Cayman Islands Financial Services

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.

On October 29, 2009, the Cayman Islands signed a Tax Information Exchange Agreement (TIEA) with the Netherlands Antilles. The signing took place at the Caribbean Financial Action Task Force (CFATF) plenary held in Curacao.

This is the 14th Tax Information Exchange Agreement signed by the Cayman Islands. It was signed on behalf of the Cayman Islands by the Cayman Attorney General, Samuel Bulgin.

When commenting on the signing, Bulgin said: “This signing represents the Cayman Islands’ continued commitment to OECD standards for transparency and exchange of information on tax matters. It will commemorate the beginning of what I am sure will be a mutually-rewarding relationship between the Cayman Islands and the Netherlands Antilles.”

According to the government, negotiations on signing TIEAs have also been completed with Aruba, Australia, Canada, Germany, Italy and Mexico. Agreements are expected to be signed by the end of 2009. Also, negotiations are ongoing with Argentina, Belgium, China, Czech Republic, India, Japan, Korea, Portugal, Spain and South Africa.

The Cayman Islands have adopted the 2009 Constitution, which began a new chapter in the way the jurisdiction is governed. The new Constitution is said to bring more balanced governance in the shape of increased consultation and accountability in the running of Cayman.

After an extensive period of discussion and negotiations, as well as the 1st local Referendum, the new Cayman Islands Constitution was approved by Her Majesty Queen Elizabeth II. The 2009 Constitution entered into force on November 6, 2009.

Information on the constitutional changes is available on a modernized official website.

A new Constitution is being prepared to be implemented in the Cayman Islands. The date of its implementation will be November 6.

The text of the new Constitution by the Government Information Services (GIS) comes in 4 parts.

Today, on October 29, 2009, the 2nd in a 4 part series of features prepared on the new Constitution was published. On October 30, the 3rd part of this series will be published.

A company registered in the Cayman Islands named Tingyi Holding Corporation targets as much as 16% growth a year in China as stimulus spending boosts demand for instant food.

Chief Financial Officer Frank Lin said in an interview that the company’s goal is to grow 1.5-2 times the rate of China’s economy that the Chinese government targets to expand 8% in 2009. He also noted that improving ties between Taiwan and the mainland China will improve the image of Tingyi Holding Corporation with consumers and cut travel costs.

This Cayman-incorporated company is a Taiwan family business that has become China’s biggest noodle producer. The company incorporated in the Cayman Islands started as an oil and grease company founded in 1958.

According to Forbes, Tingyi Chairman Wei Ing-Chou is Taiwan’s 5th richest person.

On October 14, the Ministry of Financial Services announced that the Cayman Islands has signed a tax information agreement with France. The Ministry expressed its hope that this agreement would help attract French financial institutions and companies.

According to the Ministry’s press release, the new treaty was signed with Paris via an exchange of letters on October 5, 2009.

This is the 13th bilateral Tax Information Exchange Agreement (TIEA) signed by the Cayman Islands. The jurisdiction has bilateral TIEAs signed with Denmark, Faroe Islands, Finland, Greenland, Iceland, Ireland, Netherlands, New Zealand, Norway, Sweden, the UK and the US.

On October 2, 2009, Cayman Islands’ Financial Secretary, Kenneth Jefferson tabled an austerity budget that was designed to tackle the significant challenges that are being faced by the offshore jurisdiction as a result of the financial crisis. Unfortunately, the crisis has not left the government much choice; therefore a multitude of taxes and fees will be increased.

Rising expenditure and lackluster revenues are facing a 5.7% contraction this year. So, Cayman has been forced to reevaluate its tax system in order to provide an additional KYD 126.4 million (USD 156 million) over the next 12 months. KYD 94.9 million (USD 117.2 million) out of this sum will be realized in the fiscal year 2009/2010.

The Cayman Islands has rejected the UK’s call to introduce direct taxes. The jurisdiction has instead decided to introduce broad increases in levies on international trade and transactions and domestic levies on goods and services, consisting mostly of increases in import duties, bank, trust and company licence fees and work permit fees.