The Opportunities and Challenges of Offshore Banking in the British Isles

Offshore fiscal Centres ( OFCs ) in the recent old ages have drawn a batch of attending to themselves. This attending can be regarded as both positive every bit good as negative. OFCs and in peculiar offshore Bankss have been questioned of their operations and their services provided. Offshore Bankss have been rather attractive for their unregulated characteristics where in minutess take topographic point under minimal intervention by the state in which they operate ( Palan, 1998 ) . Another component that is closely linked to that of seaward Bankss is that of revenue enhancement oasiss. Many offshore Bankss have been taken advantage of due to the fact that the state in which operations are carried out is featured as a revenue enhancement oasis. The recent fiscal crises and the prostration of major offshore Bankss have questioned these operations seeking to warrant the chances and challenges bing within these seaward Bankss. In order to transport out research based on these chances and challenges, the British Isles OFC ‘s will be studied.

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Section 2: Literature Reappraisal

Emergence of Offshore Banking

The increasing globalization of the universe fiscal markets had resulted in a figure of Bankss classified as seaward Bankss. Harmonizing to Errico and Musalem ( 1999 ) , offshore banking is defined as ‘the cross-border intermediation of financess and proviso of services by Bankss shacking in Offshore Financial Centres to non-residents ‘ . Many OFCs come into being due to efforts made by smaller fiscal Centres to be accepted within the planetary fiscal system. This is supported by Cobb ‘s ( 1998 ) position saying that as ‘the smaller fiscal Centres scattered around the Earth strive hard to be accepted within the planetary system of finance by making superior reputes as stable, secure, yet confidential topographic points to put money ‘ . In add-on to these features, offshore banking is turning due to its favorable regulative demands such as low degrees of supervising, information secretiveness and its low or zero revenue enhancement policy.

However, these features have been dismayed by many in the recent old ages. Hampton and Christensen ( 2002 ) have mentioned in their paper that seaward Bankss have raised dismaying concerns as there has been an addition in volume in seaward minutess and increased wealth being held offshore. The writers have besides stressed on the increasing figure of states that are prosecuting in these offshore fiscal Centres and profiting from the low revenue enhancement imposed within these economic systems ( Hampton and Christensen, 2002 ) .

The Offshore Banking Mechanism

Harmonizing to the Errico and Musalem ( 1999 ) , the procedure of offshore banking is carried out within seaward subdivisions and subordinates ; where in minutess are carried out to ease the motion of assets and liabilities from parent Bankss. This publication by Errico and Musalem ( 1999 ) for the International Monetary Fund besides highlights the three types of minutess carried out within these Bankss, viz. ‘Eurocurrency loans and sedimentations, the underwriting or Eurobonds, and over-the counter trading in derived functions for hazard direction and bad intents ‘ .

The British Isles

The British Isles comprises of the three chief islands viz. Isle of Man, Jersey and Guernsey. These islands are all characterised as OFCs. Harmonizing to Morris ( 2010 ) , the recent fiscal crisis which saw the ruin of a figure of Icelandic Banking groups and immense losingss faced by depositors was a consequence of the convulsion being spread over to the seaward legal powers of Guernsey and Isle of Man. The British Isles have been able to market itself as OFCs through its cardinal property of a Tax Haven. The islands revenue enhancement system permits low and revenue enhancement rates, no capital additions revenue enhancement or capital transportation revenue enhancement ( Cobb, 1998 ) . In add-on, to the low revenue enhancement demands, these OFC ‘s besides benefit from slack regulative model which resulted in a series of concern failures in the 1980 ‘s ( Cobb, 1998 ) . However, the recent fiscal crisis has increased the force per unit area on the OFC ‘s to keep degrees of supervising and insurance on sedimentations. This was clearly noted in the instance of Guernsey, where in the fiscal convulsion resulted in the execution of the ‘Guernsey Banking Deposit Compensation Scheme ‘ which as was aimed at protecting the depositors from losingss ( Morris, 2010 ) .

Section 3: Research Aim and Aims

Having conducted a literature reappraisal on the subject to be research, the purpose and the aims that are intended to be achieved are as follows:

Overall Aim of the Study

The overall purpose of this survey is to achieve a clear justification of the turning importance of seaward Bankss taking into consideration the chances and challenges faced.

Aims of the Study

The cardinal aims of the research carried out are as follows:

To acknowledge the chances and challenges of offshore banking.

To turn to the issues of revenue enhancement oasis and money laundering and its deductions.

To place the cardinal elements that contributes to a successful offshore bank.

Section 4: Methodology

The undermentioned subdivision states the methodological analysis that will be implemented maintaining in head the timeframe allotted for the research to be carried out in order to accomplish the declared purpose and aims with clear justification of the attack used.

Research attack

The research is based on a reasonably theoretical facet foregrounding the cardinal features of seaward Bankss. The most fitting attack would be a systematic survey of secondary informations, where in a figure of journal articles antecedently published with close accent on the subject will be investigated. These documents will assist convey about a background of the topic every bit good as will supply an apprehension of the attacks used by published writers. A critical and indifferent analysis will be adopted while pull outing cognition with respect to offshore banking.

Data acquisition method

As the research is based on secondary informations, all information that will be used in order to pull a decision to the research inquiry will be attained from academic online diaries through the university ‘s provided ABI/INFORM, Science Direct, Bloomberg and DataStream. In add-on, in order to garner information with respect to the British Isles which is indispensable for the research being carried out, market studies will be obtained.

Analytic Approach

Having carried out most of the research based on secondary informations attained in the signifier of academic diaries, a qualitative attack will be carried out while analysing this information. Qualitative research, harmonizing to Bratton, Callinan, Forshaw and Sawchuk ( 2007 ) can be defined as ‘a research scheme that emphasizes on non-numerical informations, entails inductive theorizing, rejects positivism, is oriented towards instance surveies, and embodies a position of societal world as a merchandise of single idea ‘ . In order to magnify the consequences, a instance survey methodological analysis will be adopted. This instance survey methodological analysis will consist of instances based on the British Isles, viz. Isle of Man, Jersey and Guernsey.

5. Resource and planning

This research is to be carried out within a limited timeframe of about 12 hebdomads which is a shorter period in comparing to that required to transport out an in-depth and elaborate analysis. Following mentioned is an estimate of the clip allotted for each undertaking to be completed.

Task carried out

Time Allotted

Research and Literature Review

3 Weeks

Data Collection

2 Weeks

Datas Analysis

4 Weeks

Report Writing

3 Weeks

12 Weeks

Section 5: Bibliography

Bratton, J. , Callinan, M. , Forshaw, C. and Sawchuk, P. ( 2007 ) ‘Work and Organizational Behaviour ‘ New York: Palgrave Macmillan.

Cobb, S.C. ( 1998 ) , ‘Global Finance and the Growth of Offshore Financial Centres: The Manx Experience ‘ Geoforum, 29 ( 1 ) , pp.7-21

Errico, L. and Musalem, A. ( 1999 ) , ‘Offshore Banking: An Analysis of Micro- and Marco- Prudential Issues ‘ , International Monetary Fund. Available at: hypertext transfer protocol: //www.imf.org/external/index.htm ( Accessed on: 21st March 2011 )

Hampton, M.P. and Christensen, J. ( 2002 ) , ‘Offshore Pariahs? Small Island Economies, Tax Havens, and the Re-configuration of Global Finance ‘ World Development, 30 ( 9 ) , pp.1657-1673

Morris, P.E. ( 2010 ) , ‘Bank failure and sedimentation protection in seaward Britain: the instance of Guernsey ‘ , Journal of Financial Regulation and Compliance, 18 ( 3 ) , pp.272-292

Palan, R. ( 1998 ) ‘The Emergence of an Offshore Economy ‘ , Futures, 30 ( 1 ) , pp.63-73

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