Cayman Islands: Overview Of The Cayman Financial Services Industry

Last Updated: 23 February 2017
Article by Jude Scott

The Cayman Islands has long been regarded as the world's premier global financial hub through client-centric market leadership in prominent financial sectors, and long-standing relationships with sophisticated international clients.

The Cayman Islands financial services industry plays an important role in the global financial market by efficiently connecting law abiding users and providers of investment capital and financing around the world - benefitting developed and developing countries.

In the face of constant change and pressure on the global regulatory landscape, the Cayman Islands financial services industry has continued to enhance its reputation as a leading international financial centre. The jurisdiction's success has been cemented by its ability to strike the right balance between effective oversight and minimising unnecessary impediments to legitimate business. Recognising its importance in the global financial economy, the Cayman Islands constantly looks to evolve, anticipate and meet the ever changing needs of its global clients. Integral to the international financial economy, Cayman provides significant benefits to countries around the world and to the smooth operation of global capital markets. In particular, Cayman benefits onshore jurisdictions by facilitating more competitive international trade and enabling effective inward investment to help grow their economies.

The Cayman Islands provides an efficient and effective, neutral platform to allow international investment into economies that need that investment, while at the same time giving pension funds and other international institutional investors the opportunity to invest in a diversified portfolio of securities. This inward investment from Cayman helps stimulate economic activity, create much needed jobs and generate taxable revenue in those countries.

AWARD WINNING JURISDICTION

In 2015 Cayman's financial services industry was the recipient of a number of prestigious international awards. The Banker Magazine ranked the Cayman Islands, Top Specialized Financial Centre, for the eighth consecutive year, in 2016. We were voted Best Hedge Fund Services Jurisdiction in the 2015 Hedgeweek Global Awards, and at the 2015 US Captive Services Awards, the Cayman Islands was awarded the top prize in the 2015 Offshore Captive Domicile category.

These prestigious industry awards reflect the recognition from our clients, peers and the industry, of our high quality and experienced service providers, innovative capabilities and legislative and regulatory balance.

OUR INDUSTRY

The Cayman Islands is consistently recognised for its client centric focus and for delivering excellence in service. Clients are at the centre of the Cayman Islands financial services industry. They are at the core of everything we do, and this approach has been central to our success as a leading international financial centre. Our industry is led by first rate service providers within our investment funds and asset management, banking, insurance, capital markets, and trust sectors and world class fiduciary, legal and accounting service providers across the industry. The combined efforts of Industry represented by Cayman Finance, Government and the Cayman Islands Monetary Authority ensure that the financial products and services are consistently delivered to meet or exceed our international clients' expectations through excellence, innovation and balance.

WHY CAYMAN?

There are many factors that determine Cayman's world class reputation as a leading international financial centre, among these our strengths include:

The quality and experience of our professional service providers

One of the most influential factors in the Cayman Islands success is the presence of service providers that are among the best in the world in the areas of legal, accounting, advisory, management, administration and fiduciary services.

Our appropriate legislative and regulatory framework

Striking the right balance in regulation remains one of our greatest advantages as a jurisdiction. We have a reputation for being able to respond quickly with legislation to meet client needs. We have a demonstrably strong track record for thinking globally and acting locally in response to international financial services initiatives.

The country's financial services industry is very well regulated and the Cayman Islands subscribes to various international regulatory standards. Indeed, several independent reviews of the country's financial services industry by the CFATF, IMF and OECD Global Forum on Taxation demonstrate that it has a level of regulation that meets or exceeds that of most of the major OECD economies.

Our success in the financial services arena would not have been possible without strict adherence to global standards in the areas of financial regulation and cross border cooperation. The Cayman Islands Monetary Authority (CIMA) is represented in various global bodies such as the Group of International Financial Centre Supervisors (GIFCS), Caribbean Group of Banking Supervisors (CGBS); International Association of Insurance Supervisors (IAIS); and International Organisation of Securities Commissions (IOSCO); among others.

Leading the way in tax transparency and cross border cooperation

The Cayman Islands is a strong partner in combatting global financial crime. Leading the way for tax transparency and information exchange, the Cayman Islands has consistently maintained its practices to meet robust, balanced and globally implemented standards for regulation and cross border cooperation. The Cayman Islands government, its regulator, the Cayman Islands Monetary Authority and private industry, have worked continuously with overseas governments and international authorities to ensure Cayman is trusted as a well regulated, cooperative and transparent jurisdiction.

The Cayman Islands cooperates with many cross border initiatives to assist in the fight against tax evasion. These include being a signatory to the European Savings Directive, US and UK FATCA and the OECD's Common Reporting Standards.

The commitment of Cayman Islands government and the Cayman Islands Monetary Authority (CIMA)

As an industry, the relationship between Cayman Finance, the Cayman Islands government and CIMA, the country's financial services regulator, has been a hallmark of the jurisdiction's success as it has allowed us to respond swiftly to changes in the marketplace. Working together, Cayman Finance, the Cayman Islands government and CIMA provide insight into Cayman's current endeavors, as well as into the future services that will increase our commercial appeal and our reputation as a well regulated jurisdiction.

Our innovative approach to developing products and services that benefit the global market

We have a strong innovative approach that sees client feedback turned swiftly into legislative changes and new products, such as the recent Limited Liability Companies legislation that will create a multitude of options at the fund level for holding investments, among other uses.

Neutral Platform

The Cayman Islands enables parties from around the world who are domiciled in countries that may have differing laws, regulations, tax structures and customs to benefit from doing business with each other using Cayman as an efficient and effective global financial hub.

There are no direct taxes (income, property or corporate) in the Cayman Islands. This has been the case for the country's entire modern history. The absence of any direct taxes provides a tax neutral domicile, which is an added benefit to many clients. Clients in turn are responsible for complying with their tax regimes in their home country in accordance with the respective rules.

Stability

The Cayman Islands is a British overseas territory that has maintained a very stable economic and political climate throughout its history. The country has its own democratically elected Parliament, which has consistently maintained responsibility for domestic affairs including fiscal matters. Cayman also operates its own judicial system, including a separate division within the Grand Court to deal with commercial disputes, which is based on English common law principles. The Cayman Islands Government prudently manages its affairs and operates with a budget surplus.

INDUSTRY OVERVIEW

The Cayman Islands is the leading jurisdiction for international hedge funds, the second largest domicile in the world for captives, the number one domicile for healthcare captives and a leading jurisdiction for banking, trusts, capital markets and fiduciary services.

Funds

The Cayman Islands is home to over 11,000 regulated investment funds, many thousands of private equity funds, with the world's top managers using Cayman Islands vehicles in their structures. As the leading domicile for hedge funds, statistics show Managers in the United States manage approximately 74% of net assets from Cayman domiciled regulated funds. Cayman provides a cost effective, neutral platform to allow international investment to be made into economies that need that investment, while at the same time giving pension funds and other international institutional investors an opportunity to invest in a diversified portfolio of securities. This inward investment from Cayman will ultimately help stimulate economic activity, create much needed jobs and generate taxable revenue in those countries.

Insurance and reinsurance

As the world's second largest captive insurance company domicile and the leading jurisdiction for healthcare captives, Cayman is also a leader in the Insurance Linked Securities space, meshing expertise in securitisation, insurance and capital markets to create the most innovative structures, addressing the most complex risk scenarios.

The Cayman Islands is also developing into a premier choice for domiciling non-traditional reinsurance companies. Our insurance service providers are known for their responsive, inclusive and collaborative approach to developing and supporting new client driven products, including captives, ILS and Hedge Fund and PE backed re/insurance companies.

Cayman Islands registered companies

At the end of the second quarter of 2016, the number of active companies on the Cayman Islands company register exceeded 100,000 for the first time in its history. 101,430 companies were listed as active, 3 percent more than a year earlier and 2.6 percent more than at the end of 2015.

While other jurisdictions may have been challenged by situations such as the Panama Papers disclosure, the strength of our company register, along with the overall growth we're seeing across the industry, demonstrates the confidence our clients have in the Cayman Islands.

International banking

Cayman has a well-established, robust, banking regime supported by world class anti-money laundering regulation and appropriate and effective cross border cooperation.

Capital markets

We are a preferred jurisdiction for issuers and borrowers in the capital markets as a result of our exceptional professional infrastructure, creditor friendly insolvency regime, and a robust legal system that upholds the rule of law and provides certainty.

Trust and fiduciary services

On the trusts side we recognize the importance of continued reinvestment into new products, growth and innovations in order to continue to meet the needs of global clients and increasing global regulatory requirements. Our clients continue to demand a jurisdiction that will operate efficiently to meet their needs, not only in respect to traditional operating companies, financing needs, ownership continuity and private wealth structures but also a growing focus on philanthropy and charitable eff orts, as well as research and development.

Positioned for growth

Overall, Cayman's financial services industry is strong and firmly positioned for growth. With the industry's representative body, Cayman Finance, working closely with the Government, the Regulator and other key stakeholders, the jurisdiction will continue to thrive commercially while simultaneously maintaining its leadership role in global regulatory standards.

About the author

Jude Scott, CEO, Cayman Finance

Jude is a former Partner of Ernst & Young and former Global CEO of Maples and Calder. He retired as an Audit Partner in 2008 after spending over 23 years with Ernst & Young where he specialised in the audits of investment funds, banks and insurance companies. As the Global Chief Executive Offi cer of Maples and Calder, he took an active role in the strategic growth and development of the fi rm. Jude is well respected in the local community and internationally, having served on various Cayman Islands Government and private sector committees, including the Cayman Islands Society of Professional Accountants, the Cayman Islands Financial Services Council, the Education Council, the Insolvency Rules Committee and the Stock Exchange.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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