Increased scrutiny of international financial centres in recent years and ongoing pressure to produce solid returns have led institutional investors to make important decisions about where to best direct their investment resources.
Investors are actively searching for unparalleled access to pooled capital to pursue the best investment opportunities combined with a jurisdiction that adheres to the highest legal, regulatory and tax standards. This pursuit has created what is known as a ‘flight to quality’ – investors gravitating to jurisdictions that offer the best investment climate in the most rigorous compliance environment. That flight to quality is increasingly drawing those institutional investors to the Cayman Islands.
The Global Financial Centres Index (GFCI 22) reflected the trend this year with its ranking of the Cayman Islands as the 31st best financial centre in the world, out of 108 jurisdictions in total. Cayman’s ranking was the second highest among all UK Overseas Territories and Crown Dependencies and was one of only ten centres from outside the G20 to be included in the top 31 rankings.
The GFCI 22 ranking was a gratifying, if unsurprising, mark of the success of our decades-long commitment to being a leading international financial centre. The Cayman Islands is a premier global financial hub, playing a critical role in the success of the global economy by connecting law-abiding users and providers of capital and finance. Our jurisdiction offers unsurpassed access to global capital and investment opportunities. Approximately two-thirds of the world’s hedge funds and more than 20,000 private equity investment vehicles are domiciled in Cayman. An OECD Global Forum report this year estimated that in 2014, Cayman attracted at least US$4.1 trillion in banking assets, direct investment and portfolio investment.
Cayman also offers investors unmatched diversification. We are not only the leading jurisdiction for international hedge funds, as noted above. Cayman is also the second largest domicile in the world for captives, the number one domicile for healthcare captives and a leading jurisdiction for banking, trusts, capital markets and fiduciary services. As the world's second largest captive insurance company domicile and the leading jurisdiction for healthcare captives, Cayman is also a leader in the Insurance Linked Securities space, meshing expertise in securitisation, insurance and capital markets to create the most innovative structures, addressing the most complex risk scenarios.
This superior marketplace is also served by the world’s top professionals in areas such as corporate and director services, legal services, public accounting, banking, wealth and asset management. The growth in Cayman’s financial services industry is a clear reflection of the quality of our professionals. In addition to attracting investment, they have also attracted the praise of their peers. Cayman has been ranked as the top specialized financial centre by The Banker for nine years in a row. We have also been voted best hedge fund services jurisdiction and top offshore captive domicile. They are vital to the success of our industry and our culture of compliance.
Compliance is a key attraction in the flight to quality. As described above, investment opportunities alone are not enough to draw today’s leading institutional investors. They want to ensure their investments are also meeting the highest international standards, and here again Cayman leads the way.
Cayman is a transparent jurisdiction which meets or exceeds the full range of globally-accepted standards for transparency and cross-border cooperation with law enforcement and tax authorities. In fact, Cayman has adopted more (of the nearly twenty) global financial standards than any other G20 country or international financial centre. These standards include the European Union Savings Directive, US FATCA and the Common Reporting Standard. Cayman also has signed up to the country-by-country reporting principles under the BEPS process. Cayman does not meet any definition of a tax haven.
A foundational element of Cayman’s commitment to transparency is our verified beneficial ownership regime. The Cayman Islands is a leader in beneficial ownership standards, having had a world class verified beneficial ownership regime in place for more than 15 years.
What distinguishes the Cayman Islands regime apart from most others around the world is that the information in our system is collected and verified by licensed Cayman Islands’ corporate service providers under existing anti-money laundering and know-your-customer laws. Many beneficial ownership registries – including central public registers -- rely on self-reported information, which can be less complete and accurate. The information Cayman requires to be collected is available to the authorities making proper requests to Cayman Islands’ authorities through existing information sharing channels between the Cayman Islands’ government and the UK as well as other countries.
Cayman leadership on global standards is why it was rated this year by the OECD’s Global Forum as ‘largely compliant’ for transparency and exchange of information, the same rating the OCED gave to other countries such as Germany, Canada and Australia. It’s also why a flight to quality is attracting investors to Cayman.
The flight to quality doesn’t have a permanent destination. Institutional investors are coming to Cayman because of the investment opportunities and culture of compliance we have built. But we know that if we fail to maintain our leadership, investors will look to other jurisdictions that have. That’s why we’re committed to continuing our focus on innovation.
An area that we see as key for continued innovation by Cayman is financial technology or Fintech. No other element of financial services threatens to disrupt the current investment and regulatory framework more than Fintech. From mobile banking to peer-to-peer investment services, FinTech will introduce a level of mobility, speed and possibly even anonymity that simply don’t exist right now. Jurisdictions that actively begin to adjust their business, legal and regulatory practices to match the changes Fintech will produce will be able to establish themselves as centres of excellence in the new marketplace.
Cayman is focused on specific aspects of Fintech that fit synergistically within the Cayman business model – specifically ‘smart Fintech regulation’. Smart Fintech regulation will be the unlocking mechanism that allows the new technology to be successfully utilised within the financial services industry. In particular Cayman is focused on the development of a certified digital identity platform which can improve business efficiency and quality, streamline costs and support effective regulation. Cayman is in a leading and unique position to influence the development of a global standard and be the global leader in digital identity in Fintech based on its current role as the premier global financial hub.
Our approach on Fintech is just one example of how Cayman is positioning itself as an attractive destination for investors engaged in a flight to quality. Much more work needs to be done. But we are confident and optimistic due to the extensive progress Cayman has already made over many years.
Jude is well respected locally and globally having spoken internationally on financial services topics and featured on a number of occasions in international media. He retired as an Audit Partner in 2008 after spending over 23 years with Ernst & Young. As the Global CEO of Maples and Calder, he took an active role in the strategic growth and development of the firm. Jude has extensive experience within the Cayman Islands financial services industry, having served on various Cayman Islands Government and private sector committees. He has served as the CEO of Cayman Finance since 2014.