Mauritius: FSC Brochure on ESMA MOU: What does it mean for you? (Fund Promoters)

FSC Brochure on European Securities Market Authority MOU: What does it mean for you? (Promoters of Fund)

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Guernsey trust specialist outlines effectiveness of foundations

Trust specialist Edward Stone ran a breakfast briefing on the effectiveness of private trust foundations at the Transcontinental Trust Conference in Geneva last week.

Mr Stone, a consultant at law firm Collas Crill in Guernsey, presented at the event on Thursday 20 June on how foundations can be used to simplify private trust company structures. Guernsey introduced its own foundations law at the beginning of this year, providing an added level of flexibility to service providers who now have an extra tool on the menu of options available for best meeting client needs via Guernsey structures.

The Transcontinental Trusts Conference, now in its 28th year and the oldest trust event in Europe, brought together more than 25 key jurisdictions. This year's conference focused on key themes including the current issues facing trusts and trustees, particularly information exchange, and how trusts remain practical structures for clients across the world, whether from developed or developing countries.

Mr Stone said: "The Transcontinental Trusts Conference, with its wide mix of delegates drawn from across the globe, is the ideal forum to discuss using a foundation as trustee of a trust - as it combines elements which are familiar to clients, as well as their advisors, from both common and civil law jurisdictions. It can also simplify the private trust company structure and so will be an attractive alternative to the common model of a private trust company owned by a purpose trust."

* Follow this link to learn more about how Guernsey foundations can be used to simplify private trust company structures

Sound management of risks related to money laundering and financing of terrorism - consultative document

The Basel Committee has a long-standing commitment to promote the implementation of sound policies and procedures to combat money laundering (ML) and the financing of terrorism (FT). Its commitment to combating ML and FT is fully aligned with its mandate to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability.

Prudent management of risks related to ML and FT along with effective supervisory oversight are critical in protecting the safety and soundness of banks and the integrity of the international financial system. The inadequacy or absence of sound management can increase the exposure of banks to serious risks, especially reputational, operational, compliance and concentration risks. Recent developments, including robust enforcement actions taken by regulators and the corresponding direct and indirect costs incurred by banks due to their lack of diligence in applying appropriate risk management policies, procedures and controls, have highlighted those risks. These costs and damage could probably have been avoided had the banks maintained effective risk-based policies and procedures to protect against risks arising from ML and FT.

In February 2012, the Financial Action Task Force (FATF) released a revised version of the International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation (the FATF standards), to which the Committee provided input. The Committee's intention in issuing this consultative paper is to support countries' implementation of the FATF standards with respect to their banks and banking groups, by exploring complementary areas and leveraging the expertise available in both organisations. Therefore, these guidelines are intended to be consistent with and to supplement the goals and objectives of the FATF standards. The Committee has included cross-references to FATF standards in this document in order to assist banks in complying with national requirements based on the implementation of those standards.

The Basel Committee welcomes comments on this consultative document. 

UNCTAD - Global foreign direct investment declined by 18% in 2012, annual report says

Global foreign direct investment (FDI) inflows fell by 18 per cent to US$1.35 trillion in 2012. Recovery to more vigorous investment levels will take longer than expected, mostly because of global economic fragility and policy uncertainty, UNCTAD’s annual survey of investment trends reports. 

The World Investment Report 20131 subtitled Global Value Chains: Investment and Trade for Development, was released today.

UNCTAD forecasts FDI in 2013 to remain close to the 2012 level, with an upper range of $1.45 trillion (figure 1). As macroeconomic conditions improve and investors regain confidence in the medium term, transnational corporations (TNCs) may convert their record levels of cash holdings into new investments. FDI flows may then climb to $1.6 trillion in 2014 and $1.8 trillion in 2015. However, the report warns that factors such as structural weaknesses in the global financial system, the possible deterioration of the macroeconomic environment, and significant policy uncertainty in areas crucial for investor confidence might lead to a further decline in FDI flows.

Developing countries took the lead in attracting FDI in 2012. For the first time ever, developing economies absorbed more FDI than developed countries, accounting for 52 per cent of global FDI flows. The report finds that FDI inflows to developing economies nonetheless declined slightly (by 4 per cent), to $703 billion – the second-highest level recorded. Among developing regions, flows to Asia and to Latin America and the Caribbean remained at historically high levels, but their growth momentum weakened. Africa saw a year-on-year increase in FDI inflows in 2012. FDI is also on the rise in structurally weak economies – comprising the least developed countries, landlocked developing countries, and small island developing States – the report says.

Developing economies’ FDI outflows reached $426 billion, a record 31 per cent of the world total. Flows from developing Asia and Latin America and the Caribbean remained at their 2011 levels. Developing Asia is the largest source of FDI, accounting for three quarters of the developing-country total. In the ranks of the top investors, China has moved up from sixth to third place, after the United States and Japan (figure 2). FDI outflows from Africa almost tripled.

FDI inflows to developed economies declined by 32 per cent to $561 billion – a level last seen almost 10 years ago, the report reveals. At the same time, FDI outflows from developed countries dropped to a level close to the trough of 2009. The uncertain economic outlook led TNCs in developed countries to maintain their wait-and-see approach towards new investments or to divest foreign assets, rather than undertake major international expansion. In 2012, 22 of the 38 developed countries experienced a decline in outward FDI, leading to a fall of 23 per cent to $909 billion.

Additional major trends in global FDI in 2012:

Internationalization of State-owned enterprises and sovereign wealth funds maintains pace. The number of State-owned TNCs increased from 650 in 2010 to 845 in 2012. Their FDI flows amounted to $145 billion, reaching almost 11 per cent of global FDI. FDI by sovereign wealth funds in 2012 was only $20 billion, but it nevertheless doubled compared to the year before. Cumulative FDI from sovereign wealth funds is estimated at $127 billion, most of which was in finance, real estate, construction, and utilities. 

Investments through offshore financial centres and special-purpose entities remain a concern. Investments through offshore financial centres (OFCs) and special-purpose entities (SPEs) are at historically high levels. Financial flows to OFCs are still close to the peak reached in 2007. Although most international efforts to combat tax evasion have focused on OFCs, financial flows through SPEs were almost seven times larger in 2011 (figure 3). The number of countries offering favorable tax conditions for SPEs is increasing.

International production is growing at a steady pace. In 2012, TNCs’ international production continued to expand at a steady rate because FDI flows, even at lower levels, add to existing FDI stock. FDI stocks rose by 9 per cent in 2012, to $23 trillion. Foreign affiliates of TNCs generated sales worth $26 trillion (of which $7.5 trillion were for exports), an increase of 7.4 per cent over 2011. The affiliates contributed value added worth $6.6 trillion in 2012, up 5.5 per cent, which compares well with global GDP growth of 2.3 per cent. TNC foreign affiliates employed 72 million people in 2012, up 5.7 per cent from 2011 (table 1).

Reinvested earnings can be an important source of finance for long-term investment. FDI income amounted to $1.5 trillion in 2011 on a stock of $21 trillion. The rate of return on FDI is 7 per cent globally, and is higher in both developing economies (8 per cent) and transition economies (13 per cent) than it is in developed countries (5 per cent). Nearly one third of global FDI income was retained in host economies, and two thirds was repatriated (representing on average 3.4 per cent of the current account payments). The share of retained earnings is highest in developing countries; at about 40 per cent of FDI income it represents an important source of financing. However, the report warns that not all of this is turned into capital expenditure, and the challenge for host governments is to channel retained earnings into productive investment.

Figure 1: Global FDI flows, 2004–2012, and projections, 2013–2015

(billions of US dollars)

Source: UNCTAD. World Investment Report 2013.

Figure 2: Top 10 host and investor economies, 2012

(billions of US dollars)

Source: UNCTAD. World Investment Report 2013.

Figure 3: Estimated investment flows to SPEsa and OFCs, 2011

(billions of US dollars)

Source: UNCTAD. World Investment Report 2013.

a: Only includes flows to SPEs based in Hungary, Luxembourg and the Netherlands. UNCTAD does not include flows to SPEs in these countries in global FDI flows statistics.

Table 1 – Selected indictors of FDI and international production, 1990-2012

Source: UNCTAD. World Investment Report 2013.

FSC: On-site Inspection of Management Companies (Phase II)

On-site inspections were conducted in the last quarter of year 2012, and the FSC held a workshop in February to inform MCs of the salient findings noted during the inspection exercise. The inspections reviewed the roles performed by the board of directors and senior management in establishing risk levels, the internal control mechanisms employed to monitor these risks and compliance with laws, regulations and supervisory directives.

The following deficiencies were reported to MCs in the workshop:

• AML-CFT - Money Laundering Reporting Officer and Alternate Money Laundering Reporting Officer not appointed
• Record-keeping - Client monies, monitoring of clients' business
• Non-Compliance with Section 21, Section 23 and Section 24 of the Financial Services Act 2007
• Non-filing of Audited Financial Statements and Financial Summaries
• No Professional Indemnity Insurance Cover/ No Disaster Recovery and Business Continuity Plan
• Staff Knowledge and training
• Office facilities

Governor of the BOM Elected as Member of the non-Financial Stability Board

The Governor of the Bank of Mauritius (BOM), Mr Rundheersing Bheenick, has been elected as the non-Financial Stability Board (FSB) member co-chair of the FSB Regional Consultative Group (RCG) for Sub-Saharan Africa.

Mr Bheenick is succeeding to the Central Bank of Kenya Governor, Mr Njuguna Ndung’u, and he will serve alongside Deputy Governor Mr Lesetja Kganyago of the South African Reserve Bank, for a two-year term as from July 1st.

The FSB has as major role to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability. It also envisages creating regional consultative groups to broaden the circle of countries to provide input to FSB deliberations.

Currently the FSB regroups national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.

As for the RCG for Sub-Saharan Africa, it was established by the FSB in 2011 to serve as a platform to discuss FSB initiatives and financial stability issues and for non-members to provide input on the FSB’s workplan and policy priorities. In August 2011, Mauritius was invited to join the RCG for Sub-Saharan Africa, one of the six regional groups set up by the FSB covering different parts of the world.

Why reregulation after the crisis is feeble: Shadow banking, offshore financial centers, and jurisdictional competition

A crucial element in the complex chain of factors that caused the recent financial crisis was the lack of regulation and oversight in the shadow banking sector, which is largely incorporated in offshore financial centers (OFCs), but instead of swift and radical regulatory reform in that sector after the crisis, we observe only incremental and ineffective measures. Why? This paper develops an explanation based on a two-level game. On the international level, governments are engaged in competition for financial activity. On the domestic level, governments are prone to capture by financial interest groups, but also susceptible to demands for stricter regulation by the electorate. Governments try to square the circle between the conflicting demands by adopting incremental and symbolic, but largely ineffective, reforms. The explanation is put to empirical scrutiny by tracing the regulatory initiatives on shadow banks and OFCs at the international level and within the United States and the European Union.

Guernsey's dual regime interests US fund managers

Guernsey's intention to operate a dual regime for the distribution of funds into both EU and non-EU countries in response to the Alternative Investment Fund Managers Directive (AIFMD), has been met positively by fund managers in the US.

A funds delegation from Guernsey has returned from the US after attending the International Bar Association (IBA) conference in Boston and holding a series of meetings with fund managers, lawyers, accountants and brokers in New York City and Boston.

Fiona Le Poidevin, Chief Executive of Guernsey Finance - the promotional agency for the Island's finance industry, led the delegation and was joined by Guernsey industry practitioners Gavin Farrell from Mourant Ozannes, Patricia White of Legis Fund Services and PwC's Evelyn Brady. Caroline Chan from Ogier joined the team for the IBA conference.

Miss Le Poidevin said attendance at the IBA conference and the trip as a whole had presented a great opportunity to update US contacts with the latest details of the Island's dual regime ahead of the EU introducing a new regulatory regime under the terms of the AIFMD on 22 July.

"The IBA Conference was very well attended. The event had some very relevant panel sessions, particularly on the subject of AIFMD which is a hot topic in the US for anyone with EU investors or those considering the EU market. AIFMD is one of the reasons why we have received more enquiries from US fund managers over the past couple of years and a key part of why we embarked on this US delegation," said Miss Le Poidevin.

"People were extremely interested to learn about our forthcoming dual regime and how we are perfectly placed to service US fund managers under AIFMD. Guernsey's position of being a European domicile but not part of the EU, couple with our dual regime which will allow us to continue to distribute our funds to both EU and non-EU countries, means that we will be uniquely positioned as an international funds centre and an ideal domicile for US fund managers.

"The good links that Guernsey and the US have shared in the past are also important. For example, a major factor behind Guernsey's rise as a leading centre for private equity was when one of the largest US private equity houses, Kohlberg Kravis & Roberts (KKR) & Co. L.P., established a fund in Guernsey which listed on Euronext Amsterdam. At the time it was particularly innovative and extremely significant in raising awareness among US managers of Guernsey's capacity to act as a gateway to listing vehicles on European stock exchanges.

"Managers in the US also appreciate our close links to the City of London, specifically the London Stock Exchange (LSE) where aside from the UK itself Guernsey is home to more entities listed across the LSE markets than any other jurisdiction globally."

Miss Le Poidevin said US practitioners were also keen to understand more about  Guernsey's offering in private equity, real estate funds, debt funds and hedge funds.

"There were varying degrees of knowledge about Guernsey as a fund domicile. While we have a number of high profile US fund managers such as Apollo, BC Partners, HarbourVest and Starwood, there is still a good deal of work to do in raising Guernsey's profile because those in the Americas will often gravitate towards the Caribbean jurisdictions for their fund structuring requirements, but increasingly they are looking at alternatives. The way we have embraced AIFMD and been clear about our dual regime demonstrates how the Island adopts the very highest standards - something I believe managers are after in the current economic climate."

Before visiting New York City and Boston, Miss Le Poidevin also spent time in Miami holding a series of meetings with legal advisers, accountants and other professional advisers to the wealth management sector and was joined by Michael Betley from Trust Corporation for the STEP Miami conference.

This most recent visit to the US follows on from Guernsey Finance leading a delegation to attend last year's private equity funds conference SuperReturn USA in Boston and the agency spearheading a team representing the Island at the private wealth STEP LatAm conference in Panama at the end of 2011.

Miss Le Poidevin said: "I am looking forward to building on the work we have achieved during the last couple of years so that we can make sure that we are doing our utmost to attract quality business from across the other side of the Atlantic, whether it is investment or fiduciary, North or South America."

FSC: Compliance with Foreign Account Taxation Compliance Act (FATCA)

The FSC invites the comments of its licensees on the following documents in draft forms:

1. Model 1A Reciprocal Intergovernmental Agreement (IGA);

2. Model 1A IGA - Annex I; and

3. Model 1A IGA - Annex II.

The Government of Mauritius has signified the interest of Mauritius to enter into an IGA Model 1 type and a Tax Information Exchange Agreement (TIEA) with the US Internal Revenue Service (US-IRS) with the view of becoming FATCA compliant. While the FATCA legislation is US, the Government of Mauritius has taken this step to minimise the compliance burden on Mauritian financial institutions.

The Ministry of Finance & Economic Development (MOFED) has set up a technical committee under the chairmanship of the Mauritius Revenue Authority (MRA), comprising representatives of MOFED, the FSC, the Bank of Mauritius, the State Law Office, and relevant stakeholders to examine all issues pertaining to the application of the FATCA. Following various meetings held under the chairmanship of the MRA, the technical committee has come up with the draft documents to facilitate the implementation of FATCA.

It should not be assumed that the proposals or ideas expressed in the draft document reflect the definitive view of the FSC. You may wish to seek legal advice on the implications of FATCA for your organization.

Kindly note that the enclosed documents are drafts and are being circulated by the FSC for the purposes of obtaining comments and the views of its licensees. Comments received from licensees will be taken up at the level of the technical committee.

Your comments should reach the FSC by Friday 05 July 2013.

For more information on FATCA please refer to the IRS website:

http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-(FATCA)

FSC Industry Update on Investment Funds: Special Purpose Funds & The Alternative Investment Fund Managers’ Directive

The Financial Services Commission (FSC) organised an Industry Update on Investment Funds (Themes: Special Purpose Funds & The Alternative Investment Fund Managers’ Directive) on 20 June 2013.

Presentations - Investment Funds

Special Purpose Funds » Read More

The Alternative Investment Fund Managers' Directive » Read More

Mauritius - Four of the 20 new fixed speed cameras are now operational

Four out of the 20 new speed cameras are operational since this morning. These are the ones at Roche-Bois on the M2, near the Royal College of Port Louis, near Ebène and at Pellegrin on the M1. Six new mobile radars are also in operation.

All the speed cameras have been undergoing a daily self-testing and thorough verification by the authorities. The cameras can take 2 photographs of a speeding vehicle per second, and the range they can cover equates to 50 metres.All the site stations are linked through a wireless system to a back office, which is located at the Photographic Enforcement Unit in Port Louis, within the premises of the Traffic Management and Road Safety Unit.

Police officers operate the system at this unit, and are assisted by technicians. This system follows a sequential flow from the moment a speed camera flashes a speeding vehicle to the moment the violation is posted to the offender. In fact, the speed camera detects a speeding vehicle and flashes it. A photograph of the vehicle is taken and instantly transmitted to the back office through wireless technology.

The photograph is then securely received on the server of the back office in encrypted format, before being decrypted and downloaded by a tamperproof software to another server. It is then distributed to 10 workstations and processed by a specially designed tamperproof software which is operated by trained police officers.

This software identifies the registration number plate of the vehicle and matches it with the database of the National Transport Authority which is transferred on a daily basis to a dedicated computer at the Photographic Enforcement Unit. This process is ensured by the Central Information Systems Division of the Government. Particulars of the vehicle, such as the name of the owner, are obtained without human intervention.

The photographs taken cannot be deleted from the system and the information retrieved from the process is validated by the police officers for prosecution.

32 more fixed speed cameras will be installed in the black spots around the country by 2014. The authorities want to ensure road security and curb down reckless driving and speed excess, which are among the main factors contributing to road accidents, including fatal ones.About 3,500 are injured each year following road accidents according to available statistics. There were about 210,000 contraventions for last year only.

Figures show that during the year 2012, some 156 persons died as a result of road accidents against 152 in 2011, showing an increase of 2.6%. The number of casualties (fatalities and persons injured as a result of road accidents) increased by 2.3% from 3,422 in 2011 to 3,502 in 2012. Among the casualties, around 35% were riders of auto/motor cycles, 27% passengers, 18% pedestrians, 15% drivers and 5% pedal cyclists.

Macfarlanes: The Alternative Investment Fund Managers Directive - Implications for US Fund Managers

The Alternative Investment Fund Managers Directive (AIFMD) is a European Union Directive that sets out a framework for the regulation of managers of alternative investment funds, including hedge funds, private equity and real estate funds and other unregulated funds. 

The Directive will apply to managers of alternative investment funds who are within the EU, but in addition, certain provisions of the Directive will apply to non-EU fund managers, including US fund managers, which manage an alternative investment fund established in the EU and/or market any alternative investment fund in the EU (whether or not that AIF is established in the EU).

The Directive comes into force on 22 July 2013, subject to a number of transitional provisions. 

This note focuses on those parts of the Directive that will, or may be, applicable to a US fund manager.

Macfarlanes: The Alternative Investment Fund Managers Directive - Implications for Non-EU Fund Managers

The Alternative Investment Fund Managers Directive (AIFMD) is a European Union Directive that sets out a framework for the regulation of managers of alternative investment funds, including hedge funds, private equity and real estate funds and other unregulated funds.

The Directive will apply to managers of alternative investment funds who are within the EU, but in addition, certain provisions of the Directive will apply to non-EU fund managers which manage an alternative investment fund established in the EU and/or market any alternative investment fund in the EU (whether or not that AIF is established in the EU).

The Directive comes into force on 22 July 2013, subject to a number of transitional provisions.

This note focuses on those parts of the Directive that will, or may be, applicable to a non-EU fund manager.

Prudential Regulation Authority (PRA) completes capital shortfall exercise with major UK banks and building societies

At its March meeting, the interim Financial Policy Committee recommended that: 

1. “The PRA should assess current capital adequacy using the Basel III definition of equity capital but after: (i) making deductions from currently-stated capital to reflect an assessment of expected future losses and a realistic assessment of future costs of conduct redress; and (ii) adjusting for a more prudent calculation of risk weights.”

2. “The PRA should take steps to ensure that, by the end of 2013, major UK banks and building societies hold capital resources equivalent to at least 7% of their risk weighted assets, as assessed on the basis described in Recommendation 11.”  

The PRA has now concluded its work with the eight major UK banks and building societies in relation to the FPC’s recommendation.  The eight firms are: 

• Barclays
• Co-operative Bank
• HSBC
• Lloyds Banking Group
• Nationwide
• Royal Bank of Scotland
• Santander UK
• Standard Chartered

The methodology used to calculate the capital shortfalls, originally published in March by the FSA, has been republished today2. The document outlines the three adjustments that were made. For a more prudent valuation of assets, there was a specific focus on material vulnerable portfolios on firms’ balance sheets; and for conduct costs, the FSA (now FCA) provided analysis on the potential future costs that firms may incur. For the prudent calculation of risk weights, the primary focus was on the risk weights applied to corporate and institutional loans, and UK mortgages.  

The PRA has judged that, after these adjustments have been made, each firm should target a risk-weighted capital ratio based on the Basel III definition of at least 7%.  

The PRA’s assessment is that, at the end of 2012, five of the eight banks (Barclays, Co-operative Bank, LBG, Nationwide and RBS) fell short of this standard.  They had an aggregate capital shortfall relative to this standard of £27.1bn.  When the FPC made its announcement in March this shortfall was provisionally estimated to be around £25bn.  At that time, five firms had in place plans to take actions that generated the equivalent of approximately £12.5bn of capital during 2013. The final figure for these actions is £13.7bn. A number of these intended actions will require regulatory approval before being implemented. As such, they cannot be assumed to have contributed to meeting the requirement until approval is given.  In the event that they are either not carried out or fail to be approved, other actions will be required of those firms in order to reach the specified standard.      

After these planned actions, the PRA assesses that four of the five firms will have a shortfall against the 7% standard3. These firms have been required to submit plans for additional actions.  All of the firms have been informed of their requirements and have produced for the PRA plans to meet them. It is for the firms themselves to announce the actions they plan to take. In aggregate, the additional actions, which include disposals and restructurings, will generate the equivalent of an additional £13.4bn of capital.  The PRA believes that these plans can be put into effect.  The vast majority of actions are due to be completed by end-2013, but the PRA has allowed some limited flexibility for a small part of these actions to be delivered during the first half of 20144. The PRA will hold firms to these plans, and will require additional actions to be taken if capital to cover the full shortfalls is at risk of not being delivered by any firm. 

The attached table5 sets out the PRA’s assessment of the capital position of each firm.  

The FPC also recommended that: 

3. “The PRA should consider applying higher capital requirements to any major UK bank or building society with concentrated exposures to vulnerable assets, where there are uncertainties about assets not covered in the FSA's assessment of future expected losses or risk weights analysis, or where banks are highly leveraged relating to trading activities.”

4. “The PRA should ensure that major UK banks and building societies meet the requirements in Recommendations 2 and 3 by issuing new capital or restructuring balance sheets in a way that does not hinder lending to the economy. Any newly-issued capital, including contingent capital, would need to be clearly capable of absorbing losses in a going concern to enable firms to continue lending.” 

For most firms it is the case that meeting the recommended 7% risk-weighted capital standard after adjustments will be sufficient for their leverage ratio, after adjustments, to be no less than 3%.  However, the estimated leverage ratios, after adjustments, consistent with that 7% risk-weighted ratio are 2.5% for Barclays and 2.0% for Nationwide. Consistent with the FPC recommendations, the PRA Board requires a plan to reach 3% CET1 leverage after adjustments to be submitted by Barclays and Nationwide by end-June. The PRA will consider those plans in early July and will report publicly on whether it has agreed the plans or whether revisions have been requested. The PRA has signaled to firms that plans must be agreed no later than end July. The actions they will be required to take to reduce leverage are over and above those necessary to reach a 7% risk-weighted capital ratio after adjustments.   

The PRA has asked firms to ensure that all plans to address shortfalls do not reduce lending to the real economy. In line with the FPC recommendation, the PRA has accepted restructuring actions which, by reducing risk-weighted assets, will credibly deliver improvements in capital adequacy.   

To complement this action, the PRA Board is also announcing its intention to require banks to deduct from Common Equity Tier 1 (CET1) significant investments in insurance companies above threshold allowances under its implementation of CRD IV/CRR.6 Where relevant, this treatment has been factored into the capital assessment outlined above.  

The PRA will hold firms to the plans they have agreed to deliver. The PRA will ensure firms’ capital positions accurately reflect the realities of their individual circumstances, including by using a regular process of stress testing. 

1 http://www.bankofengland.co.uk/publications/Pages/news/2013/013.aspx

2 Methodology note on calculating capital pressures (26KB)

3 Nationwide’s shortfall was already accounted for in its planned 2013 actions 

4 In the case of Co-operative Bank the firm will complete £1bn during 2013 and the rest during 2014. 

5 Spreadsheet on PRA capital recommendations including firm specific shortfalls (67KB) 

6 Annex (86KB)

Turn down the heat, switch on the light: a rational analysis of tax havens, tax policy and tax politics

Tax havens are essential to maintain a healthy economy, limit the overall tax burden and improve efficiency in financial markets.

Turn down the heat, switch on the light, published today by the Institute of Economic Affairs, highlights the benefits of tax havens globally. The author argues that political pronouncements vilifying companies for avoiding tax lack any honesty – or understanding – that the issue at the heart of the current debate, tax competition, results from the actions of governments and not corporations.

This is unacceptable hypocrisy on the part of politicians. The government must recognise the importance of tax havens and stop simultaneously talking about the need to encourage business whilst also deriding tax havens and companies that use existing tax rules to minimise their tax bill.

The importance of tax havens for the economy:

• Punitive action on tax competition would damage growth.Without tax havens, big businesses would move away from the UK. If tax havens could not be used by multinational corporations in the UK, then a single rate of corporate tax would have to be set. If set too low, then corporations’ contribution to the overall tax take would fall. If too high, then business would move overseas, damaging the overall economy.
• Tax havens play a key role in limiting the tax burden. The existence of tax havens, coupled with high mobility of capital, means governments are constrained in the tax rates they could otherwise apply – crucial for both wealth and job creation.
• Tax havens improve efficiency and liquidity in financial markets.Without tax havens, many innovative products would be stifled by punitive tax regimes. Offshore tax havens allow the UK to make the most of its comparative advantage in financial services and avoid potentially damaging double or triple taxation on investment returns.
• The levels of tax paid by multinationals currently are a direct consequence of the way the government’s own tax rules:
• The target of attracting mobile capital into the UK has been a constant tax policy of successive Chancellors. In the next two years corporate tax receipts will fall to their lowest level since 1984/85.
• The UK government has not only reined in the impacts of its own anti-tax haven rules, but also introduced a special regime for the taxation of income from patents – the ‘Patent Box’ – to allow mobile forms of income to be taxed more lightly. This will reduce tax revenue by £720 million in 2014-15. There are also other special allowances designed to reduce taxes for certain types of business.
• Politicians either do not understand that corporate tax policy in the UK is part of process of tax competition – meaning a worrying lack of grasp of sound economics – or they are displaying an astounding level of hypocrisy, heaping blame on corporations to score political points.

Commenting on the research, Professor Philip Booth, Editorial Director at the Institute of Economic Affairs, said:

"The present furore about tax havens has generated more heat than light. Politicians of all stripes are playing a dangerous game vilifying businesses for taking advantage of the tax systems that they themselves designed. British politicians can therefore hardly complain when other countries do the same and when businesses take advantage of those rules.”

Summary

• Tax havens have existed for many centuries and are certainly not limited to ‘sunny places for shady people’ as suggested by Vince Cable.
• The Netherlands, Luxembourg, Belgium and Switzerland all have some of the characteristics of tax havens.
• There are many senses in which the UK has become a leading tax haven given the effect of government’s policy in recent years, and particularly over the last ten years or so. Criticism by UK politicians of tax havens in the context of the UK’s own declared policy is hypocrisy.
• Much of the recent controversy has surrounded payments for intellectual property. There are some important issues here which require serious attention. Much of the value in modern companies is added by intellectual property, patented processes and brands. The profits generated by such brands do not necessarily belong in the countries in which sales take place. Given their nature, there is always going to be room for dispute as to how payments out of the UK for intellectual property should be determined; however, there would be little change in the UK tax base if such intellectual property were not located in tax havens.
• International action on tax havens is bound to be influenced by political rather than economic criteria and is therefore likely to be extremely unsatisfactory.
• In fact, tax havens bring many benefits to countries – including to high-tax countries. High-tax countries can attract mobile capital if tax havens can be used to reduce the overall rate of tax paid by those who control that capital. Without tax havens, high-tax countries would have to either lower the tax charged on all capital (mobile and immobile) with the subsequent loss of revenue or put themselves in a position where they could not attract any mobile capital which would flow to low-tax countries.
• Tax havens facilitate international fund management business - particularly in the form of collective investment vehicles (used to pool and invest the capital of investors) which could otherwise be subject to  tax at the level of the pooling vehicle (even though the investors themselves may be subject to tax on the income derived in their home jurisdiction). As such, tax havens allow the financial services industry - including that of the UK - to provide services globally without triggering unintended and potentially penal rates of taxation.
• Tax havens facilitate the creation of financial products that improve efficiency and liquidity in financial markets, including for retail investors. Without tax havens, many innovative products might be stifled by penal tax regimes.

Mauritius: A locally developed IT solution serves the Global Business Industry

FRCI has developed an IT solution which integrates all the elements to allow a management company to run an offshore company life cycle from incorporation to termination.

Offshore services occupy a key position in the current economic landscape of Mauritius. More than 140 profitable companies are involved in the financial sector. These companies are very often responsible for the incorporation and management of offshore companies in Mauritius. They must therefore constantly show a high level of professionalism and ensure that customer data remains confidential and protected as they undertake operations internationally. 

Even if each management company has its own approach, the use of a secure and efficient information system is critical. FRCI with its pool of local talents has developed a solution of international standard using Microsoft’s technologies to satisfy these specific needs. 

Management companies in Mauritius, licensed by the Financial Services Commission (FSC), are service providers that act as intermediaries between their clients and the FSC. Mauritius has now over 140 Management companies, employing on average 10-100 employees each, with about 5 firms having more than 100 employees. This type of business relies strongly on a structured way to manage customer data and information and many of these businesses are struggling with their existing solution. 

An end to end solution

Tej Gujadhur, Director of GFin Corporate Services Ltd., shared some of the issues faced by the management companies in the industry including security of client’s data, delivery and quality of service, consistency and flexibility. 

FRCI, one of the top IT solutions providers in Mauritius, have developed a solution for the local financial industry. Built on Microsoft Dynamics Customer Relationship Management (CRM), FRCI has integrated all the necessary elements to allow a management company to manage an off-shore company lifecycle from incorporation to termination, more easily and more efficiently. This solution takes care of all aspects of the client’s business, including marketing, business development, company administration and human resource administration. The clients also benefit from built-in reports for operation, financial and compliance sections. Document management has also been integrated to ensure a complete solution for the clients. Furthermore the solution is integrated with Microsoft Outlook for follow up of tasks, reminders and recording of customer interactions. 

GFin Corporate Services is one of those companies where the implementation of the Corporate Management Solution has been recently completed. As a start-up, the company knew that quality was paramount for its growth and in a service business, this can only come from freeing more time for employees to focus on the accomplishment of their tasks.

Flexibility and Scalability

“We started our business on Google’s Apps but it turns out that it did not meet our requirements as it was not flexible enough. Microsoft Dynamics CRM with FRCI’s extension and customization combined with Microsoft’s SharePoint and Outlook, is the solution which is and will remain probably our largest investment in the business” explains Tej Gujadhur, Founder of GFin Corporate Services Ltd. ”It helped us to organize data and process flow at a very early stage of our business. The solution also contributed to bring about the right culture change so that we could focus our attention on very specific questions of client delivery very early on in the business and all of that impact positively on client service and delivery levels for our clients”, declares Tej Gujadhur. 

He moreover underlines that “we made of CRM and SharePoint the backbone of the business and are now busy  embedding it into our culture to such a point that we are prepared to lose people who will not adapt to the system”.

FRCI’s solution based on Microsoft technology offers great flexibility and scalability. GFin is therefore confident that over time, as volume picks up and complexity grows within the firm, the benefits will increase on staff productivity and retention – the tools allow more work to be done in lesser time, resulting in huge implications for client satisfaction in a competitive market as well as retention of talent, tired of long and unnecessary hours. “Thanks to this solution our employees are able to have reasonable working hours and to organise their personal life around work. They can work seamlessly from home or anywhere they deem appropriate to do so” says the founder.

The tools also will impact upon the culture which will be transformed into one of openness, showing transparency for team members and revealing abilities and limitations of each staff. This will help create a better and more meritocratic work place in time.

“We now have a deep knowledge of the industry and hundreds of hours of thought process on this solution which can be put to immediate benefit for the actual and future clients in the Global Business Industry.” concludes Clarel Constance, Managing Consultant at FRCI.

Une solution informatique mauricienne au service de la gestion des sociétés offshore

FRCI a développé une solution informatique qui intègre tous les éléments qui permettent à une société de gestion d'exécuter le cycle de vie d’une société offshore - de  son incorporation à sa cessation d’activité.

Les services offshore occupent une position clé dans le paysage économique actuel de l’ile Maurice.

Plus de 140 entreprises profitables sont impliquées dans le secteur financier. Ces entreprises sont très souvent responsables de l’incorporation et de la gestion de sociétés offshore à Maurice. Elles doivent donc montrer constamment un niveau élevé de professionnalisme et s’assurer que les données clients restent confidentielles et protégées pendant qu’elles s'engagent dans des opérations au niveau international.

Même si chaque société de gestion a sa propre approche, l'utilisation d'un système d'information sécurisé et efficace est essentiel. 

FRCI, avec son bassin de talents locaux, a développé une solution de standard international en utilisant les technologies de Microsoft pour répondre à ces besoins spécifiques.

Les sociétés de gestion à Maurice, autorisées par le Financial Services Commission (FSC), sont des prestataires de services qui agissent comme intermédiaires entre leurs clients et le FSC. 

Maurice compte aujourd'hui plus de 140 sociétés de gestion, qui emploient en moyenne 10-100 employés chacune, avec environ 5 entreprises ayant plus de 100 employés. 

Ce type de business s'appuie fortement sur une méthode structurée pour gérer les données clients et informations, et plusieurs entreprises qui opèrent dans ce secteur font face à certaines problématiques avec leur solution existante.

Solution de bout en bout

Tej Gujadhur, directeur de GFin Corporate Services Ltd, a partagé quelques-uns des problèmes rencontrés par les sociétés de gestion, notamment la sécurité des données clients, la qualité du service, la cohérence et la flexibilité.

FRCI, l'un des principaux fournisseurs de solutions informatiques à Maurice, a mis au point une solution pour le secteur financier local. 

Ayant comme base le Microsoft Dynamics Customer Relationship Management (CRM), FRCI y a intégré tous les éléments nécessaires pour permettre à une société de gestion de gérer une société off-shore de son incorporation à sa cessation d’activité, plus facilement et plus efficacement. 

Cette solution prend en charge tous les aspects de l'activité du client, y compris le marketing, le business development,  l'administration de l’entreprise et de l'administration des ressources humaines. 

Les clients bénéficient également de rapports intégrés pour plusieurs sections ; opérations, finances et conformité. 

La gestion de documents a également été intégrée afin d’offrir une solution complète aux clients. 

La solution est aussi intégrée à Microsoft Outlook afin de permettre le suivi des tâches, des rappels et l'enregistrement des interactions clients.

GFin Corporate Services est une de ces sociétés où l’implémentation de la solution de gestion d'entreprise a été récemment complétée. 

En tant que start-up, l'entreprise savait que la qualité était primordiale pour sa croissance.

Gfin Corporate Services, évoluant dans le secteur des services, a bénéficié de plusieurs avantages, notamment plus de temps pour ses employés, leur permettant de se concentrer sur leurs tâches.

Flexible et évolutif

« Nous avons débuté avec les Google Apps. Cependant, nous avons réalisé que ces outils ne satisfaisaient pas nos exigences car ils n’étaient pas assez flexibles. Microsoft Dynamics CRM, avec l'extension et la personnalisation de FRCI, combiné avec Microsoft SharePoint et Outlook, est la solution qui est et qui restera probablement notre plus grand investissement,» explique Tej Gujadhur, fondateur de GFin Corporate Services Ltd

« Il nous a aidé à organiser les données et les flux de processus à un stade très précoce de nos opérations. La solution a également contribué à provoquer le changement de culture désiré en nous donnant très tôt l’opportunité de centrer notre attention sur nos clients, ayant un résultat plus que positif sur la qualité de nos services ", déclare Tej Gujadhur.

Il souligne d'ailleurs que «nous avons fait de CRM et SharePoint l'épine dorsale de l'entreprise et sommes maintenant occupés à l’intégrer dans notre culture, à tel point que nous sommes prêts à nous séparer des gens qui ne veulent pas s'adapter au système».

La solution de FRCI, qui se base sur la technologie Microsoft, offre une grande flexibilité et évolutivité. 

GFin est confiant que les bénéfices en termes de productivité et de rétention des effectifs augmenteront au fil du temps – les outils permettent de faire plus de travail en moins de temps, ce qui entraine des implications énormes pour la satisfaction du client dans un marché concurrentiel, et favorisent la rétention des talents, lassés des longues heures de travail. 

"Grace à cette solution, nos employés sont en mesure d'avoir des horaires de travail raisonnables et peuvent organiser leur vie personnelle autour du travail. Ils peuvent travailler  de chez eux ou n'importe quel autre endroit », explique Tej Gujadhur.

Les outils auront également un impact sur la culture qui se verra transformée, avec plus de transparence pour les membres de l’équipe – révélant les capacités et limites de chaque membre du personnel. Cela aidera à créer un lieu de travail où prime la méritocratie.

 «Nous avons aujourd’hui une connaissance approfondie de l'industrie et une maitrise de cette solution qui peut immédiatement être mise à profit pour les clients opérant dans ce secteur, »  conclut Clarel Constance, Managing Consultant chez FRCI.

Baker & McKenzie: Survey Reveals Role of Renewables in Africa's Energy Future

Wind, solar, hydro and biomass projects will play a major role in meeting Africa's growing power needs, as  funders adapt to meet the enormous demand, according to a report from global law firm Baker & McKenzie.

Over 80% of respondents in a survey of 140 senior executives in the energy industry cite Africa's strong wind and solar resources as a primary driver for renewables development. Click here to see the full report.

South Africa and Morocco currently lead the charge into renewables, being the only countries in Africa so far to have introduced large independent power producer (IPP) procurement programmes. Some 83% of survey respondents expect South Africa to account for most new renewables capacity over the next five years, following its ambitious procurement programme.

In addition to existing wind power projects developed on a conventional procurement process and the Taza and Tarfaya IPPs, Morocco has now shortlisted six consortia to develop 850 MW of wind capacity in five projects .  It also has ambitious solar plans, including the 500 MW Ouarzazate Project, of which Phase 1 is under construction and Phase 2 under procurement . Meanwhile, Egypt has significant installed wind power capacity in Africa, with new projects in the pipeline.

Renewables on a smaller scale are also attractive, being relatively quick and cheap to deploy relative to fossil fuels, making them suitable in areas where  there is no grid connection, where they can also compete on cost with conventional energy sources.

According to the African Development Bank Group, the 48 sub-Saharan countries have a combined installed generation basis of only 68 GW. This is equivalent to that of Spain, a country whose population is less than 5% of that of sub-Saharan Africa.

Solar is named by respondents as having the most potential throughout Africa to help plug this gap, with onshore wind, hydro and biomass also named as obvious possibilities. Almost 90% of respondents say Africa has extensive solar and wind resources.

"South Africa and Morocco are not the end of African renewable energy by any means," says Baker & McKenzie London partner Marc Fèvre. "In East Africa, Kenya and Uganda both have feed-in tariff regimes. There is a lot of interest in geothermal power in the Rift Valley region, while Kenya's Lake Turkana and Kinangop wind farms are both significant projects. In West Africa, Senegal has implemented legislation and a programme to develop renewable energy. Further south, we are working on the first wind farm in Namibia, but it won't be the last."

Debt financing for African renewables is key. Investors need strong relationships with local banks and international development finance institutions (DFIs) to access affordable capital on a meaningful scale. South African banks have so far financed most of the country's programme to bring 6.9 GW of renewables capacity online by 2020. Participation from international banks in African renewables has been limited to date, but 78% of respondents believe non-African banks will become more active in the next two years. 

"So far there has been capacity in the market and the top South African banks have dominated," says Baker & McKenzie Johannesburg partner Scott Brodsky. "Nonetheless, we have seen tremendous interest from international banks. Structures will evolve that accommodate this interest. "

Projects are often reliant on funding from DFIs and export credit agencies (ECAs). Over 90% of respondents felt such institutions will continue to play a vital role in financing projects for the next three years at least.

Asia may be one source of additional investment, having invested over $6 billion in non-Asian renewable energy assets in 2012, with Africa an increasingly important target destination.

"I am seeing lots of interest from countries such as Korea, Japan and even Thailand and Malaysia now, in investing in renewables outside their own country," says Baker & McKenzie Sydney partner Paul Curnow. "Asian investors will really focus on countries that have the most attractive renewable policy."

Political risk remains the big question mark, with 68% of respondents putting it top of the list of concerns, higher than regulatory risk (42%), exchange rate risk (37%), compliance risk (28%) and technology risk (18%).

"It is an exciting time for renewables in Africa," said Brodsky. "Renewable energy programmes such as South Africa's will bring much needed power to keep the lights on and drive growth in an energy intensive economy that needs power for key industries such as mining, smelting and pulp and paper."

United States G-8 Action Plan for Transparency of Company Ownership and Control

In response to the G-8 commitment for members to publish national action plans on transparency of company ownership and control, the United States commits to the following actions:

• Risk Assessment:  The United States is currently updating its national risk assessment, a public document assessing major money laundering conduits and methods, which will specifically address abuse of legal entities.  
• Advocate for Comprehensive Legislation:  Continue to advocate for comprehensive legislation to require identification and verification of beneficial ownership information at the time a company is formed.  One possible approach could include the following provisions: 

1. Definition of Beneficial Owners – Define beneficial owner as a natural person who, directly or indirectly, exercises substantial control over a covered legal entity or has a substantial economic interest in, or receives substantial economic benefit from, such legal entity, subject to several exceptions. 
2. Collection and Verification of Documentation – Include two options for covering legal entities depending on whether the applicant forms the legal entity directly or uses a regulated company formation agent.  Both cases would require the collection and verification of the documentation associated with beneficial ownership.  
3. Regulation of Company Formation Agents - Extend Anti-Money Laundering obligations to company formation agents, including an obligation to identify and verify beneficial ownership information. 
4. Accessibility of Information – Ensure law enforcement authorities, including tax authorities, will be able to access beneficial ownership information upon appropriate request through a central registry at the state level.  Although all states currently make some basic information available through public registries, states may choose to make beneficial ownership information publicly available. 
5. Transfers – Mandate that entities update information filed with a State or a formation agent within 60 days following any change of beneficial owners. 
6. Exemptions – Include, but not limit exemptions to, publically-traded companies in the U.S., federally regulated financial institutions, and operating companies meeting certain employee or revenue requirements. 
7. Liabilities – Mandate civil and criminal penalties for knowingly providing false information or documentation to a State or formation agent. 

• Clarify and Strengthen Customer Due Diligence Standards for U.S. Financial Institutions:  The United States is currently engaged in rulemaking to develop an explicit customer due diligence obligation for U.S. financial institutions, including a general requirement to identify the beneficial owners of legal entity customers. 
• International Cooperation:  Assess the effectiveness of existing means for complying with requests for mutual legal assistance and other forms of international cooperation related to beneficial ownership of companies.

U.S. National Action Plan on Preventing the Misuse of Companies and Legal Arrangements

The United States is pleased to announce today the publication of our National Action Plan on Preventing the Misuse of Companies and Legal Arrangements.  Publication of this plan is a key deliverable of the G-8 summit, along with agreement today on a set of G-8 principles to enhance transparency of company ownership and control.  These principals, the G-8 Action Plan Principles to Prevent the Misuse of Companies and Legal Arrangements, by G-8 members are crucial to preventing the misuse of companies by illicit actors.

The U.S. has been working closely with partners around the world to combat the criminal misuse of businesses, shell companies, and front companies. These legal entities are used to access the international financial system and facilitate financial crime, while masking the true identity of illicit actors.  These legal entities are also used by individuals and companies to shelter assets and evade taxes.   The U.S. National Action Plan demonstrates the U.S. commitment to combating this global problem.  It promises to assist law enforcement and tax authorities in understanding who actually owns and controls legal entities (i.e., their beneficial owners) and assist cross-border investigations.

Enabling access to beneficial ownership information to law enforcement and tax authorities is an essential component of U.S. efforts to enhance financial transparency.  Other U.S. efforts to enhance financial transparency include global implementation of international standards regarding beneficial ownership through the Financial Action Task Force (FATF).  The U.S. played an instrumental role in working to draft the new FATF standards on beneficial ownership and believes the adoption of the principles by the G-8 today is an important step forward.  Another U.S. initiative to strengthen financial transparency is a rulemaking proposing to clarify customer due diligence (CDD) requirements for U.S. financial institutions so that institutions collect information on beneficial ownership of legal entity account holders.

Today’s G-8 principles make clear that companies should know who owns and controls them and their beneficial ownership and basic information of the companies should be adequate, accurate, and current. Adoption of these principles is a central deliverable of the UK’s G-8 Presidency, and builds on an Illicit Finance Agenda the UK has recently launched for the G-8.  This agenda incorporates three elements: (1) improving transparency of company ownership and control; (2) promoting effective supervision of financial institutions and enforcement of anti-money laundering (AML) obligations; and (3) developing a Sub-Saharan Africa Public-Private Sector Dialogue.  The U.S. worked closely with the UK on the agenda and welcomes adoption of the G-8 principles published today, as well as publication by the UK and other countries of their national action plans for preventing the misuse of companies and legal arrangements.

As part of our Action Plan, the U.S. will continue to forcefully advocate for comprehensive legislation to require the disclosure of beneficial ownership information, including a requirement to identify and verify beneficial ownership information at the time a company is formed. We further commit to clarifying and strengthening customer due diligence requirements for U.S. financial institutions, including through publication of a proposed rule for financial institutions to identify the beneficial owners of legal entity customers. 

In particular, in our National Action Plan, the United States commits to:

• Draft a National Risk Assessment:  Led by the Treasury Department, the United States is updating its national risk assessment to identify major money laundering threats and vulnerabilities. This assessment will include an analysis of vulnerabilities posed by corporate entities and how criminal use them to launder funds.  
• Advocate for Comprehensive Legislation:  The Treasury Department, along with other federal agencies, will continue to advocate for comprehensive legislation on beneficial ownership. There is currently no federal or state requirement to disclose beneficial ownership information. This legislation would be an important step to protect the U.S. financial system and should include:

1. Requirements for covered legal entities to disclose beneficial ownership to states or regulated corporate formation agents at the time of company formation.
2. Requirements for verification of the identity of the beneficial owner.
3. Options for covering legal entities depending on whether the applicant forms the legal entity directly or uses a regulated company formation agent. 
4. Requirements for law enforcement authorities, including tax authorities, to be able to access beneficial ownership information upon appropriate request through a central registry at the state level. 
5. An extension anti-money laundering obligations to company formation agents, including an obligation to identify and verify beneficial ownership information.
6. A mandate that entities provide updated information when changes of beneficial ownership occur within 60 days; and
7. The imposition of civil and criminal penalties for knowingly providing false information. 

• Clarify and Strengthen Customer Due Diligence Standards for U.S. Financial Institutions: As part of the U.S. government’s broader efforts to increase financial transparency, the Treasury Department is currently drafting a rule to develop an explicit customer due diligence obligation for U.S. financial institutions, including a new requirement to identify the beneficial owners of legal entity customers.  This proposed rule would require that financial institutions understand who their customers actually are and provide important information and resources for law enforcement and tax authorities. 
• Work to Enhance International Cooperation:  The U.S. will continue to advocate for increased mutual legal assistance and other forms of international cooperation designed to enhance the transparency of the international financial system including working with our partners to enhance build a framework for identifying beneficial ownership of companies.