Most IFCs’ legal systems are based on English common law. As a result, IFCs have legal sectors, judiciaries, and law enforcement authorities that are robust and reliable.
To be successful, IFCs must have high-quality legal institutions that can be trusted by investors to be fair and impartial and can be relied on by regulators to be rigorous and transparent. These legal and financial institutions give IFCs their credibility and encourage people to do business there, and are based on three limbs:
English-based common law – The Crown Dependencies and Overseas Territories’ legal systems are derived from English law. Their lawyers are usually trained in and qualified to practice law in England. Their judges have often sat in England or other common law jurisdictions and the highest court of appeal in each is the British Privy Council. This ensures high-quality legal decisions.
Specialised for commercial transactions – IFCs have legal systems that specialise in relevant areas of law, particularly relating to trusts, funds, insurance, and corporate vehicles. IFCs are primarily used by institutional investors for commercial transactions. That allows them to adopt specialised laws and regulations for business to business transactions. This specialism creates certainty and thus lower risks and costs.
Jurisdictional neutrality – By being a neutral third country, international investors can trust IFCs as fair mediators of investment. Most investment into developing and emerging markets, such as China and India, is through IFCs. Those destination countries often have weaker protections for investors and unfamiliar laws and processes.