Offshore financial centres have taken a lot of criticism since the financial crisis, and a new climate has emerged which has put these centres under intense scrutiny and seen them enter a raft of tax agreements to stave off accusations of tax evasion and money laundering. The future of offshore finance in this challenging environment was the topic of the recent “Musings Dinner”, hosted by Culliford Edmunds, the London-based private banking and wealth management search firm.

The event took place just as the latest Global Financial Centres Index, compiled by the London-based think tank Z/Yen Group, showed Hong Kong closing the ratings gap with London and New York, and drew luminaries from all corners of the wealth management industry, as well as prominent academics, politicians and broadcasters. Among the topics discussed were exchange of information and transparency, tax sovereignty, and whether size matters when it comes to IFCs.

Chairing the debate was Professor Michael Mainelli, the co-founder of Z/Yen, with other guests including Anne Craine, the Isle of Man treasury minister, Brian Donegan, the Isle of Man head of foreign investments, and Mark Field, MP for Westminster. The principal guest was Professor Avinash Persaud, the founder and chairman of Intelligence Capital, and whose career spans finance, academia and policy advice.

The debate saw wide agreement that financial centres have to meet OECD standards on tax information exchange, and that this was the right direction to go in regardless of moral reservations concerning privacy. The feeling was that this was a concession worth making as long as independent jurisdictions retain the right to set their own tax rates without being penalised.

The issue of size arose, to vigorous debate: to what extent should international finance be confined to small islands or landlocked economies, and can it play a part in larger economies without distorting their other industries? Given that the debate took place in the Farmers Club in Whitehall, London – the top financial centre according to the Z/Yen index – this was felt by some to be a moot point.  

In a world where any form of tax competition to attract financial flows and deposits is frowned upon - despite myriad tax breaks for other industries - small IFCs are expected to compete on infrastructure, regulation and talent with places such as London and New York. Given this, it was suggested that the best option for smaller centres may be to become a world-beating centre in one or two things; for example, Bermuda can be the world’s best insurance regulator and the Cayman Islands can be the top hedge funds regulator.

The amount of regulation coming from the European Union and the G20 means parts of the industry will be over-regulated, and it was suggested there is room for an IFC to stand up for good regulation, as opposed to over-regulation.

The opinions expressed were wide-ranging, and challenged popular misconceptions about the offshore industry. It was noted how dependent our economic system is on globally mobile capital, and how dangerous it is to allow financial protectionism to flourish.

Despite the troubles besetting the offshore world, it was recognised that there are also plenty of opportunities for financial centres today arising from wealth creation in Asia, as well as increasing taxes in some parts of the world.