Offshore Centres

Hannah Beecham, June 2010

Choosing An Offshore Jurisdiction

There are well over 60 offshore finance centres around the world, providing a wide range of financial products and services.

As an expat there are good reasons why you should base some or all of your money in an offshore centre, but how do you go about choosing one? Is it safe to do so? Just as when you're buying a house you understand how important it is to choose the right location, when it comes to positioning your money, your choice of jurisdiction will have a bearing not only on the quality of products you receive, but crucially on the level of financial security and protection available to you.

There are several things you need to consider when choosing an offshore finance centre.

Economic and Political Stability

How stable is the centre? You want to choose a centre that is going to be around and functioning for the long haul. Choose a centre with a long history of economic and political stability.

Legal system

Is the legal system based on UK law? Choosing a centre that has a similar legal system is recommended in order to avoid complications.

Infrastructure

Does the centre have good telecommunications? If you are in a different country you want to be sure you can keep in contact with your finances when and how you choose. Also look at what services the sector offers. For example, are there solicitors, accountants and trust company services available should you need them? Choose a centre that has a good cross section of financial services.

Providers 

Look at the quality of providers based in the centre. Are they household names? It is a good sign if a centre has attracted major financial companies, but will you be comfortable with a bank that is not from your original country of residence? As a British expatriate it is perhaps prudent to avoid offshore subsidiaries without a parental guarantee from a UK-based parent. Also, with the increasing number of mergers and acquisitions in this sector, all savers should check that their accounts are not spread amongst deposit-takers owned by the same parent institution. If so, only a portion of your overall savings nest-egg may qualify for compensation if a deposit-taker goes to the wall.

Supervision

Perhaps the most important consideration. Does the financial centre operate under strict regulatory laws? How are you protected should something go wrong? What redress do you have and is there a compensation scheme for depositors, policyholders and investors? Always check the small print of what the compensation scheme actually covers. It is often the case that companies, trusts and bondholders are treated differently to individual depositors and investors.

These are particularly important considerations when choosing an offshore centre as, while many of the banks and financial institutions say they have the 100% financial backing of their parent should something go wrong, this should not always be relied upon. As was witnessed in 2008 when Icelandic banks went to the wall, the offshore subsidiaries were not helped by the parent bank. This was contrary to what many depositors were led to believe via marketing literature. While some would argue that the offshore subsidiary of a UK bank would not be left in such a position, it is prudent to assume this might not be the case. So, unless you have firm and legally binding proof that the parent would bail out an offshore subsidiary, work within the guidelines of any compensation scheme available in your chosen centre. 

Any Disadvantages?

Offshore Britain

What is an offshore centre