In a frank interview with the Caribbean Review Richard Coles, Chairman of Cayman Finance discusses the impact the current economic climate has had on Cayman as an IFC and where he sees opportunities for growth in Cayman's many financial services.
IFC: How is business in the Cayman Islands?
Richard Coles: Business remains strong. The Cayman Islands has not experienced any significant fallout as a result of the global financial crisis and continues to operate in a very stable environment.
IFC: Is Europe’s current crisis impacting significantly on Cayman?
RC: It is affecting us indirectly as it has global implications. The future of the euro, is creating massive uncertainty in the international financial community. We provide financial services to the global market so naturally this is also a concern to us.
IFC: What is the impact of European regulation (for eg the AIFM Directive) on business in Cayman?
RC: Initially there was the belief that the Alternative Investment Fund Managers Directive may have caused some difficulties for Cayman. This was because the first drafts that were circulated could have restricted European investors from investing in Cayman funds. The final text of the Directive is however more sensible, which means that Europe’s investment funds industry and its use of Cayman structures can focus on recovery from the financial crisis and thereby return to the strong position that it was in before the Directive came into being.
To date we have not had any material negative impact arising from the HIRE Act, though we are monitoring this and other developments closely.
Which areas of Cayman financial services are seeing growth and which less so?
RC: In general, we are confident that clients and investors continue to recognise the Cayman fund product as being a superior value added product. This, coupled with the excellent approach to client service by some of the world’s top firms based in Cayman, keep the jurisdiction in its current position as the world leader in the funds sector.
Clients want excellent service, but they also want high standards of regulation. As a jurisdiction we have been able to strike the right balance to address both needs - an approach which remains one of our strengths as a fund domicile, and as a result, clients’ appetite remains very high for Cayman Island funds.
Recent statistics indicate that despite the global crisis and any redomiciliation developments, the Cayman Islands funds have experienced a less than five per cent decline as compared to its peak of just over 10,000 funds in recent years, indicating that the sector continues to do very well.
In addition, Cayman’s insolvency industry has strengthened considerably in recent years with insolvency law the subject of a major overhaul, bringing the insolvency regime up to date, improving the options available to creditors and formalising the system for cross-border co-operation in insolvency proceedings.
IFC: What would you consider is Cayman’s unique selling point on the world financial stage?
RC: The robustness of our regulatory regime remains one of our key features. Despite any inaccuracies reported in the media, all of the evidence shows that whenever the Cayman Islands are reviewed by the major international standard setting bodies, we are singled out as meeting very high international standards whether these are based on transparency such as the OECD peer reviews or on regulation as evidenced by the many positive comments by the IMF and FATF’s formal reviews of our regulation.
In addition, our professional infrastructure remains unparalleled. We boast many of the top accounting, legal and other financial services professionals in the world. Our wide breadth of services is another important strength. We remain among the top five offshore jurisdictions in the world across banking, captive insurance and the hedge funds and special purpose finance sectors. As far as I am aware no other financial centre achieves these rankings simultaneously across so many areas.
IFC: What is the importance or otherwise of TIEAs and the OECD Peer Reviews?
RC: The Cayman Islands is a member of the OECD Steering Group of the Global Forum on Transparency and Exchange of Information and has already participated in the initial phases of OECD peer reviews of its tax information exchange framework.
OECD Peer reviews vindicate Cayman’s strength in its legislation and regulation of its financial services industry. For example, a recent OECD report praises Cayman’s efforts since last year’s Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Review. The Supplementary Peer Review notes: “The changes rapidly introduced by the Cayman Islands since the 2010 Report demonstrate its commitment to implementing the international standards for transparency and exchange of information.”
Last year’s report identified Cayman’s “well-developed legal and regulatory framework” concerning transparency and information exchange and a second phase of the peer review scheduled for the second half of 2012 will look into further developments in this regard.
The Cayman Islands now has 27 TIEAs in place, the most recent having been signed in October 2011 with the Republic of Argentina.
Underscoring the importance the jurisdiction places on such agreements, at the signing ceremony, Cayman’s Premier McKeeva Bush announced: “The Cayman Islands recognises the value in strengthening its relationships with Argentina and other Latin American countries. Signing this agreement underpins our commitment to building this relationship and boosting the Cayman Islands’ reputation in the Latin American region, thereby ensuring that we remain a favourable and transparent international financial centre.”
IFC: What role do Cayman and other Caribbean IFCs play on the world financial stage?
RC: Jurisdictions such as the Cayman Islands offer many crucial benefits to the world economy as a whole. They help international companies to remain competitive globally; they provide captive insurance solutions to major hospital networks and other companies in the US and they facilitate capital inflows into OECD economies using legal tax neutral structures.
There is often a misperception that the world’s capital is sitting in the Cayman Islands. But the truth is that we facilitate capital movements and investments between countries. In essence we assist in the creation of jobs by providing services and a platform for countries to invest in other economies. When a US company utilises legal structures in the Cayman Islands in its business, it is able to increase its competitiveness against other international competitors. That benefit helps to maintain and create millions of jobs in the US.
IFC: What impact has the US downgrade from AAA status had on Cayman?
RC: Although we have been closely monitoring the situation regarding the US downgrade, so far it does not appear to have caused any major impact on the Cayman Islands industry. That said, developments in the US financial markets will of course impact Cayman funds, as is the case in all of the world’s financial centres.
We have a positive outlook for the industry in the medium term to long term and a stable to positive outlook for the short term. We clearly need to continue to monitor the situation in the financial markets as does any financial services centre.
IFC: Do you think the future of financial services for the Caribbean lies with the BRIC countries and less so with the traditional centres of wealth in the US and Europe?
RC: It is true that the BRIC countries have generally become more important source of business over the years. But it is also true that traditional financial centres such as New York, London and Hong Kong will continue to play an important role in collecting and allocating BRIC wealth.
IFC: What does the future hold for the Cayman Islands as an IFC?
RC: The key to success for this jurisdiction is to maintain high client service standards, to remain innovative with our products, while adhering to international regulatory standards. Whatever changes occur at the global level we will address these by maintaining these attributes. The jurisdiction has continued to do well even with its adjustments to international regulatory changes and irrespective of increased global attention. I anticipate that it will continue to do so.
Mr Coles is an experienced lawyer both in England and in the Cayman Islands, being a Solicitor admitted in England, a Cayman Islands Attorney-at-law and Notary Public. For six years he was the Attorney General for the Cayman Islands, a Member of the Cabinet and Legislative Assembly and a Government Minister, having been appointed to that position on the recommendation of the British Government. He was also acting Governor of the Cayman Islands.