in the annual investment management awards organised by Global Investor magazine, part of Euromoney and it also secured the award of ‘best international finance centre’ at the International Fund & Product Awards organised by Incisive Media.

24 October 2012

Africa Review: The curious case of the Chagos

Hapless islanders caught between Mauritius and UK battle for Indian Ocean archipelago

Mo Ibrahim Ranks Mauritius First for the Sixth Consecutive Year


Mauritius has been ranked first in the Ibrahim Index of African Governance (IIAG) 2012 for the sixth consecutive year. Among the 53 countries rated by the Foundation, Mauritius scored the highest overall mark of 83 points which is also higher than the regional average for Southern Africa and the continental average which stands at 59 and 51 points respectively.

According to Mo Ibrahim Foundation, Mauritius’ score with regards to global governance has improved between 2000 and 2011. The country recorded its highest score in the category Security and rule of law that is 88 points and 78 points in the class participation and human rights category. Regarding the sub-categories, Mauritius is placed 1st for Personal Safety, Environment and Social Protection business.

The IIAG pointed out that Southern Africa is the top performing African region and states that since the year 2000, overall governance progress has been achieved within the African continent. There have been positive trends in 11 out of the 14 sub-categories, including all sub-categories within the Sustainable Economic Opportunity and Human Development categories.

Out of the 88 indicators that constitute the IIAG, improvements have been noted in the border tensions, international conventions relating to fundamental human rights, legislation on violence against women, the ratio of fiscal revenue over expenditures budget digital coverage and antiretroviral treatment. Mo Ibrahim Foundation advocates for visionary leadership and responsible governance for greater social justice in Africa.

However, this year, the Board of Foundation of the IIAG has not selected any laureate for the Ibrahim prize for achievement in African Leadership. The prize has been established to recognise and celebrate excellence in African leadership, and to provide laureates with the opportunity to pursue their commitment to the African continent once they have stepped down from office. It is awarded to a democratically elected former African Executive Head of State or Government who has left office in the previous three years; served his/her constitutionally mandated term; and demonstrated excellence in office. In 2011, the prize was awarded to President Pedro Verona Pires, of Cape Verde for his vision in transforming his country into a model of democracy, stability and increased prosperity.

The Ibrahim Index of African Governance is the most comprehensive collection of quantitative data that provide an annual assessment of governance performance in Africa. The Index supports good governance and leadership in Africa. The four categories of governance as assessed by the Index comprise Safety and Rule of Law, Participation and Human Rights, Sustainable Economic Opportunity and Human Development.

IIAG was established in recognition of the need for a robust, comprehensive and quantifiable tool for civil society to track government performance in Africa. It is Africa's leading annual assessment of governance established to inform and empower the continent's citizens and support governments, parliaments and the civil society to assess progress.

23 October 2012

Doing Business 2013 Smarter Regulations for Small and Medium-Size Enterprises


Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises assesses regulations affecting domestic firms in 185 economies and ranks the economies in 10 areas of business regulation, such as starting a business, resolving insolvency and trading across borders. This year’s report data cover regulations measured from June 2011 through May 2012. The report marks the 10th edition of the Doing Business series. Over the past decade, these reports have recorded nearly 2,000 regulatory reforms implemented by 180 economies.

Key findings:

  • Poland was the global top improver in the past year. It enhanced the ease of doing business through four institutional or regulatory reforms, making it easier to register property, pay taxes, enforce contracts, and resolve insolvency. 
  • Besides Poland, nine other economies are recognized as having the most improved ease of doing business across several areas of regulation as measured by the report: Sri Lanka, Ukraine, Uzbekistan, Burundi, Costa Rica, Mongolia, Greece, Serbia, and Kazakhstan.
  • Worldwide, 108 economies implemented 201 regulatory reforms in 2011/12 making it easier to do business as measured by Doing Business. Reform efforts globally have focused on making it easier to start a new business, increasing the efficiency of tax administration and facilitating trade across international borders. Of the 201 regulatory reforms recorded in the past year, 44% focused on these 3 policy areas alone. Read about reforms.
  • Singapore topped the global ranking on the ease of doing business for the seventh consecutive year, followed by Hong Kong SAR, China,; New Zealand; the United States; and Denmark. Georgia was a new entrant to the top 10. View the rankings.

Guernsey adds 100+ international insurers in 12 months


The Guernsey Financial Services Commission (GFSC) has licensed 107 new international insurers in the last 12 months.

Figures from the Island's financial services regulator show that there were 746 international insurers licensed in the Island at the end of September 2012 compared to 682 at the end of September 2011.

In that time, there have been 107 additions, including 5 'pure' captives, 7 Protected Cell Companies (PCCs), 90 PCC cells, 1 Incorporated Cell Company (ICC) and 4 ICC cells. There have also been 43 surrenders, comprising 14 'pure' captives, 7 PCCs and 22 PCC cells. This means there has been net growth of 64 entities over the year.

There has also been net growth of 59 since the end of December 2011, when there were 687 international insurers licensed in Guernsey. The 746 entities domiciled in Guernsey at the end of September 2012, comprised 251 'pure' captives, 67 PCCs, 406 PCC cells, 5 ICCs and 17 ICC cells.

Fiona Le Poidevin, Chief Executive of Guernsey Finance - the promotional agency for the Island's finance industry, said: "The figures show that the number of new licences being issued picked up as we moved through last year and that trend has continued during the first three quarters of 2012. Indeed, having more than 100 new licenses issued during the last twelve months shows that Guernsey very much remains a domicile of choice for international insurance entities. Clients choose to do business here because we offer a mix of high standards of service combined with proportional regulation which is very difficult to find in any jurisdiction globally."

Independent research carried out by trade publications Business Insurance (March 2012) and Captive Review (July 2012) placed Guernsey as the largest captive insurance domicile in Europe and number four in the world.

Miss Le Poidevin added: "We are seeing new licences issued across the different types of structures available but there has been especially strong growth in the number of PCC cells being formed. The PCC is a particularly popular vehicle at the moment and the fact that it was pioneered in Guernsey means that we have the experience and expertise in using the structure to best meet client needs, which is reflected in the continued growth of this business stream."

A significant proportion of the growth in PCC cells relates to two PCCs managed by JLT.

In March, the UK Government-backed NewBuy scheme was launched by the UK's Home Builders Federation (HBF) and the Council of Mortgage Lenders (CML) to offer 95% loan to value mortgages on new homes. The JLT Group is managing the insurance scheme for the initiative through its operating companies including JLT Insurance Management (Guernsey) Limited which is running the captive insurance company established for HBF.

Nick Wild, Managing Director of JLT Insurance Management in Guernsey, is reporting that HBF PCC now has 50 related cells. His firm is also managing the equivalent scheme for Scotland, backed by a Scottish Government Guarantee, called MI New Home. Launched on 12 September, MI New Home Insurance PCC already has six cells, with the expectation of more being licensed by the end of 2012.

At the end of November, the Guernsey parliament will debate a series of amendments to the Companies (Guernsey) Law, 2008, including making it possible in future for the conversion of a PCC cell to a standalone company.

The GFSC has also published new data which shows the gross assets, net worth and premium written annually in the Guernsey international insurance industry were all at higher levels in 2011 compared to 2010. Gross assets grew by 1.6% to reach £21.76 billion (US$34.86 billion), net worth grew by 6% to reach £8.97 billion (US$18.37) and premium written annually was up 12.7% to reach £4.62 billion (US$7.40 billion).

The last month has also seen Guernsey-based insurance manager, Robus, and fiduciary, Marlborough Trust, combine to offer the innovative trust-based insurance product, the Risk Purpose Trust.

In November, Guernsey Finance is exhibiting at two insurance conferences. The promotional body is exhibiting at the one-day event, Broker Expo, in Coventry on Wednesday 8th November where industry representatives will be Brendan Reeves (ARM), Paul Eaton (Heritage Insurance Management) and Stephen Casey (Marsh). A team including Chris Taylor (Lloyds TSB), Martin Le

Pelley (Heritage) and Paul Sykes (Aon) is travelling to Luxembourg to attend the European Captive Forum on Tuesday 13th and Wednesday 14th November, where a number of Guernsey-based practitioners will be speaking at the event.

Jersey Finance launches senior level advisory group during Hong Kong visit


A new Group of Hong-Kong-based finance and legal experts aimed at enhancing Jersey’s reputation in the Far East was launched during a Jersey Finance visit to Hong Kong this week.

Jonathan White, Chairman of Jersey Finance, hosted the launch of the ‘China Jersey Advisory Group’ on 15th October at the China Club. The Group consists of a number of senior individuals all based in the region, including regional banking heads, wealth management advisers, senior partners at major law firms and corporate listings experts. Following the success of the inaugural meeting it is envisaged that they will meet regularly to discuss and provide expert on-the-ground advice on Jersey’s representative efforts, business development activities and networking opportunities in Hong Kong and China.

Also during this week’s five day visit to Hong Kong, on behalf of Jersey Finance, Jonathan hosted a meeting for Jersey Finance member firms with a presence in Hong Kong to provide an update on Jersey Finance’s business development plans for Greater China and to hear the views of these senior legal and financial services professionals on Jersey Finance’s activities in the region.

In addition, Jersey Finance was also an exhibitor at the major three-day STEP Asia Conference, entitled ‘Wealth Management in Asia: The Future is Now’, held at the Grand Hyatt in Hong Kong. Jersey Finance also sponsored the conference’s Farewell Dinner and Reception on 17th October, at which Jonathan gave a short promotional speech to an impressive audience of senior international finance professionals on the strengths and benefits of Jersey’s wealth management sector.

Commenting on the trip, Jonathan White said:

The launch of the China Jersey Advisory Group is a really important development for Jersey in the Far East, and it was a real pleasure to welcome a group of such highly regarded individuals to our inaugural meeting. That there is clearly so much interest in Jersey amongst senior professionals in Hong Kong is hugely encouraging. Their combined insights and knowledge will undoubtedly prove invaluable in the years ahead.

With around £6bn of deposits emanating from the Far East currently being held in Jersey banks and a growing amount of corporate and funds business coming to Jersey from the region, there is no doubt that maintaining visibility through initiatives like this trip are vital in keeping Jersey firmly on the map.

22 October 2012

ESSEC Business School launches a General Management Program in Mauritius and Southeast Africa


Tailor-made program to explore both regional and Asian markets

ESSEC Business School, one of Europe’s top management schools with campuses in Cergy and Paris, France, and in Singapore, has launched a new general management program today specifically tailored to meet the needs of business leaders residing in Mauritius and in Southeast Africa.

This six-module program will provide participants with a global vision of operating a 21st century business in a changing global economy and will allow them to enhance their strategic thinking all while reinforcing their marketing, finance and management skills. The first program of its kind developed specifically for business executives of this region, four of the six modules will occur in the economically resilient island nation of Mauritius.

There must be a constant search for innovative solutions in order to sustain companies’ profitable growth in this thriving yet challenging economic environment,” said Jean-Marie Ardisson, Director of ESSEC Corporate Education. “We have created this program based on the unique and remarkable willingness of regional business people to support the economic development in this part of the world.

The course will also explore the region’s strong relationship with Asia through international residences in Singapore and Delhi, providing ample opportunities to network in both Asia and in Southeast Africa.

This program will forge a small network of managers from different companies in the Southeast African region, thus developing a ‘community of learning’ in which participants will share insights and learn from each other. We are convinced that this experience will be stimulating, challenging and career-changing,” said Alan Jenkins, Academic Director of the program.

In addition, Mauritius has aspirations to create a knowledge hub similar to that of Singapore, given the similarities between the nations, both in terms of their economies and their status as island states. With proven expertise in tourism, finance, health management and education and with a campus in Singapore since 2005, ESSEC is a natural partner to work in coordination with the Mauritian authorities to provide guidance for this type of endeavor, in addition to creating the custom leadership development programs of the GMP type for top executives.

The first General Management Program will include 20 participants from Mauritius Island, Nigeria and Madagascar.

Guernsey's foundations legislation taking off in Asia


Guernsey's new foundations legislation has already caught the eye of practitioners in Asia.

The legislation, which is currently awaiting Royal Assent from the Privy Council before it comes into effect later this year or in early 2013, was a hot topic of conversation at the STEP Asia conference held at the Grand Hyatt Hotel in Hong Kong on Tuesday 16th and Wednesday 17th October.

Fiona Le Poidevin, Chief Executive of Guernsey Finance, who attended the leading fiduciary conference as part of a delegation from the Island, said the event was the perfect place to showcase Guernsey's private wealth offering and reinforce the benefits of its new foundations legislation. This year's conference, which attracted more than 450 delegates, had Guernsey Finance - the international promotional agency for the Island's finance industry - as a gold sponsor.

"Kenny Foo of JP Morgan Hong Kong spoke on the first morning of the conference as part of a panel discussing global wealth trends and opportunities for innovation and mentioned foundations. His view was that they would become important structures for Asian clients in the future and specifically mentioned Guernsey as one of the jurisdictions who can readily offer these structures. This was particularly pleasing given that our foundations legislation has only recently been released," said Miss Le Poidevin.

The second day of the conference saw the Guernsey delegation host a breakfast seminar on the new foundations legislation. Speakers for the seminar, which was attended by more than 60 delegates, were Jarrod Cowley-Grimmond, Director of Finance Sector Development for the States of Guernsey and Konrad Friedlaender, Partner at Carey Olsen in Guernsey. Nick Jacob, Partner at Lawrence Graham in London, moderated proceedings.

Miss Le Poidevin said: "There was much interest in foundations at the briefing and over the two days of the conference but also in the extensive range of other services Guernsey service providers can offer to the Asian market including our long standing trust offering, but also the new image rights legislation that is shortly to be introduced.

"Guernsey is clearly increasing its profile in the Asian market and we will therefore continue to make visits to the region, attend further conferences and support our local industry in any way we can to make sure that Guernsey becomes a specialist finance centre of choice for Asian clients."

The number of attendees at STEP Asia with a connection to the Island totalled nearly 20, with industry members assisting on the Guernsey Finance stand including representatives from Carey Olsen, Collas Crill, Confiance and Richmond Fiduciary Group, while other Guernsey-based firms with representatives at the conference included Appleby, Butterfield, Louvre, Mourant Ozannes, Nerine, Ogier and RBC Wealth Management. Advanced copies of the STEP Journal's Guernsey supplement were also made available to delegates at the conference ahead of it accompanying the November issue of the publication.

In addition to attending STEP Asia, Miss Le Poidevin also held a series of meetings in Hong Kong, including with the Hong Kong Venture Capital Association and the Hong Kong Securities and Futures Commission, as well as financial trade media from the region.

This week sees Miss Le Poidevin and the Guernsey delegation move on to China where they will be joined by John Robinson, Chairman of the Association of Guernsey Banks (AGB) and Managing Director of Butterfield Bank in Guernsey. While in China they will be visiting political, regulatory and business leaders as well as meeting with specific financial institutions in the cities, including several banking groups.

Mauritians launch Mauritius-Africa Business Club

A group of Mauritian intellectuals and businessmen have launched a Mauritius-Africa Business Club in a bid to assemble all Mauritians having business interest in Africa.

UK: Andrew Bailey sets out details of the PRA’s approach to regulation


Andrew Bailey, the head of the prudential business unit at the Financial Services Authority (FSA) and executive director at the Bank of England, is hosting an event today with banks, insurers, building societies, credit unions and investment firms to discuss the details of the two Prudential Regulation Authority (PRA) approach documents published last week.

The documents set out how the PRA will supervise firms when it is established in April 2013. One document sets out the PRA’s intended approach towards regulating deposit-takers and investment firms. The other is specifically focused on insurers. 

The documents describe the PRA’s statutory objectives and how it will interpret them. They set out, at a high level, what the PRA will expect of firms in relation to these objectives and the new Threshold Conditions, to enable firms to understand the basis for the PRA’s decisions and to behave in a safe and sound manner without supervisory intervention. The documents also set out what the PRA will do in the course of supervision, including its appetite for using legal powers.  The documents will, therefore, give firms a clear indication of what to expect from the PRA, and will provide supervisors with a framework for supervision and in particular, for their supervisory interventions. 

Speaking at the event in London, Andrew Bailey said:

The financial crisis demonstrated the clear need for a new approach to financial regulation and that the new twin peaks model is the right one for the future. Both my job, and that of the PRA management team, will be to ensure the PRA protects the public’s access to critical financial services and that we contribute towards achieving and sustaining a healthy economy.

The PRA will come into existence during a period of profound change in the policies governing financial regulation around the world. Our goal will be to focus on the things that matter most to achieving our objectives and our responsibility to the public, given to us by Parliament.

The documents we published last week set out how we intend to implement the approach in practice. It will be based on setting clear and concise standards for all PRA regulated firms. The PRA’s approach will be very clearly judgement-based rather than focussing on narrow rules, and it will be forward-looking, taking into account a range of possible risks to our objectives and the stability of firms.

The PRA will expect firms to support and conform to the public policy objectives set by Parliament. This will not be a zero failure regime, but one where firms can fail in an orderly way without major detriment to the wider system.  We will be here to ensure the safety and soundness of firms and the stability of the financial system. We want, and need, to ensure that the public can put their trust in a safe and sound financial system for the future.

18 October 2012

Enhancements to Trusts Law Further Boosts Jersey’s Attraction for Private Client Business


Significant enhancements to Jersey’s trusts law approved by Privy Council this week will make Jersey an even more attractive location for private wealth management business, according to Jersey Finance.

The most recent amendments, contained in the Trusts (Amendment No.5) (Jersey) Law, were adopted by Jersey’s Government in November last year and approved by the UK Privy Council on Wednesday 17th October. The Law is expected to be registered in the Royal Court on or before 2nd November, coming into force 7 days later.

Overall, the changes are designed to bring clarity and certainty in a number of key areas, with the wealth management industry generally shifting away from the more simple trust structures to higher value and more complex vehicles. Amongst the key measures in these latest changes are:

  • Introduction of a Definition of Purpose: this change introduces for the first time a definition of purpose which includes the acquisition, holding, management or disposal of property. Accordingly, it will be possible to establish ‘ownership only’ purpose trusts.
  • Limitations of Actions or Prescription: a significant amendment that limits a trustee’s liability (subject to fraud or recovery of trust property claims), which previously was almost indefinite. It will mean that action against trustees will only be possible up to 21 years after the alleged breach of trust. The limitation does not apply to foreign trusts whose proper law is the law of a jurisdiction to which the Hague Convention extends.
  • Definition of a Protector: this amendment introduces a definition of the ‘protector’ as a person, other than a trustee, enforcer or beneficiary, who holds a power, discretion or right in connection with a trust.
  • Protection from Foreign Interference: the amendment is designed further to strengthen Jersey’s trust vehicles from attack by foreign courts.
  • Remuneration of Professional Trustees: this will permit professional trustees to be paid reasonable fees even when the trust deed is silent on the matter, but only in respect of services provided after the amending Law comes into force. Previously, trustees were only remunerated for their services if authorised by the terms of the trust or by Order of the Royal Court.
  • Position of Outgoing Trustees: this amendment relates to the transition when there is a change in trustee, giving the outgoing trustee the right to enforce a term of a contract providing reasonable protection against liabilities, i.e. indemnities, even though not a party to the contract..
  • Trustees Transacting with themselves on behalf of different trusts: this amendment provides clarity in expressly permitting trustees to contract with themselves in respect of two or more trusts for which they are trustee.

Geoff Cook, chief executive, Jersey Finance, said:

“Whilst specific in nature, the feeling amongst private wealth industry professionals in Jersey is that the changes contained in Amendment No.5 will make Jersey a significantly more attractive destination overall for private client business. The international private wealth management industry is constantly evolving, and clarity and certainty are absolutely vital, so it is important that we continue to evolve our trust framework and ensure that our legislation is as robust as possible.

“Jersey is a world leader in the trust industry, ranked tenth and higher than any other offshore centre in the Global Financial Centres Index for private banking and wealth management. Its original trust legislation has been widely copied by other jurisdictions since it was introduced in 1984 and these latest amendments will build on that reputation to ensure that Jersey maintains its status as one of the most highly respected trust jurisdictions globally.”

17 October 2012

Jersey: Consultation on International Services Entities


Businesses and individuals are being asked for their views on improving the way the International Services Entities (ISE) regime applies to trust companies, in a public consultation released today (17 October 2012).

The ISE regime was introduced in parallel to GST to raise revenue from the financial services industry. Businesses that meet certain conditions can become an ISE if they pay an annual fee. That fee varies depending on the type of business.

The annual fees payable by ISEs have been increased twice in the past two years, and now raise a total of £9.3 million. The ISE regime represents an important contribution to States revenue directly from the financial services sector. The Treasury wants to ensure that these revenues will continue to be raised in a sustainable way.

In 2011, the Minister for Treasury and Resources consulted businesses on the ISE regime as a whole, in part to achieve greater equity between the ISE fees charged to different kinds of businesses. That exercise made it clear that businesses in Jersey value the ISE regime and consider that, on the whole, it achieves its aims of collecting revenue with a minimum of cost and complexity. However, respondents also considered that ISE fees are proportionately greater in some sectors than others, particularly for trust companies.

This Green Paper consults on further changes to the regime which are intended to improve the fairness of the fee charging structure for trust company businesses and their clients.

This Green Paper seeks the views of the trust industry on specific points raised in their responses in 2011, namely:

  • Options for amending the fee structure for trust companies so the current “basic” £7,500 fee element is replaced with scaled charges that better reflect the size of the business in question
  • Clarifying who is liable to pay the £200 “vehicle” element of the trust company fee
The aim of this consultation is to improve the fairness and transparency of the fees charged to trust companies and their clients.

The Minister for Treasury and Resources, Senator Philip Ozouf, said “The ISE regime was developed to raise revenue whilst minimising the compliance burden on companies that are primarily exporters. It is important that the regime is seen to be fair for the businesses involved.

“Respondents to the 2011 consultation said most aspects of the ISE system are working well, but trust companies felt that charges could be made more equitable. This Green Paper explores ways of doing that.

“I would encourage all affected businesses and interested parties to respond to the Green Paper in order to ensure that their views are heard.”

The deadline for responses to the consultation is 5pm on 25 January 2013.

Private clients inquire about migrating foundations to Guernsey


A number of private clients have inquired about migrating existing foundations to Guernsey, according to practitioners in the Island.

Guernsey's foundations legislation was approved locally at the end of July and is now awaiting Royal Assent from the Privy Council, which is  expected either late this year or early in 2013.

Fiona Le Poidevin, Chief Executive of Guernsey Finance, said: "What I am hearing from a number of local practitioners is that they have had inquiries from clients who have foundations currently domiciled in other jurisdictions but they are now considering the migration of these to Guernsey once the legislation is enacted. This is principally due to the specific provisions of the new law but also due to the heritage we have in providing trust and corporate services as well as, of course, our reputation for being a well regulated and tax transparent international finance centre.

"We do not necessarily expect a flurry of activity, with huge numbers of new foundations being established but we are looking at quality and not just quantity. Indeed, we believe that our expertise in servicing private clients means that we are especially well placed to administer complex structures and in particular, where they are for philanthropic purposes. Obviously, we are not saying that a foundation, as opposed to a trust, is always the right option or that a Guernsey foundation is always going to be the most appropriate route but we believe that it does offer some important advantages over others already in the market."

Guernsey Finance, the international promotional agency for the Island's finance industry, held a launch event for the new law at the British Museum in London last month. The event was attended by 120 delegates, including the leading legal and tax advisers from London's private client industry.

Chris Moorcroft, Key Clients Team, Barclays Wealth Advisory, said: "I came along primarily to get the view of some well-informed people on the differences between foundations and trusts. I agree with some of the comments made about 'qualified member' and the fact that Guernsey does not require one. There are times when you want the flexibility of a foundation to take on assets that you wouldn't normally put into a trust, but previously the requirement for a qualified member prevented us. That is a big plus for Guernsey foundations."

Panellists for the event were Richard Pease of Lenz & Staehelin, Elizabeth Henson from PwC and Gavin Ferguson of Appleby, while Filippo Noseda of Withers gave his thoughts on the new law via a pre-recorded video commentary. Russell Clark of Carey Olsen moderated the session.

Mrs Henson told the audience: "I love using Guernsey. The level of sophistication and control gives my clients confidence; the level of respectability is also an advantage."

Speaking after the event, Bharat Pindoria from Pindoria Solicitors said: "We are moving our clients away from trusts into foundations and up to now the problem we had was we felt uncomfortable with the type of jurisdictions that had foundations. The Guernsey foundation is properly structured and transparent and we hope to encourage non-resident, non-domiciled clients to set up foundations, based on Guernsey's reputation as a finance centre."

The seminar, titled Guernsey - The Foundations Alternative, took place on Tuesday 18 September in the Stevenson Theatre at the British Museum, Great Russell Street. Carey Group sponsored registration and coffee and the post-event drinks reception was sponsored by Appleby. The event was also supported by eprivateclient, Trusts & Trustees and thewealthnet as media partners.

15 October 2012

2012 Ibrahim Index of African Governance: Mauritius ranks 1st


2012 IIAG reveals overall positive trends in governance on the continent, unfavourable shifts in some of Africa’s regional powerhouses and a mixed performance across the regions

The sixth Ibrahim Index of African Governance (IIAG), released today, reveals that Mauritius came 1st out of 12 countries in Southern Africa, and 1st out of 52 overall.

The 2012 IIAG provides full details of Mauritius’ performance across four categories of governance: Safety & Rule of Law, Participation & Human Rights, Sustainable Economic Opportunity and Human Development.

Mauritius’s performance in the 2012 IIAG:
  • Mauritius scores 83 (out of 100) for overall governance.
  • Mauritius scores higher than the regional average for Southern Africa which is 59.
  • Mauritius scores higher than the continental average which is 51.
  • Mauritius receives its highest score in the Safety & Rule of Law category (88) and its lowest score in the Participation & Human Rights category (78).
  • At sub-category level Mauritius' highest rank is in Personal Safety, Business Environment and Welfare (1st) and lowest is in Gender (7th).
  • Between 2000 and 2011 Mauritius' overall governance score improved.


12 October 2012

HKMA: The Power of 3Cs


by Norman T.L. Chan, Chief Executive, Hong Kong Monetary Authority

(Speech at the Treasury Markets Summit 2012)

Good morning, ladies and gentlemen,

I welcome you all to this fifth Treasury Markets Summit co-organised by the Treasury Markets Association and the Hong Kong Monetary Authority.  In the past four Summits, discussions focused mainly on business opportunities available to financial market participants.  This year, I am glad to note that, the Summit will also devote a session to analysing some of the fundamental elements of a first-class financial centre.  Being an ardent believer of these fundamental elements, I would like to take this opportunity to share with you some of my thoughts on them.

2. From time to time visitors from overseas come to see me and, during our conversations, the question of how Hong Kong has turned itself into a thriving and dynamic financial centre in Asia is often raised. 

3. It is not surprising that Hong Kong’s transformation from a trading port into an IFC within several decades has drawn a great deal of admiration as well as envy from neighbours within the region and beyond.  This is because of the fact that an IFC will bring about much-desired economic growth, employment and prestige.  So it is also not surprising that many cities in the region harbour ambitions of becoming international financial centres.  While such ambitions are quite legitimate, most of them would find achieving this goal very challenging.  Why?  Because an IFC, by definition, serves not only domestic customers on its own turf, it also captures financial businesses and money-flows either from a large hinterland or the neighbouring areas or both.  This is a big challenge because it entails serving customers from the other jurisdictions or cross border transactions.  It also entails the need to deliver consistent and efficient financial services in order to be competitive in international financial business.  The truth of the matter is that only a small number of cities can successfully become international financial centres because IFCs need a critical mass and market depth.  It should be noted that international financial transactions and money tend to migrate towards those centres that provide the most efficient and competitive services to customers.  In other words, domestic financial centres will need to go through very fierce competition before a few of them can emerge as successful IFCs.

4. Given Hong Kong’s accomplishment as one of the region’s premier IFCs, there are many study groups from abroad coming here to learn the tricks that have helped achieve what we have today.  One visitor actually asked me point-blank when I received him in my office at IFC Two: “Give me the name of the architect of your building, and I am confident that we can build a taller and bigger building in order to turn my city into an IFC.”

5. Of course, we all know that most international financial centres have very imposing, often elegant high-rise office towers.  But building an international financial centre is not about having skyscrapers taller than anyone else’s.  Nor is it about having super computers or optical fibres that can transmit data and information faster than your competitors’.  Then what is it all about?

6. In the World Economic Forum’s Global Competitiveness Index, there are 12 categories of benchmarks against which major financial centres are assessed to determine their overall rankings or competitiveness.  There are items relating to the physical infrastructure, such as airports, railroads and optic-fibre cables, which I would label as “hardware”.  But they are not the deciding factor in differentiating the average financial centre from the top IFCs.  Of course, an IFC needs to have first-class hardware.  Afterall, IFCs intermediate financial flows and in order to do that well they have to provide a high degree of connectivity linking up a large pool of clients and moneys from all over the world.  However, it is relatively easy to build or copy hardware.  There are many architectural firms that have a proven track record in designing and developing world-class airports and buildings.  There are many IT firms that can provide top-notch computer hardware and data-transmission systems.  But what differentiates the top IFCs from the rest is not the hardware but their software.  So some have argued that to become an IFC is to compete and win in respect of the “soft power”.  In other words, the race to become an IFC is a “battle of soft power”.

7. When I say “soft power” I am referring to a wide range of qualities and strengths, which include the rule of law, protection of property rights, free flow of information, taxation, ease of doing business, talent pool, etc.  As for Hong Kong, our success has been due to the fact that we have managed to build and develop our soft power in the last few decades.  It is not my intention to go through the entire spectrum of qualities that constitute “soft power” today.  What I propose to do now is to focus on how we can ensure that the financial institutions and market players, which form the core part of any financial centre, can continue to stand up to the challenge of achieving and, more importantly, maintaining their competitive edge in a highly competitive world.  I would like to argue that, in the remainder of my remarks, the success or otherwise of financial firms is to a large extent determined by their ability to exercise the power of the “3Cs”.  Let me elaborate what the “3Cs” stand for.

"Competence"

8. The first “C” is “Competence”.  This is very easy to understand.  It goes without saying that, for instance, a foreign exchange or bond dealer must possess the technical competence in the respective markets to perform effectively and professionally.  By the same token, a private banker or financial advisor must also have the necessary technical knowledge before he or she can recommend or market wealth-management products to customers.  However, financial innovation or engineering in the last two decades have greatly increased the complexity of financial products and market dynamics.  Some of the structured products and financial derivatives are so complex that it is a big challenge for traders to fully understand their features and risks, let alone for the less-sophisticated customers.  To maintain technical and professional competence, financial firms and practitioners must ensure that they are kept up to date on the latest market developments and financial innovations.  This is very similar to what other professions require.  For example, in the field of medicine, doctors will need to keep updating themselves by reading medical journals and attending seminars to keep abreast of the latest medical advances. 

"Control"

9. The second “C” is “Control”.  It refers to the control and governance of banks, insurance companies, securities houses and other firms engaging in financial services.  In general financial firms engage in two main types of business.  The first type is the pricing and management of risks, which include credit, foreign exchange, market and maturity mismatch risks.  Clearly in the process of risk-taking, the prudential soundness of the balance sheets of the firms is crucial.  They must be able to control the amount and types of risks based on prudent parameters.  The history of the financial world is littered with staggering examples of breakdowns in risk control by firms, all of which inevitably led to disastrous outcomes not only for the firms themselves, but also for the societies as a whole in many instances.  I don’t think I need to labour today why control and governance of risk-taking are important to the continued success of financial firms, large and small.

10. The second type of business that financial firms undertake is the provision of advisory services and distribution of financial products.  This category covers a wide range of financial services, including investment banking, wealth- and asset- management and brokerage.  As these firms are offering advisory services, or marketing and distributing financial products, they are not taking risk using their balance sheets.  However, control and governance are no less important than for the first type of financial firms because these firms must be able to treat their customers fairly and take into account their interests in offering their advice and products.  Again, we have seen many instances in which a breakdown in the control of the sales process has resulted in mis-selling of financial products that were not suitable for the customers. 

11. One point I wish to highlight here is that a good control and governance framework can only be established within the financial firms from the top down.  No matter how good the financial regulations are or how hard the supervisors try, external surveillance can only supplement, but not replace, good internal controls.  This means that a suitably designed control system endorsed by the Board of Directors must be put in place to ensure that there are effective checks and balances within the firm to monitor and detect breaches of the approved risk taking parameters and code of conduct in dealing with clients. 

"Culture"

12. The last “C” is “Culture”.  This is a more difficult concept to explain than the first two “Cs”.  But I’ll try.  Competence basically means having the technical expertise to conduct financial businesses.  It can be learned through different channels, such as formal education, in-house programmes or on-the-job training.

13. Control means having a system within a firm that monitors and manages risk-taking or the conduct of its staff.  People within the firm are required to behave in a way that is prescribed by their rules.  To put it in another way, people behave properly because they have to or else they would face unpleasant consequences if and when they are caught.  In contrast, culture refers to a set of internal values shared by a group of people that influence and shape their mindset and behaviour.  Culture and values normally define what is proper and what is not.  Culture makes people behave in a certain way because they want to behave in that way and not because they have to.  Let me use a day-to-day example to illustrate this point.  Hong Kong is now a relatively clean city with not a lot of garbage on the streets, which is in sharp contrast to the widespread littering of 30 – 40 years ago.  Many people believe that the reason for this welcomed change is the improvement by the Government in its street-cleaning procedures as well as enhanced efforts to catch and fine people who are found littering.  But this can only explain a small part of the change.  The key driving force, in my view, that makes Hong Kong streets much cleaner today is the change in people’s values.  These days, most Hong Kong citizens do not litter the streets not because they are afraid of being caught by the health inspectors but because they don’t think it is right or proper to do so.  This change of culture or values is the result of education of the young generation and the “Clean Hong Kong Campaign” that was launched by the Hong Kong Government back in the 1970s.  If this had not been the case, our streets would still be filthy even if we had ten times more health inspectors and street cleaners. 

14. In the context of building the financial services sector that befits a world-class IFC, I have explained earlier why it is very important to have professional competence and good control.  However, it is equally, if not more, important that our financial institutions and their practitioners uphold the right values that protect and serve the interests of the customers who make use of Hong Kong’s financial services.  You may recall that in the movie Wall Street, Michael Douglas kept on saying: “Greed is good!”  When this kind of mindset, which puts the individuals’ interests above the firm’s and the firm’s interests ahead of the client’s, becomes prevalent, it will inevitably lead to highly undesirable if not disastrous outcomes not just for the users but for the financial system as a whole.  So while greed is probably an inherent part of human nature, a successful financial firm or an IFC must ensure that it can develop and cherish a culture and values that will restrain excessive greed in the interests of giving customers a fair deal.  Only in doing that will an IFC be able to sustain its position and competitive edge over a long period of time.  We all understand that an IFC also represents a brand, a quality that customers trust in terms of efficiency, reliability and integrity.  It takes decades or even centuries to build a brand, but only days to destroy it if any of the qualities of competence, control or culture are eroded. 

15. Ladies and gentlemen, I have talked about the qualities or power of the 3Cs and I hope you will agree with me that, if Hong Kong wishes to remain competitive as the region’s premier IFC, we will have to do everything we can to strengthen our “soft power”.  More specifically, the financial services industry, the regulators and policy makers can and should work together to upgrade the 3Cs, which is essential in maintaining our competitiveness against other financial centres.  Now I would like to name a few initiatives that the HKMA is pursuing in this regard in collaboration with the stakeholders.

(a) Competence: in conjunction with the SFC, the industry and professional bodies such as the TMA, the Hong Kong Institute of Bankers and the Hong Kong Securities and Investment Institute, we are seeking to revamp and formalise the professional qualifications and training for market practitioners in the fields of private banking and wealth management in general.  The HKMA has also stipulated in its supervisory circular that banks must ensure that their staff have the necessary qualifications and professional training in the relevant fields.  We are making good progress in this regard and we hope to be able to introduce an enhanced qualification and training framework in a few months’ time.

(b) Control: under the Banking Ordinance, directors and senior management of banks must be “fit and proper”, given the important roles they play in ensuring that their banks are run prudently and properly.  In order to enhance the control and governance functions of individual institutions, the HKMA has recently refined the procedures for approving the appointment of bank directors and senior management.  In addition to the usual vetting, we now convene face-to-face meetings with some of the nominated candidates.  The purpose of these meetings is to enable the HKMA to get to know the future directors and chief executives better and to make clear the HKMA’s expectations of the roles and responsibilities their appointments will entail.  It is important for all of us to appreciate that the ultimate responsibility for ensuring the safety and proper functioning of a financial institution rests with the institution itself.  Regulation and supervision can only supplement or reinforce the process and cannot replace sound control and governance within the institution. 

(c) Culture: the latest Global Financial Crisis and the subsequent developments have exposed clearly the fact that uncontrolled greed can and did generate highly undesirable outcomes.  Not only were financial firms badly hit by these outcomes, but in some instances the reputation or brand of well-established financial centres has also been tarnished by these events.  Of course, after the events many people sought to apportion blame.  Obviously, the institutions concerned must take the bulk of the blame.  Inadequate regulation and poor supervision were also culprits.  But to me there is a much more fundamental issue that needs to be tackled if we wish to reduce the risk of similar events recurring.  That is the culture and values of the financial firms and the market practitioners.  In making our streets clean and free from litter, it is not enough to station one health inspector at the corner of every street to catch offenders (there are simply not enough health inspectors to go round anyway), nor is it enough to raise the fines against littering to a draconian level because people will still litter if they think they can avoid being caught.  The best way to keep our streets clean or cleaner, in my view, is to nurture the value among our citizens that littering is morally bad and should not be indulged in even when no health inspector is around and there is a low chance of being caught.  In the context of the financial-services sector, the best way to uphold the integrity of the markets and trustworthiness of the industry is for the stakeholders to nurture and cherish a culture and values that encourage and support honesty of the practitioners and restrain the institutions from placing the maximization of profit above the interests of the customers. 

16. This may all sound very idealistic and is “easier said than done”.  We all understand that it will take a long time, years and even decades, to change people’s mindset and values.  However, no IFC is built overnight.  It has taken London and New York many, many decades to become what they are today.  The race to become among the top IFCs in the world is a long term endeavour.  It has taken Hong Kong many decades of untiring efforts to accomplish what we have today.  There is a lot more that we need to do in order to maintain our niche when so many competing centres are trying very hard to catch up.  To differentiate Hong Kong from its peers, we must maintain those qualities that are hard to copy and yet appeal to users and customers who can freely choose where to conduct their financial businesses.  So what should we do?  There are three layers of parameters that help shape behaviour and values.

17. The first layer is what is prescribed in the statutes, regulations and rules, and with which compliance is compulsory.  The second layer is set out normally in codes of conduct issued by the various professional or industry bodies.  For example, the banking industry has, under the auspices of the HKAB and with the endorsement of the HKMA, promulgated a comprehensive code of banking conduct.  Similarly, the TMA has also issued a code of conduct for its members.  The third layer encompasses everything from what the society does in its civic education for children to what individual firms do in managing their business and the behaviour of their employees.  Very often we see firms become overly aggressive in chasing profits by taking excessive risks or mistreating their customers.  Among these firms it is common to find that they have a kind of incentive system that encourages and rewards excessive risk-taking and high sales-volume without regard to the interests of the firm or of the customers.

Conclusion

18. In my view, there is a lot that the boards and senior management of individual firms can do in ensuring that the corporate culture and incentive system encourage and nurture sound practices and appropriate values.  The regulators and supervisors should also do their part to ensure that firms have in place a proper corporate governance framework.  Professional and industry bodies should also play a key role in making sure that they promulgate suitable codes of conduct that define the standard of ethics and probity for their members.  More importantly, professional and industry bodies should collaborate with supervisors to ensure that there is adequate policing and enforcement of the relevant codes governing ethics and conduct.

19. Ladies and gentlemen, I would like to conclude my remarks by reiterating the importance of enhancing the power of the 3Cs, “Competence”, “Control” and “Culture”, if Hong Kong wishes to remain competitive as a world-class IFC.  It is a difficult challenge, but competition is never easy.  It will be a never-ending task as competition never ends.  I am confident that if all the stakeholders share the same vision and work together to achieve the common goals, we can certainly make it. 

20. Thank you.