Greatest threat to offshore centers is competition amongst themselves, not the US, says consultant

 

March 12, 2008, Miami, FL, USA: The more financial industry rules and regulations that are implemented by major countries like the United States, the better it is for offshore financial centers. That is the view of Brendan Hewson, a risk consultant based in North Carolina.

"Bureaucracy is like oxygen to OFCs," Hewson tolds OffshoreAlert. "The more there is, the more opportunities exist to provide safe havens for those fleeing it."

The greatest threat to established OFCs like Bermuda, the Bahamas, the British Virgin Islands, and the Cayman Islands is not the United States but competition amongst themselves and the threat posed by emerging financial centers like Dubai and Singapore, says Hewson.

 

"The OFC with the biggest bulls-eye on its proverbial chest at the moment is Bermuda," he adds. "There are signs that this phenomenally financially-successful island has peaked economically and will face a future of decline caused by rampant political corruption and the very real prospect of independence in the not-too-distant future.

 

"There are striking similarities between what is currently taking place in Bermuda and what took place in the Bahamas in the 1960s and 1970s, when corruption, independence, and a lack of concern for the needs of international businesses contributed to a wave of insurers moving to Bermuda and banks to the Cayman Islands."

 

According to Hewson, the rival OFC that stands to benefit from Bermuda's problems is the Cayman Islands. "Cayman has the physical infrastructure, professional expertise and intellectual capacity to compete with Bermuda but not yet the legislation," he says. "However, this is one of the issues that is currently being addressed by a Reinsurance Task Force that was set up about a year ago.

 

"If Bermuda's corruption continues to worsen and the country goes independent, particularly if it is forced through by the government against the will of the people, as has been threatened, then it is only reasonable to expect an exodus of existing business and a slow-down of new business.

 

"Cayman is laying the ground-work now to capitalize on this. If it passed reinsurance legislation and tweaks existing legislation, such as removing the term-limits on work permits for expatriates, Cayman would have a significant and irresistible competitive advantage over its biggest offshore rival."

 

Hewson adds: "Two of Bermuda's largest insurers, ACE Ltd. and XL Capital, are both legally headquartered in Cayman, even though their physical headquarters are in Bermuda, a structure that was put in place many years ago specifically should the day come when they perceive it to be in their financial interests to relocate."

 

Of the newer jurisdictions, Singapore and Dubai appear to be the "best-positioned to blow a wind of change through the offshore world at the expense of jurisdictions burdened by reputational issues", he says.

 

Generally, the future looks positive for OFCs, says Hewson. "There is no sign that business in OFCs is slowing down," he notes. "If anything, it seems to be growing, fueled by new wealth that is being created in former Soviet Bloc, Baltic and African states."

 

Hewson, who operates Global Risk Advisory Services (www.gra-services.com), will deliver a presentation on 'Offshore Financial Centers: The State of the Industry' at the 6th OffshoreAlert Financial Due Diligence Conference.

 

 

 

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For more information about the 6th OffshoreAlert Financial Due Diligence Conference, visit www.OffshoreAlertConference.com or contact Conference Director Naomi Comerford by telephone in Miami, Florida on +1 (305)372-6296 or by email at ncomerford@OffshoreAlert.com.