There are many dimensions to an International Financial Centre (IFC), with various factors integrating to provide the necessary infrastructure to support international financial business. Characteristics of an International Financial Centre include:• A centre from which international financial business can be conducted profitably, easily and efficiently.• A centre with skilled management and intellectual talent covering Business, Finance and interdependent services such as legal and accounting, to provide multi-disciplined teams that facilitate large cross borders transactions in the shortest possible time frame.• A centre with deep liquid and sophisticated capital market and world competitive tax and regulatory regimes with foreign investment and offshore business flow.• A centre that can add significant value to financial services provided from it, through a workforce that can respond promptly and in an innovative manner.• A centre with the World’s best telecommunications and IT capacity and imbued with plentiful, well educated, multilingual workforce.• A centre where all facets of financial services: CEOs; senior traders, regional headquarters, treasury operations, data processing, support functions and call centers, can be located efficiently.• A centre with convivial and alluring environment for business
Global Financial • These are centers that genuinely serve clients from all over the world in the provision of the widest possible array of IFS; Centers (GFCs )Regional Financial • They serve their regional rather than their national economies examples of such Dubai, Hong Kong; Centers (RFCs) • These are centers like Paris, Frankfurt, Tokyo and Sydney that Ordinary provide a wide range of IFS but cater mainly to the needs of their national economies rather than their regions or the world –Financial Centers one may call them national IFCsOffshore Financial • These are centers that are primarily tax havens for wealth management and global tax management rather than providing Centers (OFCs) the full array of IFS.
An IFC is inclusive of Offshore Financial Centre (OFC) which essentially provides financialservices thru banks and other agents to non-residents, including the bank intermediationrole of taking deposits from non-residents and lending to non-residents. Other servicesprovided include fund management, insurance, trust business, asset protection, corporateplanning and tax planning. An OFC can be characterized as centers where the bulk offinancial sector transactions on both sides of the balance sheet are with individuals orcompanies that are not residents of OFC, where the transactions are initiated elsewhere,and where the majority of the institutions involved are controlled by non-residents.Majority of OFCs have the following characteristics: Financial systems with Provides some or all of external assets and the followingJurisdictions that have liabilities out of opportunities financial institutions proportion to low or zero taxation; engaged primarily in domestic financial business with non- moderate or light residents; intermediation financial regulation; designed to finance banking secrecy and domestic economies; anonymity.
The role of a financial system is topromote economic wellbeing throughfinancial intermediation, i.e., acting as • Policies concerning financial infrastructureconduits of savings into investment, and should aim to mitigate risks, increasethe provision of financial infrastructurefor effecting financial transactions. In efficiency, enhance market transparency &promoting the effective performance of liquidity, thus supporting the safety andthis role by the financial system, the soundness of the financial system.Governments, Regulatory Authorities,as well as regulations in place are very • Policies concerning financialpivotal. intermediation should aim to promote theThe role of government must be stability, integrity, diversity and efficiencyenabling with minimum and only of the financial system.necessary controls. Governmentinvolvement in the financial system • Policies concerning the regulatory regimemust be reduced to the minimum, should aim to provide a regulatoryexcept where the private interests of framework that promotes the stability offinancial market participants do not the financial system, an appropriatealign with the public interests as well asfor reasons of competitive fairness or measure of protection to users of financialcommercial viability. services, facilitates competition, and isThe Government should formulate consistent with the standards andspecific policies to promote the efficient practices of major financial centers.functioning of the financial system in thefollowing manner –
An international financial centre is a place where financial institutions from many different jurisdictions come together to carry out financial intermediation of an international dimension. The Government must seek to enhance policies that will pave way for an efficient financial sector to metamorphosis into a host that is capable of supporting a dynamic International Financial Centre by enhancing the developing payment, maintaining an strengthening international clearing and appropriate corporate governance competitiveness by settlement systemseconomic, regulatory standards with a view promoting to facilitate the safe and legal to fostering international financial and efficient conduct environment for an international intermediation and of international and open, fair and confidence in local attracting foreign cross-border financial efficient market; financial market; investments; activities;
In increasingly globalized world, thefuture of the financial system lies inits ability to create a dynamic set of • This ensures that risks in the economy are wellfinancial players, which are able to distributed among the various sub-sectors.provide the needed support to theeconomy. A well-diversified and • This creates a core of more efficient,competitive financial system is vital competitive, sound and stable skills that wouldfor the long-term economic growth facilitate the economic transformation process.and development of a forwardlooking country.The goal of the monetary authority of an IFC should be gearedtowards developing a more resilient, competitive and dynamicfinancial system with best practices, that supports and contributespositively to the growth of the economy through the economiccycle, and has a core of strong and forward looking domesticfinancial institutions that are more technology driven and ready toface the challenges of globalization.
• The range of financial products and services should be offered at the lowest cost to both institutional and individual consumers. In this regard, improvement in productivity and higher returns on assets for the Efficiency financial institutions will need to be realized through greater penetration of efficient and low cost delivery channels, access to scale advantages in processing, procurement and other functions, and leveraging on world-class skills • The availability of a broad range of products and services is essential to meet the needs of customers that can be expected to be increasingly more demanding and sophisticated. The degree of innovation of theEffectiveness financial institutions will determine the range of products and delivery channels offered. In an increasingly competitive market, innovation and improved services will be introduced through the existence of innovative players and a more conducive operational environment. • A safe, sound and stable financial system that is able to withstand sudden adverse economic and financial shocks that emanate from within and outside the system without significantly disrupting the Stability intermediary function and the functioning of the economy. To have a stable system, there must be efficient, effective and robust financial institutions, strong prudential regulations and supervision, and efficient and reliable infrastructure. • While the foundation of a strong financial system is the implementation of effective prudential Prudential regulations and supervision, this needs to be balanced with the need to provide an environment which is conducive to the development of an efficient and innovative financial system. A major issue in existingRegulations offshore centre (Bermuda, British Virgin Island, Cyprus, etc.) has centered on Prudential regulations and effective supervision. • The availability of strong infrastructure is crucial to ensure overall stability of the financial system, with a core of strong domestic institutions and an efficient and stable payments system forming the backboneInfrastructure of the financial system. This can be achieved through institutional development and capacity building, increasing the competitive environment, the continuous improvement in the existing payments and financial markets infrastructure, and instituting a more market-driven consumer protection framework.
Strong commitment by Government in promoting International Financial Centre Well Established Financial Market and Banking System Professional Financial Services Workforce Efficient and Effective Infrastructure Political and Economic stability Competitive Cost and Tax Regime Transparent Legal and Regulatory system
For a city to facilitate the development of IFC, the city-state should concentrate on improving the quality of immigration, tertiary education, entertainment facilities and global linkages.Even when it intervened in the financial sector, it systematically focused on areas that involvepeople and face-to-face interaction (such as private banking). A IFC can be successful only if itcan attract international skilled man-power all over the world. The success of such a hub mustbe based on its ability to concentrate on a certain kind of business activity. It must engender the core necessary for human capital development and interaction.