This article appeared in the November issue of the Gibraltar Magazine.
David Parody - Chief Operating Officer Financial Services Commission
“Reputation is an idle and most false imposition; oft got without merit and lost without deserving.” Cassio from “Othello the Moor of Venice”
We live in a world where the simply use of one word or phrase, rather than another can have an immediate impact upon attitude and reputation. Take the phrase “international financial centre” and the image of gleaming chrome and glass sky scrappers springs to mind. Change one word and make it an “offshore financial centre” and a different image and reputation appears. Yet the two phrases can be used almost interchangeably. Use the phrase “tax haven” and you immediately conjure up connotations of money laundering, arms dealing and shady deals.
So powerful are these images that both jurisdictions and organisations are deliberately removing terms such as “offshore” from their branding. These changes, though partially to do with the fact the word is, in the case of jurisdictions such as Gibraltar, Switzerland and Luxembourg hideously geographically inaccurate, but mainly to do with reputation.
Yet much of the “offshore” world operates to standards that are as good if not higher than those found onshore. Even the IMF arrived at this conclusion following their review of “offshore financial centres”. So why is the word “offshore” so damaged?
The answer to that lies in its convenience as a scapegoat for the wrongs of the financial world. That does not mean that the “offshore” community did not sow the seeds of its reputational downfall. Banking secrecy, lack of cooperation, poor or non existent regulation all allowed criminals to use and even own financial institutions.
Yet in most centres such failings have long vanished. However the memory lingers. One of the places it lingers is in the field of popular fiction. Whether Grisham, Fleming or Forsyth, the shady but exotic imagery that the reputation of offshore portrays makes good reading. The jurisdictions may change, Switzerland, gave way to Panama, the Bahamas and Cayman, but the shady characters and numbered bank accounts remain. Suitcases of cash have given way to wire transfers actioned by mobile phone but at the end the villain is still seeking to spend his ill gotten gains safe on some sun drenched beach, his money safely tucked away in the local bank.
Simply changing names won’t kill the imagery. It didn’t really work when “tax haven” went “offshore”. Unless we use the same wording as London or New York we will be labelled and our reputation will carry on under a new banner. Even if we do use the same wording and insist on being referred to as international financial centres, this won’t catch on. People will always need to distinguish us and will continue to use the old names if the news ones are too vague.
Does this mean we just give up and accept that our reputation will go on. Should we be so concerned about our reputation if we cannot change it for the better. The answer is still yes, because we can change it for both good or ill with those who matter and those who matter look beyond the latest blockbuster or sloppy tabloid news article and actually assess what is important in our continued survival and growth. We may call it reputation but we mean character.
Reputation is merely what others think you are. Character is what you really are. It is a centres character that will ultimately count with those who are considering using our services. How we treat them, the competence of our service, the professionalism of our service providers. How we perform when we make an error, our integrity. This is not the stuff of James Bond but it is the stuff a a successful 21st century finance centre.
Character is not attained merely by having done things, you need to be able to spread the word of your good work and therefore change other people’s perception of you.
Ensuring that international supervisory standards are applied effectively is one of the key functions of any regulator and for this reason the IMF and the Financial Action Task Force have conducted evaluations of our supervisory practices and legislation. Both have found that we have in Gibraltar excellent practices and defences.
The process is not one which can remain still. International standards change and regulatory practices evolve. If Gibraltar wants to keep up its reputation as one of the best regulated finance centres it must continue to work hard to implement these and to have them independently verified at every possible opportunity.
The FSC continues to monitor and develop its practices required to keep abreast of changing circumstances. This has enormous implications, not only for the FSC and its staff, but also the regulated firms. This is recognised by the FSC but it is a necessary evil which comes with the responsibility of promoting Gibraltar’s well deserved reputation for being in the top tier of well regulated finance centres.
There is a very fine line between effective regulation and restrictive regulation when seeking to establish a reputation as a quality finance centre. The easiest option for any regulator to follow is to over-regulate as then one can never be accused of having lower standards. But this tends to stifle innovation and reduce consumer choice as a result, both of which are bad things in any economy.
The FSC has consistently adopted an approach of putting into place the highest of regulatory standards not only where these are exist in an international context but where these have not been place, for example in the regulation of fiduciary service providers, to lead in the establishment of the same. At the same time the FSC has put into place supervisory practices to achieve those standards in a manner which user friendly to the providers but affords to the consumers protection expected from any well regulated finance centre.
It was Henry Ford who famously stated that “You can't build a reputation on what you are going to do.” Neither can you exercise any control over people’s perception of your reputation. However, you can influence their perception by basing your own reputation on a solid foundation.
So let us accept the reputation of offshore for there is little else we can do, but let us ensure that the character of offshore is what we truly want it to be.