Time for change

Structured finance is exactly the sort of high-margin, low-controversy business that offshore financial centres have sought to attract in the years since the Organisation for Economic Co-operation and Development (OECD) et al launched their harmful tax initiative in the late 1990s. Generally perceived as transparent, corporate business for blue-chip names, the area does not attract the level of opprobrium or scrutiny as some other sectors of offshore work.

Structured finance looked like the sort of lucrative and legitimate work offshore centres could base their financial futures on.

The growth of some of the more innovative structures, such as conduits and structured investment vehicles (SIVs), was staggering. The value of SIVs and conduits surged from an aggregate of £300bn in 2003 to a peak of £600bn by early last summer, according to the Financial Times, while the value of collateralised debt obligations (CDOs) grew by 60% in 2006 alone, according to the same newspaper. A very healthy proportion of the issuing vehicles were set up offshore, where Jersey and, above all, the Cayman Islands cornered much of the market.

But this growth was rather spectacularly brought to an end last summer. As is well documented, mass defaults in the US sub-prime market caused panic in the credit markets.

The problem was amplified by the widespread use of structured products, which took mortgage and other forms of debt, repackaged it and either sold it on as new debt securities or refinanced it by issuing short-term loan notes. So complex and widespread had these products become that it was impossible for many investors and banks to know where the bodies were buried, and the debt market all but seized up.

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