Cayman Islands Financial Services

In the middle of February, Maples and Calder made an announcement that Jon Fowler has been appointed as the head of its investment funds group in the Cayman Islands.

Maples and Calder is ranked as the number-1 law firm in the HFMWeek Offshore Legal Survey 2010, which is a survey of offshore law firms that is based on feedback received from onshore hedge fund professionals. According to this survey, most of onshore lawyers rated Maples extremely highly.

Fowler said that Maples and Calder was not just an offshore firm. The firm also has a significant presence in Dublin where it is working with its traditional onshore instructing counsel. According to a recent Lipper survey, the Irish practice, headed by Barry McGrath, increased its market share by over 320%. It is worth noting that it was the only Irish law company that have managed to increase its market share ranking as legal adviser to both domiciled and non-domiciled investment funds for that year.

Maples and Calder is a leading international law firm providing advice on the laws of the Cayman Islands, the British Virgin Islands and Ireland. It has offices in the Cayman Islands, the British Virgin Islands, Hong Kong, Dubai, Dublin, and London. In addition to legal services, the firm offers management, accounting and administration services to structured finance vehicles and investment funds through Maples Finance Limited, which has offices in the Cayman Islands, the British Virgin Islands, Hong Kong, Canada, Dubai, Dublin, and Luxembourg.

Insurance company United America Indemnity Ltd. has recently announced that it wants to shift its legal home from the offshore financial jurisdiction of Cayman Islands to Ireland.

The Cayman-based insurer is going to ask shareholder to approve the change of place of incorporation at an upcoming meeting.

As to reasons, the insurer says that Ireland offers a sophisticated regulatory environment as well as an extensive network of international treaties, among other reasons. Previously, the insurance company had been considering to move to Switzerland. However, it was finally decided to become a wholly-owned subsidiary of Irish company Global Indemnity PLC.

Earlier this month, Seagate Technology announced its plans to move its legal place of incorporation to Ireland from the Cayman Islands. The reason was the increased international scrutiny of offshore tax havens. It said that, according to proposed US legislation and regulatory measures, tax burden could be increased for companies incorporated in the Cayman Islands.

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 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.