Liechtenstein Financial Centre Shows Strong Growth, by Ulrika Lomas,

Liechtenstein Financial Centre Shows Strong Growth, by Ulrika Lomas, Tax-News.com, Brussels
Friday, May 16, 2008

While the reputation of Liechtenstein's financial center may have suffered as a result of the German tax affair, it appears that no significant damage has been done by the subprime crisis, according to the annual report from the jurisdiction's Financial Market Authority.

The report has concluded that new markets for Liechtenstein's financial institutions in the Middle East and South East Asia have buttressed another year of strong growth for the jurisdiction's' financial services industry.

"Despite the subprime and banking crisis as well as turbulent financial markets, the 2007 business year of Liechtenstein financial service providers was successfully concluded with above-average increases in growth and earnings." stated Mario Gassner, acting CEO of the General Management of the Liechtenstein Financial Market Authority (FMA), during the presentation of the FMA's 2007 Annual Report.

By the end of 2007, 2,089 financial market participants domiciled in Liechtenstein were subject to FMA supervision: banks, investment undertakings, asset management companies, and pension schemes. In comparison with the previous year, this represented an increase of 10%.

The assets under management of all financial market participants increased in the 2007 business year from CHF228.9bn (USD217.1bn) to CHF277.7bn. This represents an increase of 21.3%. The 16 banks licensed in Liechtenstein managed client assets of CHF201.3bn, corresponding to an increase of 16.1%.

Investment undertakings grew by 14.2% to CHF30.5bn. Asset management companies recorded growth of 92.1% to CHF21.5bn. With an increase of 43.9%, insurance companies also achieved a surge in growth to CHF21.3bn. Pension schemes grew by a more modest 6.9% to CHF3.1bn.

The responsibilities of the FMA as an independent and integrated supervisory authority include guaranteeing the stability of the financial center.

The FMA is not a central bank, but – according to Mario Gassner – it must ensure that negative occurrences among individual financial intermediaries do not have an effect on the financial center as a whole. This means that the FMA must recognize developments and therefore potential risks to the financial center early on and act accordingly.

For this reason, the FMA has established ties with the Swiss National Bank, and intends to deepen this dialogue further.

The responsibilities of the FMA also include ensuring compliance with recognized international standards.

At its presentation of the 2007 Annual Report, the FMA also addressed the current developments concerning the German tax affair, which was triggered by the theft of client data from a Liechtenstein trust company.

"For the FMA, the primary concerns were data security and the protection of client data, as well as the impact on the financial center as a whole. Over the last few months, the FMA has been under considerable pressure in dealing with these events, in addition to its daily business."

"Despite these turbulent times, it immediately took the necessary supervisory measures in a calm but decisive manner and sent clear signals to those involved. Because of official secrecy, the FMA is unable to give detailed information on the cases in question," the Authority stated.

The FMA believes that the reputation of Liechtenstein and its financial center have been damaged by the events.

At the same time, however, the FMA noted that cooperation among financial center actors functioned smoothly during the crisis. It observed that the financial center system remained stable, but that the country cannot afford to sit back, and that financial centre reforms must be implemented rapidly.

According to the FMA, the subprime crisis has not entailed any direct risks for Liechtenstein banks, since no investments in the affected securities were made.

When the problems on the US real estate market and the resulting subprime and banking crisis became apparent, the FMA immediately obtained a picture of any relevant risks from the banks, insurers, and pension schemes.

Some life insurers had invested directly in US mortgage-based products, but the amounts were modest, and the products only affected life insurance policyholders bearing their own risk.

The FMA confirmed that: "The subprime crisis and the resulting banking crisis therefore has no major impact on the Liechtenstein financial center." However, it add that the impact will be felt due to the resulting financial crisis, which has adversely affected the stock markets."

A comprehensive report in our Intelligence Report series examining offshore banking jurisdictions is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report3.asp