Dr. Grant Gibbons: `Address and explain the issue quickly' BERMUDA must clean up its legal and supervisory structures, says an international group of financial regulators, finance ministries and central banks.

The group was created last year by the Group of Seve n leading industrialised nations to prevent a repeat of the Asian and Russian financial crises.

And the International Monetary Fund "might give the highest priority to (Bermuda and other jurisdictions whose) perceived legal infrastructures and supervisory practices ... suggest that (they) are likely to show the greatest improvement by undertaking an assessment process'', the report says.

The report by the Financial Stability Forum (FSF) is different from that of the Organisation for Economic Co-operation & Development (OECD), which confirmed to the Mid-Ocean News yesterday that its own report on offshore centres will be presented to its Council at a meeting on June 26 and 27.

The FSF report placed 42 offshore centres in three groups, according to the danger they are perceived to represent to the financial security of the financial world. Those given a clean bill of health are Dublin (Ireland), Hong Kong, Luxembourg, Singapore and Switzerland. Guernsey, the Isle of Man, Turn to Page 2, Col. 1 Bermuda must clean up offshore act, says report Continued from page 1 and Jersey also receive virtually the top rating.

Bermuda falls into the middle category, along with Andorra, Bahrain, Barbados, Gibraltar, Labuan (Malaysia), Macau SAR, Malta and Monaco. This group, the report says, falls short in its business practices and regulatory systems.

The report is particularly damning in its criticism of those jurisdictions in the lowest group, the largest, which includes most of Bermuda's competitors, among them the Bahamas, the Cayman Islands, the British Virgin Islands and Liechtenstein.

Minister of Finance Eugene Cox declined to comment on the report to the Mid-Ocean News , indicating that he intends to make a public statement later today. The Minister did make reference to the FSF in his Budget Statement in February. He said then: "The FSF, composed of G7 and non-G7 countries as part of the move to reform the international financial architecture, will assume the job of reviewing the role of offshore centres and will examine Bermuda's place in the world picture.

"The Bermuda Monetary Authority and the Ministry (of Finance) have both held initial talks with representatives of the Forum, and will continue these exchanges. We remain vigilant in safeguarding our national interests.'' The FSF based its conclusions on "responses of offshore financial centre supervisors'' -- which included the Bermuda Monetary Authority, who also declined to comment to this newspaper -- "and the impressions of a wide range of onshore supervisors at a particular point in time.'' The FSF report cautions that "the categorisation does not constitute judgments about any jurisdiction's adherence to international standards, and inclusion in a particular group does not imply that such a categorisation applies to all sectors of the financial system within an offshore financial centre.'' Nevertheless, the damage may be done by perception, believes Shadow Minister of Finance Grant Gibbons, who argues that the FSF process of discovery was not sufficiently methodical to allow the organisation to form an accurate picture.

Speaking to the Mid-Ocean News , Dr. Gibbons said: "The two individuals from the FSF who came to Bermuda, Mr. Maxwell and Mr. Goldstein, were here for a very short time.

"In contrast to the thorough analysis by the OECD group, the two men carried out what we would have to conclude was a very cursory review.'' Dr. Gibbons also feels that Bermuda's strong (re)insurance sector might have worked against the Island.

"A preponderance of our international business is insurance- or reinsurance-related,'' he said. "It is clear from the report that there are really no broadly accepted international standards for the insurance and reinsurance business, such as the IOSCO and Basle standards in other industries, so comparisons between jurisdictions would be hard to make.'' Dr. Gibbons urged Minister Cox to "address and explain this issue quickly, to avoid the lingering perception that Bermuda is not a satisfactory jurisdiction.

"The Minister needs to get on top of this,'' Dr. Gibbons added. "There are good explanations for those who want to listen, and the Minister of Finance must make sure that Bermuda's position is made clear.'' The inclusion of Bermuda below other offshore jurisdictions such as Jersey and Guernsey might have come about since "the Channel Islands have been through the Edwards Review'', Dr. Gibbons added.

"No similar external review has been carried out for Bermuda or other British Overseas Territories, although Anguilla, Bermuda, the British Virgin Islands, the Caymans, Montserrat and the Turks and Caicos Islands are now involved in an assessment by (accountants) KPMG, commissioned jointly by the Caribbean Overseas Territories and Britain, to assess the ongoing enhancement of financial regulation.'' The results of that study are expected in July.

Dr. Gibbons is not alone in his criticism of the FSF report. The reaction from other jurisdictions has been more openly critical.

The Caymans' Financial Secretary George McCarthy disagreed with the inclusion of the Caymans in the worst category.

"The Cayman Islands' financial sector is well regulated, and government is confident that the results of proper assessments, which have been and are being done, will bear this out,'' he said.

Barry Malcolm, executive director of the Bahamas Financial Services Board, told London investment magazine Portfolio International : "The Bahamas is very surprised by the rating given to it by the FSF. We do not feel that the rating is accurate, nor does it reflect the accuracy of the process.'' An official statement from John Lawrence, director of financial services for the Government of Anguilla, described the FSF report as "backward-looking''.

Peter Johnstone, Governor of Anguilla, said that the jurisdiction was about to enact a long list of laws that he expected to "highlight any remaining areas which Anguilla may need to address to ensure that it meets best international standards''.

The British Government, however, welcomed the FSF report.

Economic Secretary Melanie Johnson said: "The FSF report marks a significant step towards achieving the aims of ensuring effective supervision and cross-border co-operation, which is essential to tackling financial crime and delivering a more stable global financial services industry.''