Formality and Informality in Offshore Financial Centres

Abstract

One of the central features of an offshore financial centre (OFC) is that it operates outside of the customary regulatory systems experienced within mainstream 'onshore' banking systems. OFCs are thus limited in terms of formal regulatory bodies and formal rules and regulations which are in place. They tend to rely upon informal networks and social ties so as to reach 'common sense' understandings of correct and incorrect behaviour. In this article, Donaghy points out that these 'common sense' understandings of social control have come under significant strain with many OFCs as they increasingly play host to growing numbers of international banks and financial institutions with varying conceptions about the nature of structural control and the meaning of rules and regulations. Many OFCs are thus replacing these informal strategies with more formalised approaches in the hope of creating a 'level playing field' amongst the centres' institutions. The aim of this article is thus not to pontificate about the best way forward for these centres, merely to investigate the sociological processes operating beneath this informal to formal transition.