Cayman Islands Financial Services

According to one of the most significant anti-money laundering reports in recent years, Cayman has a good compliance.

The Caribbean Financial Action Task Force (CFATF) has rated the offshore jurisdiction above average in compliance with 49 standards for anti-money laundering and counter-terrorist financing.

The CFATF report was released in the middle of December and consists of 163 pages. The report declares that Cayman is “compliant” or “largely compliant” with 38 of 40 standing recommendations for anti-money laundering, and with 6 of another 9 recommendations for counter-terrorist financing.

Executive director of the CFATF secretariat Calvin Wilson said that this is a big change as the ratings are extremely good. He said, “Cayman has a strong culture of compliance, not just in the public sector, but also in the private”.

It is also worth noting that Financial Secretary Kenneth Jefferson welcomed the report. He said that it validates the Cayman’s “sustained and serious approach to compliance with international standards”.

On December 10, 2007, the board of directors of Butterfield Bank met in the Cayman Islands at the press briefing to mark the opening of Butterfield Place. It was the first time they met in Cayman in 25 years, which stresses the importance of the jurisdiction among the Bank’s worldwide operations.

At the meeting, president and chief executive office of Butterfield Bank Alan Thompson noted that Cayman has played a critical part in the growth of Butterfield Bank as it accounted for about 40% of the group’s earnings. Besides Bermuda, the Cayman Islands is considered to be the most successful operation of the group.

Although the Bank has been facing increasing competition both in Bermuda and in the Cayman Islands, the Cayman operation has posted an exceptional growth considering that the economic growth of 6-7% annually – more than 15% growth per year.

According to Thompson, Butterfield bank has reached good economies of scale from its back-office operations, and this is impressive in small jurisdictions like the Cayman Islands.

Conor O’Dea, CEO of Butterfield (Cayman), said that although Cayman has been experiencing record-breaking profits year on year, the growing competition is evident, and the competitive market creates challenges for the Bank.

Thompson mentioned the entry of HSBC into the Cayman market, and explained that he was familiar with the bank previously as it had entered Bermuda 3 years ago. He agreed that HSBC is a good competitor.

The new offices at Butterfield Place will be opened to customers in 2008, which will be the banking group’s 150th anniversary and 41st year in the jurisdiction. Butterfield Bank set up operations in the Cayman Islands in 1967. Today it has some USD 3 billion in assets.

High praise has been received by the Cayman Islands from the Foreign Affairs Committee (FAC) of the United Kingdom’s Parliament – it was praised for its financial sector legal and regulatory regime.

The commendation was given to Kurt Tibbetts, Cayman Leader of Government, in London on December 3, when he and BVI Premier Ralph O’Neal gave the Foreign Affairs Committee oral testimony before regarding the Overseas Territories’ relationship with the Foreign and Commonwealth Office (FCO) .

The FAC comprises a 14-member panel of backbench UK Members of Parliament, chaired by Labour MP Mike Gapes. In June, the committee announced an inquiry into the FCO’s exercise of its responsibilities and its achievements in relation to the Overseas Territories, and scheduled meetings with heads of these territories for yesterday.

To explain why the regulations of the financial industries like the Cayman Islands and the BVI were superior to others in the region, Tibbetts said that the financial industry in the Cayman Islands has a culture of compliance supported by legislation. He also said that Cayman has an environment that accords with international best practice and encourages business to be done in the jurisdiction.

Tibbetts also listed many supporting features for the financial services industry that make the jurisdiction attractive. These are an independent regulatory body in the Cayman Islands Monetary Authority (CIMA), a strong legal judicial framework, independent of the executive arm of government and good international air links.

US journalist John Fund has claimed that US Congressional criticisms of the Cayman Islands and offshore financial centres is just “cheap demagoguery”.

John Fund, Wall Street Journal columnist, touched upon numerous topics in an interview with the Cayman Observer before speaking at a Cayman Islands Financial Services Association (CIFSA) function.

Fund said that the current campaign against the Cayman Islands carried out by US Senators Max Baucus and Chuck Grassley, and attack on offshore financial centres in general by Senator Carl Levin ignore the fundamental issue of what the United States itself is able do in order to become more competitive in the global economy.

John Fund is a renowned US political and economic commentator and also a Fox News contributor and author, who has won numerous awards for his work as a journalist. The opinion of Fund is considered to be very influencial therefore his visit to Cayman is important for the jurisdiction. Inviting him was the initiative of CIFSA to address industry leaders.

Fund said that “there is an historic tension in the world between those who want to produce wealth and those who would redistribute it”, and that “low-tax centres such as the Caymans have a little more than 1% of the world’s population actually living in them, but they hold about a fourth of the world’s financial assets”, which means that they could be targeted because of clash of interests.

Stuart Jack, the governor of the Cayman Islands, has recently announced that the Foreign and Commonwealth Office (FCO) Minister for the Overseas Territories, Meg Munn, will visit the jurisdiction. The 1st visit of Meg Munn to an Overseas Territory will happen on December 12 – December 14, 2007.

The visit demonstrates the continued focus of the United Kingdom on the governance and sustainable development of the Overseas Territories. The programme of Ms. Munn includes meeting the leaders of political parties, Cabinet Ministers, members of the Legislative Assembly , and round-table discussions on such issues as financial services.

As part of her visit, on December 13, Ms. Munn will attend a lunch to speak on “A Sustainable Future for the Overseas Territories”.

A new report released by the British government has recently claimed that the collapse in confidence in the global financial markets became worse due to apparently lax hedge fund regulations in the Cayman Islands as well as in other offshore jurisdictions.

The Foreign and Commonwealth Office (FCO) report was published in the end of November to be studied by British civil servants and politicians. Some of the findings of the report may cause some policy changes that could impact the Cayman Islands and the other territories.

The report deals with identifying and evaluating the risks to the United Kingdom from Cayman and other overseas territories in a decade.

One of the key risks indicated in the report is related to the US subprime mortgage collapse this year as worldwide market turbulence was “exacerbated by a lack of transparency over the ownership and scale of risks” within hedge funds. According to the report, most hedge funds are registered in the Cayman Islands.

It should be noted that the FCO did not criticise the Cayman Islands for its regulatory oversight itself – it drew attention to concerns raised by others that could constitute risks to the United Kingdom.

The report suggests the fact that hedge funds have structures splitting regulatory responsibilities internationally to be a problem.

It should be noted that the report by the FCO is concerned with the degree of regulatory oversight in some of the smaller British overseas territories such as Anguilla, more than of such jurisdictions as the Cayman Islands, the British Virgin Islands and Bermuda.

It should be also indicated that the report discusses the degree to which the overseas territories have met international standards as regards money laundering and terrorist financing. According it, Cayman is the only its territory that has brought a successful money laundering prosecution.

It has been discussed before that the Cayman Islands Monetary Authority has celebrated its 10th anniversary. The event was the opportunity to announce that the CIMA Thomas Jefferson Memorial Scholarship has been created.

The creation of the Scholarship named in honour of the late Financial Secretary, Chairman of the Cayman Islands Currency Board and past Leader of Government Business, was announced by CIMA Chairman Timothy Ridley.

The scholarship valued at $25,000 per annum will be an opportunity for Caymanians who want to get a bachelor’s or master’s degree in finance, economics, business or accounting.

Mr. Ridley said that the financial services sector is “a key driver of Cayman’s economic success”, therefore it is important to share this success be shared with the community. He also added that “an education system that supplies literate, numerate and motivated graduates and an industry that provides employment and career advancement opportunities for those graduates” are critical components.

According to Leader of Government Business Kurt Tibbetts, the financial industry is “part of the economic lifeblood” that flows through the Cayman Islands to bring stable employment and a good standard of living as well as to support entrepreneurs and investment opportunities.