In its recent ‘Market-sizing’ report, The Boston Consulting Group (no connection to Boston Group of which I am the Chief Executive) highlights a slight decline in the relative proportion of global wealth placed offshore from 6.4% to 6.3%. What does this mean for international offshore centres such as the Isle of Man?
The first point to recognise is that this statistic is relative. During 2012 offshore wealth grew by a very healthy 6.1% and is further projected to increase to a predicted $11.2trn by the end of 2017. That said, there are a few notable changes to the dynamics of the offshore and onshore environments that should be recognised.
I believe offshore jurisdictions are, and will continue to be, influenced by the following four dynamics:
1) An acceptance that independent jurisdictions have the right to set their own tax rates as long as they can financially stand on their own two (or three) feet and they fall into line with international standards on transparency so that it is clear who is running and who is funding offshore structures.
2) To be competitive, an offshore jurisdiction must offer propositions based on service delivery, expertise and the strength of their legal system. The days of purely tax led propositions are behind us.
3) As organisations within established and developing nations continue to seek global opportunities, and the dynamics of family wealth evolve (particularly in the Middle East and Asia), so will we see increased mobility of capital. This will lead to more cross border international planning opportunities and a latent demand for jurisdictions and organisations to satisfy these requirements.
4) Further development in supra-national cooperation agreements such as FATCA coupled with support from groups such as the G20 and the Paris based OECD to reduce tax leakage. What’s more, for jurisdictions to remain ‘white listed’ they will not only need to sign up to these international agreements, but also to have the machinery in place to deliver on them when called upon.
How well are we placed in the Isle of Man?
In my opinion, Allan Bell has done a fine job in taking the lead to position the island at the forefront of international transparency, to drive a more diversified economy and to recognise when to negotiate and when to fall into line with international expectations. The onus is now on the business leaders to choose how to respond within this jurisdictional context.
I expect consolidation across the whole of the finance sector, particularly in owner-managed sectors such as fiduciary, where the rising cost and complexity of compliance and regulatory change will require scale to absorb increased costs and maintain profitability. Further, to be successful I believe organisations need to recognise opportunities to build international reach so that their offering can be part of a global solution for increasingly complex client demands. Those organisations that are mindful of these factors, and act to change their business models to take account of them, will retain a great opportunity to flourish in the Isle of Man.