Please enable JavaScript.
Coggle requires JavaScript to display documents.
Regulation and supervision of the offshore services sector (Need for…
Regulation and supervision of the offshore services sector
Need for regulation
Regulation comprises sets of rules, prohibitions, restrictions and guideline applicable to those organisations involved in financial and investment services
Necessary in order to maintain efficient, orderly and fair financial markets (both national and international)
Protects consumers from abusive practices and financial crime, thus maintaining the integrity of the financial markets
Important that only experiences professionals who are fit and proper become involved in providing financial services business
Prohibits anyone who has not been approved by the regulator from providing financial services
Sets out what organisations can and cannot do
Provides for those who do not meet desired standard to be sanctioned or prevented from operating where appropriate
Development of regulation
May 1997:
Supervision of banking and investment services was merged into the Securities and Investments Board (SIB
October 1997:
SIB formally changed its name to the Financial Services Authority (FSA)
Responsibility for banking supervision was transferred to the FSA from the Bank of England
May 2000:
FSA took over the role of the UK Listing Authority (UKLA) from the London Stock Exchange
Financial Services and Markets Act 2000 (FSMA) transferred responsibility for several other organisation to the FSA, including Investment Management Regulatory Authority, Personal Investment Authority and Securities and Futures Authority
2005:
FSA took responsibility for the regulation of general insurance business in order to implement the EU Insurance Mediation directive
June 2010:
Chancellor of the Exchequer announced governments intentention to restructure the UK's financial regulatory framework, FSA was to be replaced by two new regulatory bodies
1 April 2013:
Financial Conduct Authority and Prudential Regulation Authority Created
Regulation of offshore financial services
Regulatory frameworks in the UK and many onshore jurisdictions have been heavily influenced by international bodies and initiatives
Offshore centres are not compelled to incorporate international initiatives into their own regulatory frameworks
Many offshore centres have chose to incorporate international initiatives into their regulatory frameworks as they recognise it is important to embrace efforts of the international community and to conduct their business with equivalent standards
By incorporating international initiatives into their framework, it maintains investor confidences, attracts foreign investment and helps develop or maintain a reputation allowing them to compete without sanction
Typically compromise of primary legalisation, secondary legislation, regulatory codes and guidance notes
Primary legislation
Primary legislation in offshore centres usually equivalent to the UK's FSMA
Typically provides for the creation of a regulator (equivalent to the FCA)
Regulator in offshore centres usually referred to as financial services commission
Regulator is granted powers to:
Authorise organisations to provide financial services business
Supervise that organisations adhere to the jurisdiction's laws, orders and codes
Provide for enforcement and sanctioning powers when organisations do not adhere to the laws, orders and codes
Sanctions may include the regulator:
Imposing fines
Banning individuals from working within the finance industry
Making a public statement about their conduct
Fit and Proper Test
Authorisation is usually only granted to fit and proper applicants. A fit and proper test may be set in the law (as they are in FSMA) or may be influenced by a policy that is set by the regulator
A fit and proper determination by the regulator may include assessment of the following factors
A relevant and satisfactory track record:
Regulator will prefer organisations that have a demonstrable track record, where an organisation has a track record in another jurisdiction, the regulator may ask the regulator in that jurisdiction whether they hold any adverse information in connection with it. When it is a new organisation, the regulator can look instead to that of its proposed shareholders and directors
The integrity of the applicant:
An assessment of the organisations integrity will to some extent reflect the integrity of its senior management team and individuals employed. In assessing the integrity, the regulator may look to past conduct
Competence of the staff employed:
An assessment of the level of qualified and experienced staff employed will assist the regulator in determining overall competency
Financial Standing:
The financial resources available to the applicant and how financial risks will be managed are key to the entity remaining as a going concern. Adequate professional indemnity insurance may be required
Resources available:
Jurisdiction may require the organisation to be locally managed and controlled and to occupy local premises
Structure of the organisation:
May include an assessment of the availability of resources to the organisation, the systems and controls and the transparency of ownership
The structure will need to provide for sufficient oversight by its senior management, systems and controls must be sufficient to manage risk and the affairs of the organisation effectively. Good corporate governance is key to demonstrate a well run and effective organisation
Transparency of ownership is very important. Ultimate controllers must be identified. A company owned by a structuring involving trusts and companies can be a severe hindrance to the transparency. It is unlikely the regulator would permit such a structure without imposing additional safeguards to ensure it can always identify and perform due diligence on those in control
Secondary Legislation
Sometimes referred to as regulations, orders or ordinances.
Uses powers granted to it in the primary legislation
Supplements primary legislation and places additional, more detailed requirements on authorised persons
Codes of Practice
Regulatory codes containing provisions similar to the FCA's principles for business
Failure to follow does not of itself render any person liable to proceedings of any kind or invalidate any transaction
Codes may be used as evidence in any proceedings, if it appears to the court to be relevant to any questions arising in the proceedings and may be taken into account in determining any such questions
Guidance
May outline requirements of the jurisdictions primary and secondary legislation on a particular subject matter and present ways in which authorised organisations may comply with them
Assists service providers through practical interpretation of the requirements of the regulator
May emphasise or promote a particular approach desired by the regulator and assists authorised organisations to develop their systems and controls accordingly
Content is considered to be a regulatory requirement
Failure to follow may result in regulatory sanction
May be taken into account when deciding whether or not a person has committed an offence under the law
Regulation of trust and company service providers
In the UK, the provision of trust and company service providers is not as prevalent as offshore centres
UK based trust and company service providers do not fall within the scope of the FSMA, but are required to register with HMRC for AML purposes under the Money Laundering Regulations 2007