Cayman Islands: Building on Success at Home and Internationally

Every book in the business section of the book store will tell you that success hinges on having a great mission statement. Cayman Finance has one, and it is a mouthful:

Cayman Finance's mission is to protect, promote, develop and grow the Cayman Islands financial services industry through cooperation and engagement with domestic and international political leaders, regulators, organisations and media; to promote the integrity and transparency of the Industry by legislative and regulatory enactment; and to encourage the sustainable growth of the Industry through excellence, innovation and balance.

Well, no one could fairly accuse this organisation of lacking in ambition. But big ideas don't get you very far in business, or in our tough business environment. The true test is whether or not you can live up to your mission statement in the real world. Consider the following sampling of our recent and ongoing efforts and I think you will agree that Cayman Finance is successfully putting ideas into action.

Let's grab a couple of random words from that mission statement and hold them up to the light. What is being done to promote the integrity and transparency of the industry on the legislative front?

With the Throne Speech and budget address dominating the agenda for the 2016 summer sitting of the Legislative Assembly, it was something of a surprise to see the long-debated Confidential Information Disclosure Law, 2016 ushered swiftly into force. The Disclosure Law repealed what had been derided by critics as "the Caymans' bank secrecy law," which threatened criminal penalties for the unlawful breach of confidentiality. The new law puts such matters squarely back into the hands of the civil courts. Given that the capacity for criminal proceedings had never been acted upon during the law's entire 40 year history, the repeal is more important for what it indicates than for what it does. It signals a modern approach, waving away the spectre of criminal prosecution and presenting a clear view of the various pathways towards lawful disclosure of otherwise confidential information for proper purposes.

Further proof that the Cayman Islands has found the correct balance between the right to privacy and the need to actively participate in the fight against financial crime is found in the conclusion to the negotiations with the UK on registration of beneficial ownership interests. The proposal for the registration of beneficial ownership of companies grew out of G8 and G20 discussions about how to counter cross-border tax evasion and avoidance. The UK publicly took the lead in pushing this strategy, insisting that the UK's Crown Dependencies and Overseas Territories make a plan to implement central registers of beneficial owner information. Initially, the central registers were to be open to the public. Counter-productively, the contents of the registry were to be 'self-declared,' meaning that instead of information being collected and verified by a licensed and regulated corporate service provider, the information would be provided directly from the company themselves.

The Cayman Islands, through the Ministry of Financial Services and supported by Cayman Finance, took the view that the proposal was a retro-grade step that would cost a fortune and add nothing to the fight against cross-border tax evasion or other crimes. In a well-reasoned and sensible response to the public consultation on the initiative, Cayman highlighted that the existing system, in place for more than a decade and functioning as intended, was not only adequate, but in fact superior to what was being proposed.

In the end, the UK agreed to our proposals. Licensed and regulated corporate service providers will continue to gather, verify and record beneficial owner information. A centralised technological platform will allow the proper authorities to access information through one portal, rather than having to deal with separate corporate service providers individually. Beneficial ownership information will not be accessible by the wider public and the existing gateways to legal access will remain in place.

So for those keeping score at home, that's two points in the 'win' column under 'integrity and transparency'. One might have expected the next sitting of the Legislative Assembly to be less ambitious. However, in what was perhaps a record-setting performance, 22 bills were considered in the course of just the first week or so, of the October sitting, with the Minister of Financial Services seldom off his feet. The flurry of activity was in large part in preparation for the upcoming Caribbean Financial Action Task Force's (CFATF) mutual evaluation process, currently scheduled to kick off in Cayman mid-2017. To get ready for the on-site CFATF visit, the Cayman Islands government, with the input of Cayman Finance and other stakeholders, undertook a full review of the financial sector's regulatory framework. The mandate was simple: to ensure that our regulatory structure is sufficient to not only meet our core obligations to the international community but to place ourselves at the head of the class on matters of sound regulation and compliance.

The result was a raft of enhancements to the regulatory framework. Some changes, such as those to the Monetary Authority Law, the Auditors Oversight Law and the Companies Management Law, serve to strengthen existing standards and provide greater power and flexibility to the regulator. Other initiatives, such as the Non-Profit Organisations Law, step into new territory and were perhaps more controversial.

The Non-Profit Organisations Law provides for the regulation and monitoring of all non-profit organisations which solicit contributions from the general public. It responds directly to FATF Recommendation 8, which focuses on combatting the abuse of these kinds of organisations for the purposes of financing terrorist activities. Concerns were raised about the impact that this may have on fundraising efforts by local Cayman Islands charities. To pick up another key word from the mission statement, careful balance was required. Time will tell if the correct balance has been struck, but we can be confident that the new law meets the FATF recommendation and serves to put the Cayman Islands in good stead in that regard.

With all of this happening in the Legislative Assembly, one may have expected things to be quiet on the diplomatic front, but October also saw the Cayman Islands play host to Britain's new overseas territories minister. Joyce Anne Anelay, the Baroness Anelay of St. Johns, was the first OT minister to visit all three of the Cayman Islands and spent some time with representatives of Cayman Finance, discussing international initiatives. You can read more about this visit and some of our other diplomatic efforts in Cayman Finance's Year in Review. In the meantime put a checkmark next to cooperation and engagement with international leaders in the mission statement.

Also on the international front, the AIFMD passport initiative remains a key area of interest for Cayman Finance. Steven Maijoor, chairman of the European Securities and Markets Authority, announced in an October 11 speech that the next areas of focus for the AIFMD passport include as a priority the continuing assessment of whether to extend the passport to Bermuda and the Cayman Islands. Cayman Finance has this important initiative squarely in focus as we move through a highly uncertain post-Brexit landscape.

Another area where Cayman Finance is seeing good progress is on the issue of correspondent banking. Onshore banks have been engaged in de-risking efforts, and their legitimate desire to stay on the right side of the regulator has caused an unfortunate side-effect. Some onshore banks have simply terminated correspondent banking relationships in the Caribbean outright. The Office of the Comptroller of Currency of the US Department of the Treasury has responded helpfully by issuing clear guidance to the effect that banks are expected to undertake periodic risk evaluations and make individual decisions based on those results, rather than just lop off relationships with foreign financial institutions as a block. This is another area where Cayman Finance will be fully engaged in the coming months.

The year ahead contains a great deal of uncertainty – we are all watching the Article 50 Brexit vote and the Trump White House in suspense – but our mission statement is sound in theory and working in the real world. The path forward through all of this uncertainty is the same path that has taken us this far: stick with the mission. It's working.

About the Author

Barbara qualified as a Barrister and Solicitor in Ontario, Canada in 1997 and is called to the bar in Bermuda and the Cayman Islands. Barbara is a contributing author of a number of texts, including Neate and Godfrey on Bank Confidentiality and the International Guide to Money Laundering Law and Practice and is an active member of Cayman Finance's International Relations Committee. Barbara is the Director of Knowledge Management for Appleby Global, stationed in Appleby's Cayman Islands office.

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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