Over the past decade there has been a concerted drive by many finance centres of smaller countries to tighten up standards and build reputations for high skills and good regulation and supervision. In some cases the changes are the product of local political will. In others the pressure has come from those who create and oversee global policy on financial supervision. Well run jurisdictions know that good practice means winning top quality FDI and good practice now extends to promotional structures.

Today, there are four principal categories of substantial financial centres in small economies, with the first three marked by geopolitics rather than great disparity in standards. First are the EU island states with significant finance industries, notably Malta and Cyprus. Malta has completed its offshore to onshore metamorphosis. Then the Channel Islands and Isle of Man (collectively known as the Crown Dependencies), which are self-governing British islands and not EU members; followed by the Caribbean and Atlantic grouping, such as the Cayman Islands, the British Virgin Islands, Bermuda and the Bahamas. The final category is highly diverse in terms of location, market positioning and regulatory approach and ranges across the globe, from the Marshall Islands in the Pacific, Monaco and Lichtenstein in Europe and new arrivals like Dubai in the Middle East.

The fall of Soviet Communism in the 1990s ushered in the globalisation of markets and products and, of course, of money. In the treasuries of Washington, London, Bonn and Tokyo there were real fears that lack of common regulatory, supervisory and liquidity standards across the world could impede global growth and destabilise the world’s financial system. A great array of famous international bodies became involved in proposing and policing new global polices. Economies large and small came under the microscope from the Organisation for Economic Co-operation and Development (OECD), the IMF/World Bank, UN, EU and the Financial Action Task Force (FATF) – now the leading anti-money laundering organisation.

But it was a former UK Treasury Mandarin, Andrew Edwards, who established a global pattern for the separation of regulation from promotion of a jurisdictions attractions. Widely rumoured to have been a product of a conversation between US president Bill Clinton and the UK’s prime minister, Tony Blair, following Mr Blair’s election in 1997, the Edwards Report* on standards in financial regulation in the Crown Dependencies is often seen as the start of the codification of global standards of behaviour in finance centres. All three Crown Dependencies were given clean bills of health, but among the improvements recommended was that elected politicians should not chair financial regulation bodies and that the IPA function should not be part of a regulator’s writ.

“Promotion,” wrote Mr Edwards, “in the sense of hard selling or marketing is clearly not a proper task for regulators.” The Edwards approach has since been adopted by many countries and is part of the policy framework recommended by the IMF.

Removing temptation

The argument is that politicians, keen to bring in jobs and investment, may be tempted to urge looser regulatory criteria. While Mr Edwards found no evidence for such conflict he thought it better to remove the possibility.

Charles Clarke, chairman of KPMG Channel Islands, says the Edwards’ approach makes sense. “Regulators are not natural marketers. Their first instinct is to seek out any reputation risk from potential inward investors. That’s how it should be. It protects the integrity of the jurisdiction and strengthens global financial stability.”

Most countries responding to the Edwards/IMF approach have opted to create special finance industry promotional structures, independent of the financial regulator.

John Bridle, chief executive of Guernsey Finance, says his organisation is funded jointly by the finance industry and Guernsey’s government. “The director general of the island’s regulatory body, the Guernsey Financial Services Commission, sits on our board, but we don’t sit on its board. We welcome his guidance on our communications and on the tone and style of our marketing. These are important reputational aspects for regulators.”

Mr Bridle says that the global downturn in finance business has seen some corporate withdrawals from the island, “but the jobs we lost have been rapidly replaced with work in growth areas like offshore funds and fiduciary services”. He says that outsourcing services like public relations, design and print, website and event management helps the Guernsey product stay fresh and well presented. “We look for energy and commitment in our suppliers, so we can concentrate on keeping marketing quality high, researching new markets and travelling in search of new opportunities.”

On the neighbouring island of Jersey, Phil Austin at Jersey Finance says: “Like Guernsey, we have full employment, so much of our role is about getting Jersey’s voice heard in finance circles internationally and helping to attract investors and work to the businesses already here. The government here is diversifying the economy, but finance delivers around 65% of GDP. Standards and skills here are of a high order, so we’re very attractive to big players in the City of London.”

Best practice benefits

In the Cayman Islands, they have taken a different approach and set up an all-purpose IPA, the Cayman Islands Investment Bureau. Jennifer Dilbert represents the Cayman government in the UK and says adhering to international best practice delivers real benefits. “Having financial regulation at arms length from government helps deter rogue elements from trying to do business in Cayman and encourages quality inward investment.”

John Dalli, foreign affairs and investment minister in Malta, explains that the finance industry and the public sector have jointly funded a promotional brand called Financial Services Malta. “It has a direct line to Malta Enterprise, our national IPA, as the enterprise agency, has the professional expertise to guide potential inward investors through the benefits of Malta. However, a licence to operate a financial services business can come only from our independent regulatory authority and it carries out all due diligence.

“High regulatory standards are a wholly positive signal to blue chip finance businesses and their customers.” says Mr Dalli, “But regulation alone will not clinch a deal. IPAs still have to be fast, efficient and responsive and jurisdictions have to be able to show inward investors real potential for long term growth.”

*The Edwards Report, officially known as the ‘Review of Financial Regulation in the Crown Dependencies’ by Andrew Edwards was prepared for the UK’s Home Secretary and published by the UK government on November 19, 1998

Martin Roche runs Anchor Reputation Management, which advises FDI and other public sector agencies on brand and communications issues and has been advising international financial centres since 1994.