In forex trading, base currency is the first-mentioned currency in a currency pair (e.g. In USD/JPY currency pair, USD is the base currency, and JPY is the quoted currency). However, this article is not about currency trading. Instead, we'll talk about how important is reputation's role in offshore centers.
Indeed, in offshore investing and asset protection, the “base currency” is reputation.
Reputation is (or should be) the first-mentioned “currency” for offshore jurisdictions. In every service offered by any offshore jurisdictions, reputation is the underlying and primary factor to which businesses and individuals should focus on when deciding whether going offshore is the way to go or not.
Just like in currency trading, offshore jurisdictions also experience fluctuation in reputation and trust, thanks to the ever-changing laws and regulations – including the crackdown on offshore bank account privacy, litigation cases and other potentially game-changing events.
We've discovered an insightful supplement from Legal Week for the month of October 2015 that covers the offshore trends, new offshore regulations, popular offshore jurisdictions, and offshore litigation cases – all in all, a useful set of information that will shed some light on the reputational value for offshore financial centers.
Here's the PDF file: http://www.legalweek.com/digital_assets/9272/LW_OffshoreSupp2015.pdf
Why good reputation matters
Being stereotyped as “shady” or “illegal”, international business/financial centers located in offshore jurisdictions need to show the world (and potential clients) that they are as legit as they can be. The best way to do that is to demonstrate their reputational value.
And indeed, this is exactly what's well-sought-after by clients, lawyers and asset managers.
According to the Legal Week's intelligence report, the key considerations used by private practices when advising clients to invest in any offshore jurisdictions include the following:
As you can see, overall reputation sits at the top of the list, at 54 percent, followed by good quality service providers, corporate governance and regulatory environment.
Asset managers use similar key considerations:
Overall reputation, again, tops the list, this time at 60 percent. As important as reputation is the regulatory environment. Next on the list is the law compatibility with UK/EU law, and, again, corporate governance.
What's included in 'overall reputation'?
In both cases, overall reputation tops the list, which indicate that it's indispensable when we are considering any offshore jurisdictions – which makes sense: You don't want to protect your assets in questionable offshore jurisdictions, as that would defeat the purpose of going offshore.
So, what's included as 'overall reputation'? Virtually some of the top concerns, really, which include:
- The effectiveness of the offshore centers in enforcing anti-money laundering rules
- The clarity in the tax regime
- The jurisdiction's stance and record on offshore litigation and other issues
- The market history
- The political and economic stability
- Legal certainty (no frequent change on the laws and regulations)
Which offshore jurisdictions?
According to the private practices and asset managers surveyed, Cayman Islands, Channel Islands, British Virgin Islands (BVI), Luxembourg, United Kingdom, and the up-and-coming Bermuda tops the list in various fund type and concern:
There is no one-size-fits-all approach in recommending the offshore jurisdiction for clients. The study reveals that 79 percent of asset managers will recommend different jurisdictions for specific investment products and funds. 94 percent of lawyers will do so, too.
To recap, an offshore jurisdiction is said to be 'reputable' and 'trustable' when it has a great reputation, outstanding client services, impeccable track record in corporate governance, and local laws that are foreign investors-friendly.
Among others, reputation is the top key consideration for offshore private services, asset managers and lawyers for one major reason: You don't want to recommend offshore products, services and markets that can potentially put your clients on the wrong side of the road.
Also, as every offshore jurisdiction has its own set of pros and cons, offshore specialists will make a custom recommendation on offshore jurisdictions that can accommodate their clients' best interest.
All in all, despite the fact that offshore jurisdictions are under heavy regulatory pressure from OECD's Common Reporting Standard, FATCA, AIFMD and other regulations, reputable offshore jurisdictions continue to deliver services that challenge their onshore counterparts while attracting clients who believe that going offshore is the way to go.
If you want to learn more about the importance of offshore reputation, please contact us.