Dr Dax Basdeo, Chief Officer (Financial Services), Ministry of Finance, Cayman Islands Government
Dax Basdeo highlights how the Cayman Islands has strengthened its reputation as major financial centre.
The Cayman Islands’ international recognition as a world-class financial centre is built on 40 years of stability, quality and integrity in the financial services industry. Its ability to provide an effective and cost-efficient, tax-neutral platform for international capital flows contributes to its competitive strength.
Today the jurisdiction’s main sectors include banking, investment funds, captive insurance, companies and partnerships, trusts, structured finance, vessel and aircraft registration, and the Cayman Islands Stock Exchange. This complete array of financial services products is supported by excellent professional infrastructure in an environment of economic and political stability.
Further enhancing Cayman’s strength is the jurisdiction’s engagement in the vigorous international cooperation regime, complemented by robust anti-money laundering (AML) and countering of terrorist financing (CFT) programmes.
Third-party standard-setting bodies such as the Caribbean Financial Action Task Force (CFATF), the International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development (OECD) have deemed the Cayman Islands as having a “healthy compliance culture” in regards to AML/CFT requirements. These bodies have endorsed the jurisdiction for its “comprehensive legal framework” in this area.
The Global Forum Phase 1 Peer Review Report, published in June 2011, stated that the Cayman Islands’ legal and regulatory framework was in compliance with all nine essential elements of international tax transparency and exchange of information standards, as set by the Global Forum for its Phase 1 assessments. Also, the jurisdiction’s supplementary report was adopted by the OECD in 2011.
As of 31 December 2011, the Cayman Islands had 27 tax information exchange agreements (TIEAs), many with G20, G7 and OECD member countries. Specifically, it has TIEAs in place with Aruba, Argentina, Australia*, Canada*, China, Curacao, Denmark*, Faroe Islands, Finland*, France*, Germany*, Greenland, Guernsey, Iceland, India, Ireland*, Japan, Mexico, the Netherlands*, New Zealand, Norway*, Portugal*, Sint Maarten, South Africa, Sweden*, the United States* and the United Kingdom*[i] .
The Cayman Islands was also recently evaluated and commended by the Financial Stability Board (FSB) for its adherence to global regulatory and supervisory standards on international cooperation and information exchange. The FSB assessed the jurisdiction as being “sufficiently strong”, which is the highest assessment it grants.
The assessment ranked the jurisdiction highly on a combination of economic and financial indicators such as domestic and external financial assets; gross capital flows; and cross-border interbank, pension fund, and hedge fund assets.
For the third consecutive year in the banking sector, financial services magazine The Banker rated the Cayman Islands as the top specialised banking centre in their 2011 edition of IFC rankings, focusing on the level of international business and the value offered to institutions seeking to expand their overseas operations. The regulatory body for this sector, the Cayman Islands Monetary Authority (CIMA), reported that as of June 2011 the Cayman Islands ranked fifth internationally, based on the value of cross-border liabilities booked from the Cayman Islands (US$1.697 trillion); and sixth in terms of international assets booked (US$1.656 trillion).
CIMA also regulates the insurance sector. The Cayman Islands is a leading domicile for healthcare captives - as of year end 2011, there were 730 total captives licensed, 14 of which were licensed in 2011 alone – a 93 per cent increase over 2010. Total premiums stood at US$9.6 billion, which is the highest in CIMA’s history, and total assets stood at US$58.5 billion.
The recently enhanced Insurance Law (2010) has made provisions for two new categories of insurer licences – class C (special purpose vehicles) and Class D (reinsurers); whistle-blowing provisions; domestic policyholder protections; increased penalties; and increased powers for CIMA, as the regulator. The regulations are expected to be in force by early 2012, positioning the jurisdiction to meet market demand for an increasingly diverse suite of reinsurance products, and adding a new dimension to the industry.
Another important asset to the Cayman Islands financial services industry is its first-class shipping registry. The Maritime Authority of the Cayman Islands (MACI) is a Category 1 British Registry operating in the Cayman Islands, the UK, Greece, US, Monaco, Japan, Singapore and Hong Kong.
MACI is a world leader in the registration of superyachts, with 75 per cent of the vessels in its register being private yachts. As of December 2011, it registered 273 commercial ships and 1,718 pleasure vessels (including pleasure yachts engaged in trade), representing a total tonnage of 4.03 million.
MACI participates in a number of annual international boat shows, including the Monaco Yacht Show and the Fort Lauderdale International Boat Show. It is the flag state sponsor at the Global Superyacht Forum.
The Cayman Islands Aircraft Registry is also highly recognised and respected internationally. The aircraft registry is a major pillar of the Cayman Islands financial services industry, registering 185 commercial aircraft ranging from Cessna Citations, Gulfstreams, Embraers and Boeing Business Jets. The Civil Aviation Authority is responsible for the economic regulation of the aviation sector in accordance with international aviation standards, and works in close partnership with a specialised group of legal and financial firms as well as Cayman Islands Government authorities.
The hedge funds sector sets the Cayman Islands apart in global finance, demonstrated by the high level of service and offerings by local fund managers. Cayman is the largest funds domicile in the world, with more than 9,400 registered funds in September 2011, capturing an estimated 70 per cent of the global hedge funds market.
This performance was a factor in a December 2011 Service Provider’s Rankings survey conducted by Hedge Funds Review magazine, which rated the Cayman Islands as the most favoured domicile for funds. The survey measured how market professionals viewed their service providers in terms of overall quality of service, polling more than 1,000 single-manager hedge funds and investments. The Cayman Islands is therefore the location of choice for fund administrators, favoured for its innovation, responsiveness, quality infrastructure and sound regulation.
The four types of mutual funds offered under the Mutual Funds Law are targeted at institutional and sophisticated clients; the law provides flexibility in the area of investment objectives and fund structure, as well as effective regulation by CIMA.
The Cayman Islands Stock Exchange (CSX) is a top-notch listing facility for funds, with more than 3,000 current issues approved for listing. As one of the fastest-growing international stock exchanges, CSX provides a secondary listing facility and an offshore trading venue in the North American time zone for companies listed and traded on other recognised exchanges. Listings on CSX are inexpensive, efficient and effective ways to add credibility, marketing value and a higher profile to fund offerings. Advantages include enhanced access to institutional capital, as well as listing rules tailored to accommodate the latest structures and products; they do not impose unnecessarily onerous conditions and restrictions, and are not bound by the EU Prospectus Directive.
Cayman Islands investment funds and companies play a valuable role in facilitating global flow of investment capital. They provide essential liquidity, investment opportunities and access to capital markets in major developed economies and emerging market economies.
Business development in the Cayman Islands is also progressing steadily. One such example of this is the development of a special economic zone, designed to promote a free-market business environment through the creation of knowledge-based industries for commerce and education. Comprising six campuses, Cayman Enterprise City will represent the largest information and communications technology cluster in the Caribbean region. It is expected to host a community of IT companies, including Fortune 500 brands, and be positioned as a strategic base for companies targeting emerging markets.
Similarly, another major new industry for the Cayman Islands is medical tourism, with the development of the Narayana Cayman University Medical Centre. Involved in this project are a well-known Caymanian developer and Dr Devi Shetty, world renowned heart surgeon. Narayana Cayman has three focus areas – the hospital, a university to train medical staff, and an assisted living community. Starting this year, the project is expected to be constructed in phases over the next 15 years, through private financing.
The ForCayman Alliance project is an initiative that would be of significant value to the country. Plans are for inward investments of more than US$35 million, to further enhance Cayman’s roads infrastructure; and to redevelop the hotel property that was held by Courtyard Marriott, with an estimated minimum investment of US$50 million.
Together, these projects are expected to bring major benefits to the Cayman Islands, domestically and internationally, through employment creation, potential investments and service offerings.
The Cayman Islands financial services sector is a top choice in the global financial landscape. Exceptional service providers and quality service offerings, complemented by solid infrastructure and continuous business development opportunities, pave the way for future business endeavours. Across all sectors, the Cayman Islands has captured significant market share, as it effectively builds on its sound regulatory and legislative environments to meet global demands.
[i] * Agreements in force
Dr Dax Basdeo, Chief Officer (Financial Services), Ministry of Finance, Cayman Islands Government