"All of the islands need to do something about companies and there needs to be action on company directors," said Mr Andrew Edwards, a former top official at the British Treasury, outlining priorities for the offshore centres of Jersey, Guernsey and the Isle of Man yesterday.
Mr Edwards was speaking at the launch of his report into financial regulation in the Channel Islands and the Isle of Man following a 10-month review of the offshore tax havens.
The islands' low tax rates have attracted large numbers of international companies to their shores. About 90,000 companies are incorporated in the islands - most in the Isle of Man. Mr Edwards notes that company regulation needs to be tightened up in all three islands.
For Jersey, the largest of the Channel Islands between England and France, Mr Edwards stresses that the priority for the authorities is to co-operate fully with other countries in the pursuit of financial crime and money-laundering.
A number of high-profile financial court cases have put the spotlight on the Channel Islands' regulatory procedures in recent years.
The Bank Cantrade trial this year led to fines of $3 million (£2.02 million) for the bank, where a trader at the UBS subsidiary had misled investors by showing profits of $15 million on foreign currency transactions when he had lost $11 million.
In addition, when the Barings merchant bank failed in 1995, the bank's Guernsey subsidiary had lent deposits well in excess of its capital base and was technically insolvent. However, the unit was not declared insolvent as the authorities tried to find a buyer.
Mr Edwards says these cases point to the need for more on-site inspections of financial institutions and also the need for some form of rescue, moratorium or administration procedures as in Britain to help in dealing with insolvency.
He also calls for a financial ombudsman to deal with customer complaints.
In Guernsey, Mr Edwards says a priority should be to deal with the problem of nominee directors - the so-called "Sark Lark". This involves residents of Sark, a small island under Guernsey's jurisdiction, sitting as directors on many different company boards. Although the population of Sark is only 575, total directorships held amount to around 15,000, many in companies registered in Ireland. Three residents hold between 1,600 and 3,000 directorships each.
Guernsey has begun to tackle the problem and has cracked down on "false domiciles" whereby islanders were fielding phone calls for companies located elsewhere. But it is still some way from divesting residents of their directorships.
