Recently, the T&T International Financial Centre released its annual report titled Redefining Financial Sector Development. The stated mission of the IFC is ‘to attract and facilitate foreign direct investment in the financial services sector that would enhance the growth and diversification of the economy by creating sustainable employment and generating foreign exchange.’ How well is it doing?
At a recently concluded energy conference hosted by the Energy Chamber, several panellists bemoaned the lack of capacity and capability required to make T&T a world leader in energy finance when we are already amongst the best in the world in several other aspects of the energy sector.
How is the IFC closing this potentially profitable gap?
There appears to be a heavy emphasis on Business Process Outsourcing (BPO), a subset of outsourcing that involves the contracting of the operations and responsibilities of a specific business process to a third-party service provider. Is this enough?
Will the current efforts add significant jobs and revenues and address glaring financial services gaps in T&T and beyond?
Several weeks ago, in these pages, former Minister of Finance and one of the architects of the IFC initiative, Karen Tesheira, aptly explained what the International Financial Centre was intended to be and it bears repeating.
She explained: “During the 2002 to 2007 administration, the government of the day made significant headway towards establishing an IFC, including undertaking a feasibility study which confirmed that an IFC was a very compelling, achievable and exciting diversification option for T&T.
During 2007 to 2010, further strides were made to making the IFC a reality. This included establishing a board of directors charged with setting up the IFC; designating the two Waterfront buildings as the initial IFC headquarters; drafting of the legislation necessary to establish the IFC by consultants who had undertaken the feasibility study leading to the IFC, Ireland.
What is an IFC?
An IFC is essentially a global city which contains a number of leading international financial institutions in which a wide range of financial services are provided to non-residents on a far larger scale than is applicable to the domestic economy. London and New York are the more established traditional models of international financial centres.
However, the modern iterations of an IFC, which is the model proposed for T&T, are the hugely successful IFCs of Dubai and Ireland, the establishment of which had a truly transformative impact on those economies in a few short years.
In the case of the Dubai IFC (DIFC), it is a special economic zone area, established by legislation in 2004. It is empowered to create its own legal regulatory framework for commercial and civil matters and is the financial hub for the Middle East, Africa and South East Asia with over 2000 registered businesses and over 22,000 high value working professionals.
The DIFC Zone’s laws are based on the English legal system. These laws include the British equivalent of the Companies Act, Arbitration Act, Employment Act and Electronic Data Protection legislation.
The DIFC has a zero-tax rate on corporate income and profits; no restrictions on foreign exchange or capital/profit repatriation and 100 per cent foreign ownership. It houses hundreds of financial institutions, including wealth funds and private investors, residential spaces, five-star hotels, restaurants and retail outlets.
Three independent bodies make up the DIFC—the DIFC Authority, the DIFC Services Authority and the Dispute Solution Authority. The authority is responsible for the overall strategic development of the centre, its operational management and administration of its laws and regulations, other than those related to financial services.
The Services Authority is the regulator of financial and related services conducted in the centre while the Dispute Resolution Authority comprises the courts, the Arbitration Centre and other tribunals, all of which apply English-based laws.
The DIFC’s considerable wealth is derived from several sources, including the registration of companies, business set-up, incorporation, granting of licenses, leasing of its building inventory and commercial property ownership.
The IFC Ireland is the brainchild of one individual—Dermot Desmond who financed an IFC feasibility study by PWC. Arising out of the study, the IFC Ireland was established. As in the case of Dubai, the Ireland IFC is a physically designated zone, located near the centre of Dublin, comprising office buildings, educational institutions, housing, restaurants and shopping facilities.
Corporations which are registered in the IFC Zone are exempt from Ireland’s normal taxation laws and financial regulations and enjoy a low corporate tax rate of 12.5 per cent and with a host of other operations enjoying a ten per cent tax rate which include banking services in foreign currencies, financial advice and financial services, fund management insurance and reinsurance and back office operations.
The IFC also offers an attractive suite of double taxation agreements. In fact, Ireland’s IFC tax regime is cited as one of the key reasons for companies establishing a base in Ireland to escape the more rigorous regulation of NYC and London with more than half of the world’s top 50 financial institutions setting up business in the Zone, including Citibank and Sumitomo.
The Irish Central Bank, by amendment to the Central Bank Act, is responsible for licensing and supervision of banks and all activities carried out by banks and all other companies not regulated or governed by specific legislation. All incorporated entities are subject to Irish corporate law which is effectively the same or similar to English laws.
Are we realising this vision?
Annually, Forbes Magazine publishes a list of the highest grossing industries in the world, a list which consistently contains the usual suspects of energy, technology, pharmaceuticals, health care and financial services.
With severe downward pressure on energy prices expected, T&T has to diversify into areas where we possess competitive advantages, with the intention of creating significant jobs and foreign exchange.
Financial services will inevitably become one of the linchpins of this future diversified economy and demands the commensurate emphasis that this implies. Is the IFC on the path to achieving these important goals?
Time will tell.