Making the case for offshore funds
At the end of September Ifina organised seminars for industry professionals in Zurich and Frankfurt to highlight some of the key lessons to emerge from the events of the past 18 months. Why did we at Ifina, as well as some speakers who flew thousands of miles to take part, undertake this effort at a time when some participants in the offshore fund industry believe it is more prudent to keep their heads down and wait for the storm to blow over?
Bringing together representatives of fund service providers ranging from offshore jurisdictions and law firms to fund administrators and auditors, as well as brokers and exchanges, the seminars sought – we believe successfully – to underline how, far from being a threat to the global financial system, the offshore fund industry can offer high standards of regulation as well as the assurance to investors of independent oversight of the fund manager.
The three themes that ran through the seminars were transparency, third-party administration, and the interlinking and interfacing of all the parties that work together to create and service a fund structure. These issues are crucial to the restoration of faith in the fund industry because it is the absence of these elements that has resulted in serious problems such as frauds and blow-ups.
Obviously Ifina, as a third-party administration firm, has a vested interest in proclaiming to fund promoters the benefits of independent service providers. Nevertheless, the evidence is incontrovertible that arrangements where administration is undertaken or otherwise controlled by the manager have been at the heart of many of the scandals coming to light over the past two years, including most spectacularly the Bernard Madoff case.
Today banks continue to launch funds, sell them to their customers, administer them, provide banking and custody services, and make the investment management decisions. Who is overseeing them? A third-party administrator can monitor the entire fund creation and operation process, offering investors the assurance of independent scrutiny in the event that anything goes wrong.
However, the seminars were not conceived just as a commercial for Ifina and for third-party administration in general. They also highlighted the roles played by other service providers to the fund such as auditors, represented by Baker Tilly. Funds domiciled in the Cayman Islands must have an audit sign-off and the British Virgin Islands are moving toward the same requirement, but in any case Ifina insists that any fund for which it carries out accounting and share registry work should be audited.
The seminars also featured speakers from an offshore jurisdiction, the BVI, offshore and onshore law firms, Ogier and Clifford Chance, a brokerage, MF Global, a provider of banking services, Barclays, and a derivatives exchange, Eurex. All of those providers share our view that it’s no use the offshore industry burying its head in the sand. We have to put our heads above the parapet, acknowledge that mistakes have been made, and point out that it’s not difficult to avoid them in the future with proper organisation and service providers working closely together.
The focus of the G20 over the past six months has been on global tax issues, but there is more to offshore centres than tax schemes and trusts. The world has to be reminded of the role they play in offering regulated mutual funds overseen by licensed providers, a wholly legitimate business serving clients such as institutions and pension funds all over the world.
Derek Adler is a director of Ifina (UK)
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