19 November, 2007

Financial Services

Appendix 3: Territory Issues. We are looking at the recently published National Audit Office Report titled “Managing Risk in the Overseas Territories”. Appendix 3 contains what John Bourn, the Comptroller and Auditor General, considers the most significant issues relating to Anguilla. It is always revealing to learn what others think about your performance. The revelations can either make you very angry, or they can encourage you to improve your performance. This is what he writes:

Anguilla’s financial services industry contributes some 15 per cent of GDP, making it the second, albeit minor sector in Anguilla’s economy, after tourism. Regulation of the industry remains the direct responsibility of the Governor under the Constitution, and so any failure could have direct implications as well as wider reputational impact on the UK. The financial services sector is small compared to that in Bermuda, Cayman Islands and the British Virgin Islands; it employs some 200 people and its licence fees are insufficient to finance substantial regulatory capacity. Currently, Anguilla has only four professional regulatory staff, which limits its ability to keep up to date with fast moving international standards and implementing recommendations from previous Reviews of the Sector. For example:

- Recommendations made by UK-appointed consultants in 2000 in respect of companies and credit union legislation have not been implemented.

- Anguilla has not created a separate agency to market its financial services overseas, freeing the regulator from involvement in this potentially conflicting activity.

- An International Monetary Fund Report in 2003 referred to the need to broaden the professional and managerial capacity of the Anguilla Commission, and to the absence of sufficient skilled persons to analyse and investigate suspicious transaction reports.

- There are doubts over the extent of compliance with “know your customer” requirements. The International Monetary Fund’s 2003 review of Anguilla identified difficulties obtaining customer information from overseas sub agents and recommended a tightening of procedures. When the Anguillan Regulator conducted on-site checks in 2004 most agents did not have copies of the code of practice issued by the professional association, and there were numerous instances of deficient or incomplete documentation.

- The Anguillan regulator’s policy towards non-compliance in anti-money-laundering practice has been to encourage raised standards through education, rather than to apply sanctions on the most deficient agents. It is not evident that this has been a successful strategy. Police and Industry sources in Anguilla expressed the view to us that there are still a minority of financial service providers in the Territory which they believed would accept “any business”.

NAO Conclusion: The Department, supported by other UK Departments, needs an integrated approach to addressing regulatory under-capacity in Anguilla, the Turks and Caicos Islands, and Montserrat. Options that can be considered include developing a shared regulatory resource across the three Territories, use of Governors’ powers to raise regulators’ licence income, and more placements of staff from the UK, focusing on industry compliance with anti-money laundering measures.

I thought it quite extraordinary that recommendations made by consultants since the year 2000 had not yet been implemented. The only conclusion can be that there was something quite objectionable in the recommendations. But, as we do not know what they were, we cannot be sure. I was astonished to learn that Anguilla still depends on the regulator to market our financial services overseas. When I was in practice over ten years ago, we urged the Ministry of Finance to bring this arrangement to an end. There is an intrinsic conflict between the functions of a policeman and those of a salesman. Can you picture this imaginary scenario? The regulator attends an offshore marketing conference in Miami and meets a lot of people. He encourages some of the attendees to visit Anguilla and to make it their home base for their offshore services. When he gets back to his office, he finds some of them have applied. He now has to put on his policeman’s hat and tell them that they do not come up to standard, and he has to refuse them! Either that, or he is so embarrassed by the quandary he is in that he approves their licence while doubting that they will perform creditably. What a joke!


  1. We "recognized the importance of the separation between regulation and promotion. It was always a part of our strategy to promote Anguilla as a well-regulated jurisdiction only seeking the best quality clientele. But the tardiness in implementation [of the 2000 KMPG recommendations] came from a difference of opinion between the local Government and the UK Financial Services Advisor as to the separation of the Registry from the Commission."

    --Hon. Victor Banks, 17 February 2004

    It has been 8 years now, and the promotion and regulation hats still sit on the same head.

  2. No, it hasn't been 8 years. It's been 27. Was it the intention in 1980 to have the promotion done by the regulator? The following is from the same 2004 speech by Mr. Banks:

    The offshore financial sector "process was started by a letter from the Honourable James Ronald Webster, then Chief Minister of Anguilla, to the Registrar of Companies at the time the now Justice I. Don Mitchell on July 21st, 1980.

    "The letter confirmed the appointment of Justice Mitchell, the late Dr. William V. Herbert and Mr. Robert L. Sanders to a committee to reorganize the legal requirements for Offshore Companies. It was dubbed "The Committee for Anguilla as a Financial Center" and included in its terms of reference was what I believe was tanatamount to a mission statement and I quote: 'To study existing tax haven legislation and to investigate which needs of the international financial community may best be served by a new tax haven and to report to the Executive Council within eight weeks with suggestions for making Anguilla’s tax haven status the most advantageous and best publicized in the world.'"

  3. One of the links with the FAC report on the UKOTs is provided by the reference to "some" overseas territories that have "strong economies and robust democracies" . Two examples are given - Cayman and Bermuda. No examples are given of territories that do NOT have strong economies and/ or robust democracies. Identifying these will fall to the FAC.


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