Offshore Banking Trends Around the Globe
In the near future, we will see the creation of a greatly different financial services industry to the one we have today, both in the composition of the institutions themselves and in the way they do business. The recent flurry of mergers in many European countries and the United Kingdom are indicative of a wider trend that will see banks, trust companies, accountants and lawyers, both offshore and onshore, become much larger institutions attributed by the drive for increased shareholder value. Financial institutions are likely to seek to build their core business base while developing other businesses in order to create improved economies of scale.
Trust companies will continue to be prime targets for takeovers by large financial services groups. Although trust companies have a different customer base to banks, linkages with trust companies offer obvious benefits. It is probable that by 2025 nearly all trust companies will either be owned by banks or consolidated with law and accountancy firms.
The business emphasis will probably move further away from private client tax-planning structures towards corporate structures established offshore for tax neutrality reasons.
The creation of ‘bank assurance’ groups within the UK and its offshore centers is also likely to be an increasing trend. Although banks owning insurance providers has long been recognized as logical in Europe, the UK has only recently begun to see the brokering of such deals.
Lawyers and accountants will one day become prime targets for bank takeovers. This is increasingly likely if these firms become subject to more stringent regulation and have to cope with increased compliance costs and the complexity of the corporate business.
However, it will be interesting to see whether the corporate cultures of these different organizations can mesh. Instead, we may see independent lawyers and accountants merging together to create ‘professional one-stop firms’ encompassing law, accountancy and trust work, with particular leanings to structured finance and related activities.
The composition of the banking sector itself will change, with far greater specialization by institutions. We will increasingly be able to identify corporate banks, retail banks, and banks which operate exclusively for the offshore market.
The way in which banks operate, and the markets in which they work, are likely to change rapidly in the new century in response to new technology. Face-to-face banking will is likely to become defunct as more convenient ways of banking become accepted. We can expect technology, such as 24-hour telephone and internet banking, which is fully utilized already by expat banking customers, to become the norm. Customers will no longer be locked on the idea of branch banking as they were in the 20th century.
The world of e-commerce has lots to offer in terms of the way we do business and use our time. It is likely to become a primary growth sector for retail banking with an increasing number of products being offered to potential customers via the web.
Banks in the UK, for example, are likely to increasingly polarise into centers of profit to the detriment of regional banking. The internet will offer banks from any location, including offshore, the opportunity to target corporate and personal clients outside these centers.
The corporate sector at the upper end is likely to be less affected by the internet. Corporate deals are probably too bespoke to homogenize because of their size and complexity. For corporate deals, technology is much more likely to be used in the management of information and transactions rather than in structuring products.
In the future, we will still see specialized teams handling these deals. The main change will be that law and accountancy firms will become increasingly absorbed in deal structuring, with banks acting as corporate brokers/funders.
The support of business-to-business e-commerce nevertheless still requires careful thought by financial service providers to ensure that they play their part in sales delivery, administration and cash management.
The internet also offers potential dangers for offshore banking. Centers must be careful that the business they are attracting and supporting has a genuine offshore market.
In the case of internet gambling, for instance, a synthetic offshore market has been created whereby UK companies with a UK client base are moving offshore for tax purposes. It remains to be seen how national governments will seek to control this, but undoubtedly the demand to move cross-border business offshore is growing.
Offshore finance centers will continue even though they will no longer be driven primarily by personal tax issues. Instead, offshore jurisdictions will be used by the private client mainly for asset protection rather than for tax planning, with a growing emphasis on tax-neutral corporate structures.
With a move to asset protection based business, the importance of the trust industry offshore is likely to grow. There are likely to be much larger corporate trust providers, supported by the banking or professional groups which own them.
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