Cayman Islands Financial Services

The founder of a purported New Jersey real-estate investment business, NJ Affordable Homes Corp., was sentenced to 18 years in prison for defrauding mortgage lenders and investors of USD 100 million through a Ponzi scheme.

In April 2009, 61-year-old Wayne Puff admitted in federal court in Newark, New Jersey, that he conspired from 1998 to 2005 to get USD 120 million from investors by falsely touting the company’s profits as well as relying on phony mortgage documents.

Wayne Puff promised investors annual returns of 22%, however he defrauded lenders including Washington Mutual Inc., Greenpoint Mortgage Funding Inc. and Credit Suisse Group AG. Puff admitted using investor money to pay for trips to the Cayman Islands as well as credit-card expenses, restaurants and investor lawsuit settlements.

New guidelines have been published by Malta. These are guidelines for redomiciling offshore funds to the jurisdiction that were issued because of growing demand from providers for its services.

According to Malta Financial Services Authority (MFSA), the island’s financial regulator, the guidance provided “a simple, one-stop procedure to be followed by funds intending to redomicile to Malta.”

Malta said that one of the attractions for fund managers was that its regime allows to have external administrators and custodians, while other offshore jurisdictions require local service providers to be used. The number of non-Maltese fund managers licensed by the MFSA at the end of 2009 was 66, and 11 out of these had transferred from offshore centres including the Cayman Islands as well as Jersey, Guernsey, and Bermuda.

Starting on January 4, customs tariffs on nearly all dutiable imports within the Cayman Islands increased.

However, the imported items that were not subject to tariffs previously remained duty free. Also, the tariff increase does not apply to gasoline and diesel fuel.

For most imported products that are subject to duty the increase will be 2%, but this increase in duty is not entirely across the board.

According to the US press, paticularly the Examiner, Interpol will not be arresting American citizens on their own soil, without oversight from our own law enforcement agencies. On December 30, 2009, the paper said that a left-wing coup is not underway, and there will be no liberal-run Gulags or concentration camps. The paper suggested that, instead, there will be more cooperation between the United States and Interpol in finding hidden Cayman bank accounts.

The government of the Cayman Islands has recently announced that it is planning to develop legislation with a view to regulate the way personal information is collected and processed by businesses and organizations.

This step will be taken in order to ensure that data privacy is maintained. Also, the new legislation will ensure that individuals are able to access their own personal information held by government entities and private sector groups. The accuracy of such data will be required.

A data protection working group has been appointed by the Cabinet and met in order to consider a framework for introducing such legislation.

According to David Archbold, Chairman from the Information and Communications Technology Authority (ICTA), this group is currently reviewing laws from other jurisdictions that might be relevant to the local situation as well as is developing policy recommendations. He said that “The law will impose requirements on ‘data controllers’ to handle personal information fairly and lawfully.” Also, he noted that “Personal data may only be collected, used, stored and accessed for specified purposes, and must always be adequately safeguarded. Data controllers will be accountable for complying with these principles and liable for breaches, such as unauthorized use or disclosure”.

The group will submit its recommendations to the Cabinet Secretary and Attorney General for an approach to the introduction of such legislation In early 2010. Also, a paper on key issues will be prtepared by the group for public consultation.

The International Monetary Fund (IMF) has observed substantial progress made by the Cayman Islands in the sphere of financial sector regulation. This was stated in IMF’s latest report on the Cayman Islands.

Progress areas identified in the report include changes to legislation, rules and guidance to meet international standards, increases in the Cayman Islands Monetary Authority (CIMA) independence, resources and efficiency, and increased transparency of the funds sector reached by implementing CIMA’s electronic reporting system.

The report provides recommendations for enhancements in 10 areas but it acknowledges that they “are broadly consistent with the priorities already identified by the authorities and in most cases where policy action is already underway.”

The main recommendations of the report are as follows:
- strengthen the legislative structure for the independence of CIMA, beginning with passage of the pending draft amendments to the Monetary Authority Law;
- conduct a formal risk assessment and focus CIMA’s supervisory efforts more directly on the key risks facing the jurisdiction, such as operational and reputation risk;
- formalize and validate the assumptions underlying CIMA’s supervisory approach that relies on the strength of supervision applied elsewhere and the contribution of licensees and other domestic professionals to the oversight of financial intermediaries;
- formulate a robust framework for supervising licensees cross-border and cross-sectorally to help prevent regulatory arbitrage or supervisory gaps;
- draw up contingency plans to handle the failure of important institutions;
- make CIMA’s enforcement powers consistent across all administered legislation and set the monetary penalties high enough to make them effective and dissuasive;
- review the human resource budgeting policy and reassess the process regularly to ensure the continued adequacy and quality of regulatory resources;
- monitor international developments to ensure that the regulatory regime in the jurisdiction incorporates elements of international best practice as it evolves;
- enhance regulatory reporting and disclosure requirements of financial entities;
- implement a risk-based solvency regime for the insurance industry.

It should be noted that the report is based on information that was obtained on March 2-13 during the IMF’s mission to Cayman, as well as on consultations with CIMA. The mission aimed to review developments in the jurisdiction’s supervisory and regulatory framework since the 1st assessment in October 2003. These jurisdictional reviews are part of the Fund’s offshore financial sector assessment program.

The government of the Cayman Islands has announced that a comprehensive public service review will be launched in the middle of December. All government services, including those delivered by government companies and statutory authorities, will be scrutinized by review teams.

The 1st 4 government agencies that will be assessed are as follows:
Her Majesty’s Prison Service,
the Department of Tourism,
Public Works,
Cayman Islands National Insurance Company.

In order to form 4 Review Teams, 17 civil servants have been selected. Also, the private sector has been asked to provide support for the teams. The Teams are to be trained and developed by an external trainer. In January 2010, reports on the findings of the reviews are to be delivered.

This review is part of an agreement between the Cayman Government and the UK Foreign and Commonwealth Office and it follows the approval of Cayman’s borrowing request earlier in 2009.

On December 2, 2009, the Cayman Islands Legislative Assembly passed the Money Services Amendment Bill, 2009. This bill amends fees payable by financial services businesses.

The effect of the amending legislation, coupled with associated Regulations that the Cabinet passed on December 1, will be to:
- increase the annual license fee payable by money services businesses to KYD 10 000 (USD 12 345);
- introduce an annual fee of KYD 1 000 for each additional subsidiary, branch, agency or representative office that a money services business operates;
- introduce a new transaction fee payable to the government, equal to 2% of the gross amount transferred overseas by a money services business on behalf of its customers, but this fee cannot exceed KYD 10 per transaction.

Financial Secretary Kenneth Jefferson commented that “the Money Services Law makes it clear that banks, building societies and cooperative societies do not fall within its ambit”. So, wire transfers, drafts and overnight funds in the banking system are not subject to the new transaction fee.

When published in the Gazette, the bill will become law.

As discussed previously, the new statistics recently announced for economic activity in the Cayman Islands as at Quarter 2 2009 revealed further deterioration, which is the result of the global financial downturn.

The statistics showed that the Cayman Islands financial services sector went on bearing the brunt of the global financial shock in the 1st half of 2009. A downward trend was obserbed in total mutual fund licensees, listings on the stock exchange for mutual funds, specialist debt and international equity, bank and trust company licenses, and new company registrations. However, there was a growth in the captive insurance market, trust licenses, Eurobonds and stock exchange listings.

As regards banks and trusts in the Cayman Islands, they were negatively influenced by efficiency-driven global consolidations.

Europe and the United States are the main participants in Cayman’s banking industry – Europe accounts for 29.4% and the US for 27.5% of banking licensees. South America accounts for 16.4%; Asia and Australia – 10.0%; Caribbean and Central America – 7.8%; Canada and Mexico – 5.2%; and Middle East and Africa – 3.7%.

The combined net foreign assets of the Cayman Islands Monetary Authority (CIMA) and the domestic commercial banking sector improved by 9.6% year-on-year at Quarter 2 2009.

The number of Cayman insurance company businesses increased by 15 year-on-year at Quarter 2. At the end of June 2009, premiums for captive insurance reached USD 7.99 billion, which is an increase of about USD 350 million from June 2008.

The Cayman Islands has recently announced statistics for economic activity as at Quarter 2 2009. The new statistics revealed further deterioration, which is the result of the global financial downturn.

According to the newly published data, the overall fiscal deficit widened to KY$ 80.8 million (which is USD 98.5 million) in the 1st half of 2009 as compared to KY$ 1.6 million for the same period a year ago, as total expenditure grew by 10.4% and revenues fell by 13.7%

Direct revenues, which totaled KY$ 260.9 million, fell by KY$ 32.1 million or 10.9% below receipts in the preceding year, while indirect revenue amounted to KY$ 22.9 million, which is the decrease of 35.9%. With the only exception which is fines, all revenue sources declined, most notably taxes from international trade and transactions (-15.7%) and taxes on domestic property (-50.9%).

Capital expenditure and net lending increased significantly by 24.7% over the period June 2008 through to June 2009. There was a 1.8% rise in current expenditure precipitated by strong growth in personnel costs, interest payments, subsidies, and transfer payments.

Personnel costs increased to KY$ 123.4 million, which is higher by 8.3%as compared with a year ago.

As regards new company registration, at Quarter 1 2009, total new company registrations were at 3 679, which is a record 46.2% decline as compared with Quarter 1 2008.