The leaked Panama Papers is probably the biggest news in the finance world since the 2008 crash of the financial markets. Without wanting to sound cynical, for a large percentage of the readers of the financial press and most industry cognoscenti, none of the revelations came as a surprise. Nonetheless, seeing so much of the dirty underworld of tax evasion disclosed, in such detail, was admittedly a shock.
It’s not the aim of this blog to discuss the pros and cons of offshore centres, either from a legal or a moral standpoint. In any event, it is not the highest priority consideration that the professionals involved in the industry should have at the back of their minds today. Politicians and regulators must bring confidence in the public domain that the law exists and applies for everyone.
As Martin Sandbu commented in his recent article in the Financial Times “Free Lunch: The trade in secrets”:
…transparency is insufficient: much of what the Panama Papers reveal is legal, but transparency while insufficient is also essential.
The Issue at the Heart of Panamagate: Transparency
The fact is that for transparency to exist at the jurisdictional level, it is necessary that operations working in these jurisdictions practice and demonstrate transparency. Wealth management practices whether in family offices or advisory firms must conform to transparency principles. And transparency implies systems. Systems that are amenable to audit and underlying applications that provide confidence that the related transactions can be tracked transparently. And today these solutions are available without having to spend a fortune.
Mossack Fonseca claim that their in-house systems were hacked and it was in this way that the information was leaked. Administrators of wealth management entities must surely be wondering whether all the investment incurred in “locking” information and files in-house is worth the investment. The perceived weakness of internet security is not an issue that can be resolved at the end of the day, by firewalls, etc. at the operation’s level. The potential for breach is always there through loss of information from third-party databases and other related parties.
The Future of Financial Regulations
So, what is going to happen in the future? Unavoidably institutions will become more and more regulated, and this path is already well mapped. A number of countries have started introducing legislation to regulate the activities of single family offices and even ultra high net worth individuals. There is also little doubt that transparency and disclosure requirements will increase for every person or institution using offshore or low tax jurisdictions for tax planning. Legal and advisory firms are scrambling to provide updated services for their clients, in how to comply and anticipate such events.
Cloud as Alternative for Data Security and Transparency
The logical way to go is to invest in systems that provide transparency and are cost effective at the same time. The Cloud must surely begin to look like a more logical alternative to in-house systems, having defeated all the arguments concerning security and confidentiality.
Are you ready to explore Cloud as solution for your financial systems and wealth management? Download our ebook now to see how Cloud measures up against On-premise solutions.
Tony is a member of the Institute of Chartered Accountants in England and Wales and has worked for many years both in accounting practice as well as in the finance industry. He has a long track record in the application of financial and other software both as an end user as well as a provider of software and services to third parties.