Palgrave Macmillan Studies in Banking and Financial Institutions Series Editor: Professor Philip Molyneux The Palgrave Macmillan Studies in Banking and Financial Institutions are international in orientation and include studies of banking within partic- ular countries or regions, and studies of particular themes such as Corporate Banking, Risk Management, Mergers and Acquisitions, etc. The books’ focus is on research and practice, and they include up-to-date and innovative studies on contemporary topics in banking that will have global impact and infl uence. Titles include: Mario Anolli, Elena Beccalli and Tommaso Giordani (editors) RETAIL CREDIT RISK MANAGEMENT Rym Ayadi and Emrah Arbak FINANCIAL CENTRES IN EUROPE A New Positioning in the Global Financial Market Post-crisis Rym Ayadi and Sami Mouley MONETARY POLICIES, BANKING SYSTEMS, REGULATORY CONVERGENCE, EFFICIENCY AND GROWTH IN THE MEDITERRANEAN Caner Bakir BANK BEHAVIOUR AND RESILIENCE The Effect of Structures, Institutions and Agents Alessandro Carretta and Gianluca Mattarocci (editors) ASSET PRICING, REAL ESTATE AND PUBLIC FINANCE OVER THE CRISIS. Dimitris N. Chorafas BASEL III, THE DEVIL AND GLOBAL BANKING Dimitris N. Chorafas HOUSEHOLD FINANCE Adrift in a Sea of Red Ink Dimitris N. Chorafas SOVEREIGN DEBT CRISIS The New Normal and the Newly Poor Stefano Cosma and Elisabetta Gualandri (editors) THE ITALIAN BANKING SYSTEM Impact of the Crisis and Future Perspectives Joseph Falzon (editor) BANK PERFORMANCE, RISK AND SECURITISATION Joseph Falzon (editor) BANK STABILITY, SOVEREIGN DEBT AND DERIVATIVES Juan Fernández de Guevara Radoselovics and José Pastor Monsálvez (editors) CRISIS, RISK AND STABILITY IN FINANCIAL MARKETS Juan Fernández de Guevara Radoselovics and José Pastor Monsálvez (editors) MODERN BANK BEHAVIOUR Franco Fiordelisi and Ornella Ricci (editors) BANCASSURANCE IN EUROPE Past, Present and Future Josanco Floreani and Maurizio Polato THE ECONOMICS OF THE GLOBAL STOCK EXCHANGE INDUSTRY Jill M. Hendrickson FINANCIAL CRISIS The United States in the Early Twenty-First Century Otto Hieronymi and Constantine Stephanou (editors) INTERNATIONAL DEBT Economic, Financial, Monetary, Political and Regulatory Aspects Paola Leone and Gianfranco A. Vento (editors) CREDIT GUARANTEE INSTITUTIONS AND SME FINANCE Bernardo Nicoletti CLOUD COMPUTING IN FINANCIAL SERVICES Özlem Olgu EUROPEAN BANKING Enlargement, Structural Changes and Recent Developments Fotios Pasiouras GREEK BANKING From the Pre-Euro Reforms to the Financial Crisis and Beyond Daniela Pîrvu CORPORATE INCOME TAX HARMONIZATION IN THE EUROPEAN UNION Ramkishen S. Rajan EMERGING ASIA Essays on Crises, Capital Flows, FDI and Exchange Rate Gabriel Tortella and José Luis García Ruiz SPANISH MONEY AND BANKING A History The full list of titles available is on the website: www.palgrave.com/fi nance/sbfi .asp Palgrave Macmillan Studies in Banking and Financial Institutions Series Standing Order ISBN 978–1–4039–4872–4 You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of diffi culty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England Financial Centres in Europe A New Positioning in the Global Financial Market Post-Crisis Rym Ayadi and Emrah Arbak Centre for European Policy Studies, Brussels, Belgium © Rym Ayadi and Emrah Arbak 2014 Softcover reprint of the hardcover 1st edition 2014 978-1-137-27503-5 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2014 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN 978-1-349-44600-1 ISBN 978-1-137-27504-2 (eBook) DOI 10.1057/9781137275042 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. Contents List of Boxes v ii List of Figures viii List of Tables i x 1 Introduction 1 2 Evolving Nature and Scope of Activities 5 2.1 Legal advantages 7 2.2 Regulatory advantages 11 2.3 Tax advantages 13 2.4 Evolving scope of activities 17 Banking services 1 8 Retail funds 2 0 Alternative funds 22 Insurance 2 6 Structured finance 2 7 Trusts, fiduciary services 2 7 3 Compelling International Initiatives 3 0 3.1 OECD’s tax initiatives 31 3.2 EU’s Code of Conduct on Business Taxation 40 3.3 EU’s Taxation of Savings Directive (EUSD) 4 1 3.4 EU’s State Aid rules 4 4 3 .5 FATF’s initiatives 46 3.6 F inancial Stability Forum (FSF) and the Financial Stability Board (FSB) 54 3.7 IMF’s Financial Services Assessment Program (FSAP) 5 6 4 Risks and Opportunities 62 4.1 Macroeconomic impact of the financial crisis on large economies 6 3 4.2 M acroeconomic impact of the financial crisis on small economies 67 4.3 Impact of the crisis on the financial sector 7 2 v vi Contents 4.4 Changes in global regulatory frameworks 7 7 Alternative Investment Fund Managers (AIFM) Directive 8 2 UCITS amendments and revision of depositary functions 8 5 Solvency II 87 4.5 Enhancing global tax coordination 9 0 Amendment of European Savings Tax Directive (2003/48/EC) 9 0 Amendment of Mutual Assistance Directive (77/799/EEC) 9 1 Proposed US Stop Tax Haven Abuse Act 9 3 4.6 Global coordination on regulatory and tax matters 94 4.7 Challenges to attract new skills 95 4.8 Competition from emerging financial centres 96 5 Conclusions and the Way Forward 103 6 Appendix I: Survey of Selected Financial Centres 108 6.1 Levels of activity 108 6.2 Key aspects of sampled jurisdictions 112 Andorra 1 13 Bermuda 1 15 Cayman Islands 1 18 Cyprus 1 21 Gibraltar 1 24 Guernsey 126 Hong Kong 1 29 Ireland 1 32 Isle of Man 134 Jersey 137 Liechtenstein 139 Luxembourg 142 Malta 144 Singapore 146 Switzerland 1 47 United Kingdom 1 49 7 D ata Annex 1 51 Notes 152 References 1 70 Index 179 List of Boxes 2.1 Structure of funds 2 0 2.2 Master-feeder funds 23 3.1 International arrangements on exchange of tax information 34 vii List of Figures 2.1 Legal strength in key fi nancial centres, 2010 1 0 2.2 Regulatory quality in key fi nancial centres, 2010 12 2.3 Corporate tax rates, as of June 2012 15 2.4 Asset profi les of administrators in major European jurisdictions, 2008 25 3.1 Number of TIEAs signed as of April 2012 38 3.2 Number of DTCs and TIEAs in force compliant with OECD standards, 2011 39 3.3 Compliance with FATF’s 40 + 9 Principles on AML/CFT standards 49 3.4 Level of compliance with international standards, 2000–2005 assessments 58 3.5 Compliance with Basel core principles, 2003–2011 assessments 59 4.1 Evolution of gross public debt in EU and US, 2007–2017 64 4.2 Projection of aging-related spending in G-20 economies 65 4.3 Public budget balances of small fi nancial centres 69 4.4 Change in banks’ external liabilities by counterparty, December 2007–December 2011 73 4 .5 Global hedge fund asset fl ows and performance 74 4.6 Global private equity market investments and funds 75 4.7 Global net securitization issuance 76 4.8 Variability in GFCI rankings – top 40 Centres as of March 2013 101 6.1 Contribution of fi nancial and business sectors to local economy, 2010 109 6.2 Total bank deposits, 2010 1 10 6.3 External assets and liabilities of banks, 2010 111 6.4 Cross-border portfolio investments, 2010 112 viii List of Tables 2.1 Restrictions to access to bank information under international agreements 9 2.2 General outlines of tax systems in sampled jurisdictions, as of June 2012 16 3.1 Commitments to information exchange standards, as at 18 May 2012 36 3.2 Jurisdictions that apply the EUSD as of April 2012 43 3.3 Information sources on benefi cial ownership of corporate vehicles 52 4.1 GFCI top 25 rankings, March 2013 results 97 4.2 Evolution of normalized GFCI scores, March 2007–2013 98 7.1 Data Annex 151 ix