Vistra: Offshore business moving ‘midshore’

Vistra Deputy Group Managing Director Simon Filmer, Walkers Partner Ingrid Pierce, Cayman Finance CEO Jude Scott, and Harneys Partner Henry Mander discuss trends in the offshore financial services industry, Friday, at The Ritz-Carlton. - Photo: Ken Silva

The total number of active companies in the seven major offshore jurisdictions declined in 2017 for the first time in 25 years, according to research conducted by corporate service provider Vistra.

Vistra Managing Director Jonathon Clifton said at a conference on Friday that there were about 470,000 active companies offshore – in Cayman, the British Virgin Islands, Samoa, Seychelles, Mauritius, Anguilla and Jersey – in 2016. That number dipped to about 456,000 in 2017, he said.

“This is the first time in 25 years that we’ve seen a decrease in the overall book of the seven leading offshore jurisdictions,” he said. “The question is whether this is a one-off – whether this is just the impact of a convergence of new regulations coming down the pipeline – and you expect the [business] to return to its historical averages, or not.”

Mr. Clifton attributed this dip to an increase in the number of companies going inactive, as well as a decrease in the number of new incorporations.

While the offshore company numbers may have dipped last year, the overall global financial services industry remains steady, according to Vistra.

The corporate service provider presented its results from its report, “Vistra 2020: The Uncertainty Principle,” which is based off a survey conducted with some 600 financial services practitioners around the globe. That survey states that 40 percent of respondents said their business is moving from offshore jurisdictions to “midshore” centers such as Singapore and Hong Kong. The Economist defines midshore jurisdiction as ones that combine offshore traits such as low taxation with onshore traits such as well-staffed financial centers.

Vistra’s report is nearly a year old, but Mr. Clifton presented company incorporation data on Friday that also supports that trend. Mr. Clifton said that company incorporation rates have decreased among offshore centers by about 33 percent from 2012-2017, but have increased by about the same rate in midshore centers during the same time.

“I think the data is matching the perception people have that there is a trend from offshore to midshore,” he said.

However, Vistra Deputy Group Managing Director Simon Filmer said that when he looks at Vistra’s portfolio, he has seen business move back from midshore jurisdictions to offshore centers within the last 18 months. He said he thinks the difficulties people have had in opening and maintaining bank accounts in offshore initially drove business to midshore centers, but that the first-class legal systems and corporate service providers have drawn some of that business back.

Looking forward, the key issue that will impact offshore jurisdictions will be global regulations, according to the survey.

Speaking at the conference, Harneys Partner Henry Mander said another key issue will be the outcome of Appleby’s lawsuit against the BBC and the Guardian over their reporting on the “Paradise Papers” last November. Appleby is suing for breach of confidence and seeks a permanent injunction against further use of the information, as well as the disclosure and return of the documents.

Mr. Mander said if Appleby loses that case, it will embolden hackers to steal more data. Then, law firms and other corporate service providers will have to rely more on technology and less on legal systems to protect their data, he said.

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