Offshore Jurisdictions — A Damoclean Sword?
The product intervention measures imposed by ESMA at the beginning of August 2018, have pushed European Investment Firms towards solutions that may eventually prove dangerous. In a previous article, we discussed the tactics employed by many EU entities after ESMA introduced its product intervention measures and how the Australian regulator (ASIC) is preparing to introduce product intervention measures. In this commentary, we will discuss offshore jurisdictions, the advantages and disadvantages of each.
Only a few years ago, an Investment Firm with an ‘exotic’ license was seen as suspicious firm by clients and competition, raising many questions regarding their business activities. More and more reputable firms acquired such a license over the years and last year proved a catalyst for even more. It was the year, 2018, that brought a big headache to the online trading industry participants. The initiative by ESMA to introduce significantly lower leverage under their product intervention measures forced many EU Investment Firms to search for solutions and in doing so, altering their business plans. As a result, all ESMA efforts for greater investor protection and a more transparent legal framework under MiFID II worked much differently than the regulator anticipated. The EU regulator, in essence, triggered an ‘exodus’ of EU firms. Acquiring or setting up a subsidiary entity licensed in an offshore jurisdiction became the preferred direction. The firm’s obvious incentive in doing so was to offer a higher leverage to the clients onboard in those offshore entities.
During the last 3 quarters, SALVUS has seen increased interest and demand from investment firms for an offshore entity acquisition from jurisdictions such as Australia, the Bahamas, Belize, Cayman, Labuan, Vanuatu, Mauritius, Seychelles and others. This is mainly because acquiring a licensed entity is in some cases faster than the process of licensing a new one, however not always.
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