Cayman Islands Financial Services

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.

Law firm Conyers Dill and Pearman was recently responding to recent changes to the Cayman Islands Monetary Authority (CIMA) Guidance Notes with regard to Prevention and Detection of Money Laundering and Terrorist Financing.

The law firm has suggested that the amendment requires each registered fund to appoint a Compliance Officer by resolution as well as to ensure that the officer’s role is precisely defined.

According to Conyers Dill and Pearman, funds must appoint a Compliance Officer and a Money Laundering Reporting Officer who:
has sufficient skills and experience;
reports directly to the fund’s governing body;
has sufficient seniority and authority;
has regular contact with the governing body;
has sufficient resources;
has unfettered access to all business lines, support departments and information necessary to perform the function.

According to the Guidance Notes, the role of the Compliance Officer is to:
develop and maintain systems and controls (including documented policies and procedures) in line with evolving requirements;
ensure regular audits of the fund’s anti-money laundering and countering the financing of terrorism program;
advise the Operator of the fund of anti-money laundering/ countering the financing of terrorism compliance issues that need to be brought to its attention;
report periodically, as appropriate, on the fund’s systems and controls; and
respond promptly to requests for information by the relevant authorities.

The Cayman Islands Monetary Authority (CIMA) Managing Director, Cindy Scotland, and Joel Jefferson, son of the late statesman, awarded first recipient of the CIMA Thomas Jefferson Memorial Scholarship. The student to get the scholarship was Heidi Bush - an 18-year-old girl from East End.

Cindy Scotland said that the CIMA was pleased to sponsor Ms Bush as she has already proven her strong academic potential.

The Thomas Jefferson Memorial Scholarship was established in November 2007 as part of CIMA’s 10th anniversary celebrations with a view to assist young Caymanians seeking qualifications for a career in the financial industry.

On August 7, 2009, ICFA Magazine published an article entitled “Growing Stronger”
that analysed the challenges that face the hedge fund industry in the Cayman Islands. Generally, fund administrators in the jurisdiction are positive about the future, however, the problematic aspects of hedge fund industry are definitely worth discussion.

The article pointed out that Cayman as a hedge funds jurisdiction is thriving.

Carlyle McLaughlin, chairman of the Cayman Islands Monetary Authority (CIMA), suggests that the jurisdiction is at a crossroads, and it will be able to find a productive niche that will guarantee its future as an international financial centre. However, the Authority expects that there will be many changes that are necessary to reflect tighter onshore deregulation of funds and the necessity of greater overall transparency for the industry. Cindy Scotland, CIMA managing director, believes that every situation and every crisis presents opportunities. She thinks that the Cayman Islands will be able to remain a key player in the global financial market but it will provide new products and services.

It should be noted that the Cayman Islands has a higher concentration of industry experts than any other hedge fund domicile. Also, it has the determination and political will to go ahead of the field. Despite the possible furhther unjustified attacks on the jurisdiction, its private sector and the government are determined to keep the international financial centre not only existent but also thriving in the new global economic environment. Many challenges face the fund administration sector because the hedge fund industry goes through a period of intense and extraordinary change in general.

The article says that “for Cayman fund administrators the landscape was already changing before the events of 2008”. Although maintaining a presence in the jurisdictions, some administrators found it too costly and ime-consuming to keep staff and bring in new workers.

So, the future of the hedge fund industry remains unsettled. But fund administrators in Cayman believe that they will remain a key part of the offering. Despite the fact that many administrators have slimmed down operations and moved the bulk of work to the United States, Canada or other countries, all administrators believe that maintaining a presence in the jurisdiction is essential.

Of course, few would like to predict what awaits the jurisdiction over the next 12 months, but, nevertheless, all administrators are confident that, whatever obstacles onshore governments and regulators may throw at the Cayman Islands, it will survive as a hedge fund jurisdiction of prominence.

The Maritime Authority of the Cayman Islands (MACI), the parent organization of the Cayman Islands Shipping Registry, hosted the Annual Caribbean Memorandum of Understanding (CMOU) Port State Control Seminar for port state control officers.
The seminar had the purpose to promote better consistency throughout the region, and develop the port state control activities within the CMOU. It was attended by delegates from Antigua and Barbuda, the Bahamas, Barbados, Grenada, Guyana, Jamaica, the Netherlands Antilles, Suriname, and the U.S. The delegates from the Maritime Authority of CI included Mr. Duncan Currie, Senior Surveyor; Saagar Kadiyala, Surveyor Trainee; Vassel Johnson III, Surveyor Intern, and Krista Dixon, Maritime Officer, Survey Administration. The Inaugural Seminar’s Chairman was Peter Southgate, MACI Deputy Divisional Director, Global Safety and Compliance.
The seminar was organized as an interactive event, contributed from high profile international speakers from Finnish Maritime Administration, the American Bureau of Shipping, Lloyd’s Register – North America.
Among the topic discussed there was an update on activities by the CMOU Secretariat; the Paris Memorandum of Understanding (PMOU); MARPOL (International Convention on the Prevention of Pollution from Ships); Port State Control (PSC) Measures, Prevention, and Deficiencies; Oil Tanker related issues; the AFS (Anti-Fouling Systems) Convention; a Statutory Update with respect to PSC enforcement; the BWM (Ballast Water Management) Convention, and a workshop on Lifeboat Safety.
Port State Control is conducted by maritime authorities in order to ensure that the condition, equipment and operation of foreign ships that call into national ports comply with requirements of international regulations.

The Cayman Islands Monetary Authority (CIMA) has become the 189th member of the International Organization of Securities Commissions (IOSCO). IOSCO is the global standard setting body for the regulation of securities markets that aims to encompass cooperation and information exchange, standard setting and surveillance, and mutual assistance.

On June 10, 2009, during the meeting of the Presidents’ Committee at IOSCO’s 34th Annual Conference in Tel Aviv, Israel, the Authority was formally admitted as an ordinary member.

Now, CIMA officially becomes a party to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation, Cooperation and the Exchange of Information. The Multilateral Memorandum of Understanding was signed by CIMA on March 24, 2009, and it is the benchmark for international cooperation among securities regulators.

CIMA’s Managing Director, Cindy Scotland, told the IOSCO President’s Committee that the formal admission of CIMA into IOSCO marked the culmination of a period of mutual engagement, dialogue and action by our two bodies. Accoding to her, it is “a testament to the good faith of both sides in seeing the process through, and is an example of what can be accomplished when international standard setters engage jurisdictions as equal partners with a common objective”.

She added that the move “represents a strong validation by IOSCO of our ability and our willingness to engage other regulators to facilitate cross-border information exchange and assistance.”

CIMA’s Deputy Managing Director – General Counsel, Langston Sibblies, explained that IOSCO membership has significant commercial benefits for the jurisdiction. He said, “Some countries either do not allow investment vehicles from non-IOSCO member countries to be sold in their jurisdictions or will require greatly enhanced due diligence which makes it more difficult to do business with those jurisdictions. IOSCO membership will remove these impediments and open up these markets for Cayman-domiciled securities providers. This is a development our private sector has looked forward to for a long time. It will be welcomed by the private sector.”

The Maritime Authority of the Cayman Islands (MACI), parent organization of the Cayman Islands Shipping Registry (CISR), has recently received news that the CISR has maintained its prestigious “white-listed” status on the Paris Memorandum of Understanding on Port State Control.

In accordance with the MACI’s CEO, Mr A. Joel Walton, Paris is one of the most significant Memorandums of Understanding all over the world, and being on its “White List” means a global recognition to the high standing of the Cayman Islands Shipping Registry.

The Paris Memorandum of Understanding consists of 27 participants – maritime Administrations, including Maritime Authorities of Canada, Russian Federation, Norway, Sweden, Denmark, Finland, Poland, Portugal, Croatia, Cyprus,, Belgium, Bulgaria, Estonia,, France, Germany, Greece, Iceland, Ireland, Italy, Latvia, Lithuania, Malta, Netherlands, Romania, Slovenia, Spain, and the United Kingdom. It covers the waters of the European coastal States and the North Atlantic basin from North America to Europe.

The George Town headquarters of the Maritime Authority of the Cayman Islands (MACI), parent organization of the Cayman Islands Shipping Registry (CISR), and its European Regional Office in Southampton, UK, recently exchanged congratulations on the announcement of the “White List” status of Cayman Islands Shipping Registry (CISR). The CISR attained it under the Tokyo Memorandum of Understanding on Port State Control.

18 countries have signed the above-mentioned Memorandum of Understanding. These include Japan, China, Australia, New Zealand, Russia, Canada, Chile, and Republic of Korea.

It should be noted that previously the CISR was on the “Grey List”, and therefore it had worked hard with a view to achieve the top ranking.

The MACI’s CEO, Mr. A. Joel Walton, said that this was one of the most important Memoranda of Understanding internationally, and noted that it brings further recognition to the high standing of the Cayman Islands Shipping Registry.

On May 5, 2009, the Cayman Islands Financial Services Association (CIFSA) issued an open letter to US President Barack Obama.

CIFSA’s letter was as follows:

We are pleased with your announcement that the United States intends to restore balance and fairness to its global tax policy. We agree with your focus on preventing tax fraud and evasion; ensuring that every corporation pays its fair and lawful share is important. We stand with you in favoring effective prevention of tax fraud and evasion and maximum transparency between tax jurisdictions, including the Cayman Islands.

We are, however, gravely concerned about your remarks regarding the Cayman Islands, which erroneously suggest that the subsidiaries of U.S. corporations operating in Cayman are engaging in tax fraud merely because they are registered to do business here. Nothing could be further from the truth.

We believe that Cayman-based corporate subsidiaries operate legally and transparently and are aware of no information to the contrary. The Cayman Islands has a low tax rate, just as do Ireland and other jurisdictions. That is not a bad thing; it certainly is not the basis upon which to suggest illegality in the form of tax evasion.

Tax deferral arises, as you know, from current provisions of U.S. tax law that were designed to provide a competitive advantage to American companies in global trade. But this is not fraud, evasion or artificial avoidance. Historically, deferral has been used by some U.S. companies to boost the capital they have available for reinvestment, expansion and job creation. We fully recognize that the issue of tax deferral is a matter for the U.S. Government to determine, and we state no view on that subject.

We do feel compelled to note that, for over 20 years, the Cayman Islands has been a model of cooperation with the United States and, indeed, the world. We have worked cooperatively on every international initiative from the United States, the IMF, the OECD and the FATF to create a financial regulatory structure that is robust, accountable, transparent and fair. We take our obligations in this regard very seriously. Notably, there has not been a single bank failure in the Cayman Islands during this financial crisis and none of the financial recklessness that has brought about much of the current global crisis occurred in or involved the Cayman Islands. Rather, to the contrary, the investments which flow from the 12,000 companies involved with the United States have provided trillions of dollars of international investment to U.S. financial institutions at a critical period, and have done so in a fully transparent manner.

Specifically, since 2005, the Cayman Islands has had a fully informative tax information exchange arrangement under the European Union Savings Directive (EUSD) with all 27 European countries. In 1990, Cayman entered into a fully transparent all crimes Mutual Legal Assistance Treaty with the U.S. and, in 2001, a comprehensive U.S. Tax Information Exchange Agreement. We are actively pursuing additional information sharing agreements with additional jurisdictions. We are eager to work with your Administration to take further steps as necessary to promote transparency and tax law compliance.

Moving forward, we hope you will provide us the opportunity to provide you and your Administration a fuller description of the efforts the Cayman financial industry has taken to promote transparency and accountability. We are confident that this will enable you to share our conclusion that U.S. citizens do not use the Cayman Islands to evade tax.

Mr. President, we share your concern that the global financial markets work transparently, safely and to the benefit of all participants. We look forward, as we always have, to working with you toward this goal.

The Cayman Islands Financial Services Association has denounced the OECD’s decision to include the Cayman Islands into its “grey” list despite its obvious commitment to the OECD standard.

The CIFSA has expressed its disappointment to see the Cayman’s inclusion in the OECD grey list as it had previously hoped that “the OECD would undertake a rational objective analysis of the tax transparency established by the Cayman Islands over the past decade”. According to CIFSA’s announcement, “In reverting to its political origins, the OECD has not improved its credibility and indeed in acting in an arbitrary and prejudicial manner raises questions about the value that is attributed by the G20 to the cooperation in tax and criminal matters that the Cayman Islands has demonstrated.”

The CIFSA claimed that the jurisdiction has full and relevant tax transparency not only with the USA under the November 2001 Tax Information Exchange Agreement but also “proactive reporting with 27 European Union nations under the 2005 European Union Savings Tax Directive, the figures for which, not incidentally, show monetarily and fiscally insignificant deposits by European residents in the Cayman Islands”.

The Cayman Islands Financial Services Association stated, “However we are encouraged to see that the OECD has now set an objective test for positioning on the ‘white’ list which is less than the total number of tax exchange arrangements that the Cayman Islands currently has in place. Accordingly, since the Cayman Islands government has throughout maintained its commitment to execution of further bilateral treaties, assuming its approaches are met in good faith, we anticipate that the OECD will be obliged to remove Cayman from its current list swiftly.”