When I consider the body of work accomplished by the Ministry of Financial Services ("the Ministry"), and the full slate of activity that we are preparing for the coming fiscal years, three words repeatedly come to mind: Energy. Vision. Results.
This is exactly what's needed in today's context of global financial services, and this is exactly what the Government, through the work of my Ministry, intends to continue delivering for our financial services industry, and for our jurisdiction.
Cayman Finance, as a leading industry association in our Islands, has an important role in this success as it provides valuable input to the Ministry via an appropriate, robust consultative process. When prudent to do so our industry regulator – the Cayman Islands Monetary Authority (CIMA) – also participates in this process.
THE VALUE OF THIS APPROACH IS EVIDENT IN RECENT COMMERCIAL AND REGULATORY LEGISLATION
Commercially, the Ministry oversaw the passage of The Limited Liability Partnership Law; The Foundation Companies Law; and The Trusts (Amendment) Law, all of which are important to retaining this jurisdiction's competitive edge in financial services. The Limited Liability Partnership Law (LLP), which is a new corporate vehicle for conducting business, is anticipated to commence in Q1 2018. The LLP is the equivalent of a partnership with separate legal personality that provides limited liability for its partners.
While the LLP may be used for a range of purposes, it is particularly attractive to professional providers such as legal and accounting firms. The law permits registration of new entities, conversion of existing general partnerships into LLPs and the continuation of foreign LLPs into Cayman. The Trusts (Amendment) Law resolves technical issues in the current legislation, while also extending certain statutory powers of trustees that would normally be granted under the terms of a trust deed. The Foundation Companies Law is a welcome complement to legal structures available in Cayman. Similar to how a Cayman Islands limited liability company (which is a variant of a company) is infused with features of a partnership; a foundation company is a variant of a company that blends certain key advantages of a trust in one vehicle.
Foundation companies can therefore be used in a wide variety of situations; including commercial and philanthropic. Foundation companies are, of course, subject to the same transparency, and anti-money laundering and combating the financing of terrorism provisions, as a company. This law has recently come into force and has already generated a fair amount of interest by some industry professionals.
Speaking of Cayman limited liability companies (LLCs), it is worth noting that this product, which was introduced under The Limited Liability Company Law in July 2016, continues to be very successful. As of 30 September 2017, 652 LLCs were registered, which translates to almost two LLCs being formed per business day since commencement.
Turning to regulatory legislation, the Ministry and other Government entities, including those who participate in Cayman's Anti-Money Laundering Steering Group, have been steadily preparing our Islands for the Caribbean Financial Action Task Force (CFATF) evaluation, which is to be held in December 2017.
Key legislation that was in place prior to the evaluation includes the updated Anti-Money Laundering Regulations, which better aligned Cayman's regime with the FATF's 40 Recommendations and best practices. The Monetary Authority (Amendment) Law, which is another central component to our regime, gives CIMA the power to impose administrative fines for noncompliance on persons (entities and individuals) subject to Cayman's regulatory laws (including CIMA rules) and the Anti-Money Laundering Regulations. It is also important to note that other legislative enhancements have been and will be brought forward by the Attorney General in relation to the upcoming CFATF assessment.
Importantly, Cayman also passed several pieces of beneficial ownership-related legislation, as significant accomplishments in our CFATF preparations. The legislation allowed Cayman to develop a system that further reduces the timeframe in which government, through legal mechanisms, shares information with competent authorities in other jurisdictions. The new system complements and enhances our already robust regime, which is based upon corporate service providers collecting, verifying, updating and maintaining beneficial ownership information. While a number of proposals were advanced, the option selected was one developed in consultation with Cayman Finance. I therefore particularly thank Cayman Finance for its participation in this process.
In all likelihood, Cayman's CFATF evaluation will be underway or just completed at the time this magazine is published. While our CFATF rating won't be publicly available until December 2018, the Ministry will continue throughout 2017 to develop policy, legislation and regulation that ensures our industry is founded upon and operates under a strong, effective, balanced regime. Strong jurisdictional ratings from global regulatory bodies undoubtedly bolster reputations, which in turn draws sound business and builds socioeconomic resiliency. For this reason, Cayman is proud of the largely compliant rating that we received this year from the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes.
We are particularly pleased that we maintained this rating in light of the Global Forum's strengthened terms of reference. Countries including Australia, Canada and Germany also received largely compliant ratings. We received this rating while engaging with the European Union in relation to their intention to develop a list of non-cooperative tax jurisdictions. Earlier this year the EU contacted more than 90 jurisdictions, including the Cayman Islands, and requested information on their respective tax regimes.
Our engagement with the EU has included written responses to their questionnaires; and the Premier, the Hon. Alden McLaughlin, and I led a Government delegation to Brussels in September 2017 to speak with EU officials and Permanent Representatives of EU Member States. During those discussions the EU decision makers recognised Cayman's commitment to tax transparency and our overall track record on international regulatory standards, including our commitment to the OECD's BEPS (base erosion and profit shifting) tax initiative, which the EU will consider as a factor in its listing process. They also considered our largely compliant Global Forum rating as a positive result.
We believe our engagement – which includes two previous visits to Brussels – will help the EU have a greater understanding of the Cayman Islands, especially ahead of their decision in relation to their list. However, while providing technical input regarding our regime was necessary as part of the EU's process, we are aware that the ultimate decision will be political. We trust that the decision makers will draw on this information and understanding in making their determination. Engagement has also improved understanding in the US. While I was in Brussels, other members of the Ministry team were in Washington, DC, to discuss US tax and financial services reform with key Congressional staff members and advisors. Both tax and financial services reform are of great importance to the Cayman Islands, again from a reputational and business development standpoint. Based upon feedback, our message that Cayman is a tax-neutral, well-regulated financial services centre with world-class professional services firms is resonating in the US. Assisting us with our engagement efforts are two venerable law firms: Pillsbury Winthrop Shaw Pittman LLP, and Baker Botts LLP.
Based on all of the above, clearly the Government and the Ministry have demonstrated energy and vision in fulfilling our responsibilities for the financial services industry, and we recognise that our ability to fulfil this responsibility is supported by the energy and vision that also characterises our financial services industry. As Minister I thank the members of industry, as well as CIMA, for your valuable participation and input that helps to shape Government's actions. I noted that results also characterise the Ministry's body of work, and I am proud of financial services' longstanding contribution to the positive results of Cayman's overall economic performance. For example, according to Government's 2016 annual economic report the 'financing and insurance services' sector accounted for approximately 40.5 percent of the country's Gross Domestic Product.1
To provide other economic statistics, it's noteworthy that Cayman's central government debt fell from about $559.9 million three years ago, to $483.9 million as at the end of 2016. By December 31, 2020, under current plans, debt will be further reduced to $221 million. The unemployment rate, meanwhile, fell from 6.2% in 2012 to 4.1% in spring 2017. It is forecast that unemployment will remain below 4.0% over the next three years. Moreover, based upon projections, Cayman's economy will continue to expand; since 2014, Cayman's GDP has grown on average by 2% annually, and is expected to continue that trend over the next three years.
Capital projects are also planned, which is another indicator of our stability. Government's 2018 Strategic Policy Statement includes commitments to complete the Owen Roberts International Airport renovations, and to construct a modern cruise pier and cargo dock. In the past decade the pace of change has continuously increased and going forward, we must accept that this is the new normal. Recognising this fact, Government has indicated its support of our financial services industry through funding increases to key financial services pillars, namely the Ministry's policy department, CIMA as regulator, and Cayman Finance as the coordinating industry association. The increase allows Cayman Finance to improve its core efforts around business development and promotion of the jurisdiction; and also allows CIMA and the Ministry to strengthen their policy, legislative and regulatory functions. For the Cayman Islands, this again translates into results. As a jurisdiction, our position is that we will be both proactive and responsive, as the circumstances require, thereby ensuring that Cayman remains a top international financial centre
1 The contribution of 40.5% of GDP by the financial and insurance services sector does not include contributions by legal and accounting services, as these are grouped together with other services outside of the financial industry. The actual percentage contributed by the financial services industry, including legal and accounting, is over 50%.
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