Despite signing up to the European Savings Initiative, USA and UK FACTA, and completing International Tax Exchange Agreements with 35 countries, Cayman continues to attract quality HNWIs to live, work and invest. Long gone are the days when HNWIs would use Cayman and other offshore jurisdictions to hide their wealth from the tax authorities. The landscape has changed considerably over the last 20 years through G8 and G20 initiatives and through the OECD's global drive to eliminate corruption, money laundering and tax evasion. Cayman made the decision early on as a jurisdiction to embrace the changes in international sentiment. Like no other international financial centre, it has consistently demonstrated a commitment to transparency, creating a highly cooperative compliance culture. Cayman remains today, one of the world's leading international financial centres, ranked as the fifth largest international banking centre, the second largest domicile for captive insurers and the largest domicile for investment funds. A supportive government, strong regulator, sound international financial institutions and highly qualified professionals have made Cayman a centre of excellence for banking, trust, fiduciary, investment vehicles and corporate services.
The Global Growth of HNWIs
According to the Capgemini and the RBC Wealth Management 2014 World Wealth Report, both the number of HNWIs (over US$1 million in investible assets) and the amount of their investible wealth increased significantly over prior years reaching a record in 2013 of 13.7 million HNWIs, while their wealth increased to US$52.62 trillion. Five countries control almost 64% of the top 25 countries with a HNWI population. These five countries include the US with 4,006 HNWIs, followed by Japan with 2,327, Germany with 1,130, China with 758 and the UK with 465. The compound average growth rate for both HNWIs and wealth is 9.9% for 2008-2013. HNWI wealth is expected to reach another record of US$64.3 trillion by 2016, representing a 22% growth over 2013. Since the financial crisis, there has been an exponential growth in HNWIs in Asia, the US, emerging markets and Europe.
Servicing the Needs of HNWIs
Most HNWIs often look beyond their home country for opportunities and solutions to enhance and protect their wealth. They are becoming more sophisticated and astute, and often demand high levels of service and advice from qualified and responsive professionals. They invest in real estate, global financial markets, hedge funds, derivatives and private equity. Doing so can create tax, legal, asset protection and estate planning issues requiring them to seek expert advice from investment, legal, tax, accounting and estate planning professionals. They seek out reputable, highly regulated, tax-efficient and safe jurisdictions with reputable financially strong financial institutions that are able to offer access to global financial markets, hedge funds, derivatives, private equity and credit. They seek highly qualified professionals to advise them on tax, legal, asset protection and estate planning. An experienced and knowledgeable private banker will often take a holistic approach. He or she will take the time to understand clients' financial positions and what they would like to achieve. The private banker will often take a lead role in organising introductions/meetings with qualified professionals who offer credit, investment, tax, legal, asset protection and estate planning advice, and work together to offer comprehensive solutions to meet the needs of the client.
Why is the Cayman Islands Still the Jurisdiction of Choice of HNWIs and Investors?
As an Overseas Territory of the United Kingdom, Cayman enjoys a secure relationship with the UK. Its legal system is based on English Common Law and provides the certainty and comfort that investors require. Cayman has a stable government with no exchange controls. With a population of over 58,000, residents enjoy one of the highest standards of living in the world.
There are no direct personal income, corporate, property or estate taxes in Cayman. The government relies on a system of indirect taxation collecting import duties on most goods and fees from companies, banks, trust companies, insurance companies and policies, mutual funds, work permits, tourist accommodation, travel and cruise ship taxes.
Cayman has a strong and reputable regulatory regime with the Cayman Islands Monetary Authority (CIMA) providing independent oversight for banks, money service businesses, cooperative and building societies, trusts, insurance company management, corporate services, investment funds and securities services.
Cayman is recognised as one of the top 10 international financial centres in the world, with over 40 of the top 50 banks holding licenses here. As at December 2014, Cayman was home to 195 banking institutions and is ranked fifth internationally and sixth in terms of cross-border assets booked. There are six retail and seven nonretail Category 'A' banks and 185 Category 'B' banks. The majority of these banks are branches (127) and subsidiaries (49) of international banks from North America, Europe and South America. A number of the institutions offer wealth management services and are staffed with experienced private bankers, investment advisers/asset managers and trust and estate practitioners.
Due to its legal system, tax neutrality and number of skilled trust, legal and audit professionals, Cayman has been for many years the jurisdiction of choice for establishing trusts for estate planning and asset protection. As at 31 December 2014, Cayman had 140 trust licenses in operation.
Cayman is also the second largest domicile in the world for captive insurers with over 759 captive insurers under the supervision of CIMA as at 31 December 2014. These insurance companies are serviced by 29 licensed professional firms.
Cayman is of course, the largest domicile for international hedge funds with 7,835 registered funds and 2,685 master funds at 31 December 2014. These funds are administered by 104 Cayman licensed fund administrators and other approved administration firms around the world.
Servicing and advising Cayman's financial, insurance and funds industry are over 40 law firms, eight of which are large international law firms with offices in other major international and offshore centres, and nine audit firms, including the 'big four' international auditors. There are also 98 licensed company management and 17 licensed corporate service providers. Cayman has more highly skilled and qualified professionals than most offshore jurisdictions and is a leading centre of excellence for financial services.
Other advantages include Cayman's proximity to the North America, Europe, Central and South American markets, its high standard of living, low crime, its diverse ethnic population, the friendly people, turquoise Caribbean Sea, sandy beaches and sunshine.
About the Author
Bruce John is a private banking professional based in Grand Cayman. He is a career banker, with more than 30 years of international experience in wealth management, investment advisory, trust and corporate and commercial banking. Bruce is a member of the Society of Trust and Estate Practitioners, has completed the Canadian Securities course and holds an Honours Degree in Business Administration.
Originally published in Cayman Finance Magazine, 2015-2016, Issue 2