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Safe offshore harbours

Traditionally, many IFAs and their clients invested offshore because of

the preferential tax environment that these centres can provide. However,

this is just one of their features as offshore centres are now increasingly

seen as playing a vital role in the smooth functioning of the world&#39s

financial system. There are a number of reasons why this gradual change in

attitude towards the offshore marketplace has taken place.

The past 18 months have been very testing for offshore finance centres.

As one external threat was successfully negotiated, along came another to

test each jurisdiction&#39s resolve. For some centres, another rigorous

assessment of their financial structures and processes may be one black

list too far. However, for others, each new challenge presents another

opportunity to demonstrate their credentials to the watching world.

One of the unintended consequences of these external pressures has, in

fact, been highly beneficial to the top-drawer offshore centres – that is

the change in tone of the debate about their merits. For a long time, what

in certain cases amounted to a blanket condemnation for everyone, has been

replaced by a rather more informed examination of the individual qualities

of each centre. This has been particularly helpful for intermediaries whose

clients are expatriates or who move between jurisdictions. A bedrock

requirement for these advisers in implementing a safe investment strategy

for their clients is selecting investments from the international finance

centres they know and can trust.

Regulation is a key area for IFAsand clients to consider when looking at

offshore centres. Those centres which are perceived to be well regulated

have a distinct advantage over those that end up in the headlines for all

the wrong reasons.

It is essential to consider only those jurisdictions that have built in

safeguards for IFAs and their clients. It is equally important that an

adviser does not pick a jurisdiction that swings to the other extreme and

imposes compliance on IFAs and investment providers which is clumsy,

heavy-handed and worst of all, restrictive.

The best centres go to great lengths to combine sensible financial safety

measures with a continual dialogue with the private sector to ensure the

necessary safeguards are in place in sucha way that does not impose a

straitjacket on enterprise.

Centres such as the Crown Dependencies, the Isle of Man and the Channel

Islands have won powerful third-party endorsement for their financial

regulation, most notably,following the publication of

theUK-Government-sponsored Edwards Report last year.

Furthermore, IFAs&#39 clients mustfeel comfortable their investments are

adequately protected. In 1988, the Isle of Man put in place comprehensive

investor protection and regulatory mechanisms and a concerted effort was

made to promote the island as Europe&#39s premier offshore funds location.

This tough regulatory framework led to the Isle of Man becoming the first

offshore territory to be granted designated territory status by the UK

Government. This means it has introduced financial regulation equivalent to

that operating in the UK, allowing Isle of Man funds to apply for SIB

recognition in the UK.

A new, but nevertheless important consideration for advisers is the extent

to which offshore centres are embracing the internet and e-commerce. The

advent of these two is effectively blurring national boundaries and

removing the geographical restrictions that were previously barriers to

trade.

Physical location and distribution channels have diminished in

significance and previously unthinkable cross-border tie-ups are becoming

more and more commonplace.

Many IFAs will have expatriate clients working in remote parts of the

world and the internet now allows them to have direct contact withfinancial

service providers at any time of the day or night.

This creates a significant opportunity for those offshore centres which

can put in place a regulatory and supervisory structure for e-commerce

businesses to survive and thrive.

There is now a clear distinction between different types of offshorecentre

– with those like the Isle ofMan in the vanguard of change providing stable

and dynamic environments in which to invest. Ultimately, this will help to

make the job ofchoosing where to invest much simpler for IFAs and their

clients.

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