Seychelles Backtracks on Warning to Financial Institutions

In a significant reversal, the Seychelles has withdrawn its earlier warning to financial institutions to exercise caution when dealing with individuals and companies based in the country.

Background

The decision comes after a review of the regulatory framework for offshore banking and non-banking financial institutions. According to officials, the current licensing and regulatory regime is more lenient than that for domestic banks, including initial minimum capital requirements.

Recent Developments

Despite this, several applications to establish offshore banks have been rejected due to lack of international stature and reputation, as well as an established track record of growth and profitable operation. However, a temporary license has been granted to an offshore investment bank whose applicants do not meet these criteria. The bank has yet to commence operations pending further consideration of its business plan and the enactment of enabling legislation for investment banking.

Regulatory Bodies

The Seychelles International Business Authority (SIBA) is responsible for licensing registered agents and trustees, as well as registering international business companies (IBCs), trusts, and companies within the Seychelles International Trade Zone. SIBA’s dual role as regulator and promoter of offshore services has raised concerns about potential conflicts of interest.

Offshore Activity

Despite significant marketing efforts and the approval of legislation for various non-banking and offshore financial activities, offshore activity in the Seychelles has been limited to IBCs, trusts, and a few insurance companies, which appear to be dormant. The Central Bank of Seychelles (CBS) is responsible for supervising banks, while SIBA handles non-banking financial institutions. However, there are plans to consolidate supervisory agencies into a single entity, the Financial Services Authority (FSA), with the CBS retaining responsibility for banking supervision.

Recommendations

In its report, the mission recommended that SIBA introduce a regulatory regime for registered agents and prepare revisions to IBC law to ensure compliance with best practice on disclosure and corporate governance standards by December 31, 2002.