Cayman. Moving Finance Forward. by Cayman Finance

Cayman. Moving finance forward.

2015-2016 I ISSUE 2

Cayman.

2015-2016 I ISSUE 2

Cayman. Moving finance forward.

FOREWORD By Ian Wight

position on the issue of a central registry for beneficial ownership. The Cayman Islands has maintained its client centric focus throughout this period of global regulatory change, which has presented significant challenges to firms operating in the financial services industry. Delivering first class service to our clients has underpinned our success as a destination for international capital over the past four decades and this effort is more vital than ever in a constantly shifting environment. The Cayman Islands has continued to cement its reputation as a leading international financial services centre, while addressing constant change on the global regulatory landscape. Striking the right balance in regulation remains one of our greatest advantages as a jurisdiction and several of the articles in this edition of the Cayman Finance magazine will demonstrate how we have managed to achieve this over the past 12 months. Alongside our focus on the various sectors within the industry, we also include an update from our CEO Mr. Jude Scott, as well as an overview of our

Our partnership with the Cayman Islands government has been a valuable factor in this regard. Indeed many of Cayman Financeâ&#x20AC;&#x2122;s member firms have been directly involved in various committees to assist with a range of important initiatives, be it the National Risk Assessment, legislative subcommittees and several others. We thank them for their continued contributions in working hand-inhand with the various public sector bodies and officials in making this jurisdiction a success. Over the past year Cayman Finance membership has grown steadily and we have continued to work hard in the interest of our members, as well

as the financial services industry generally. The organisation plays an important role participating in the debate and increasing global understanding of the many benefits that IFCs like Cayman bring to the global economy. We hope this publication will contribute towards that goal with updates for our local and international clients, as well as better informing global stakeholders on how the Cayman Islands operates as one of the worldâ&#x20AC;&#x2122;s leading international financial services centres. Visit caymanfinance.ky to learn more about Cayman Finance initiatives and our upcoming events.

About the Author Ian Wight is the Chairman of Cayman Finance.

Cayman. Moving finance forward.

OPPRESSION REMEDY

FINANCIAL SERVICES REGULATORY FRAMEWORK

Cayman.

TABLE OF CONTENTS 1 Foreword from Cayman Finance Chairman Ian Wight 8 Preface from the Minister of Financial Services, Commerce and Environment, Hon. Wayne Panton 10 Cayman Islands Financial Services Industry 12 Industry Overview By Jude Scott 16 Cayman Islands Economy: A Snapshot 18 IFCs Outlook: Leading the Debate By Paul Byles 20 Private Trust Companies in the Cayman Islands By Robert Lindley 23 The Cayman “Oppression Remedy” By Fraser Hughes 28 IFCs and Global Growth By Jude Scott 30 The Cayman Islands Financial Services Regulatory Framework By Cindy Scotland

NATIONAL RISK ASSESSMENT

34 Getting Up to Date on FATCA By Tim Dawson

Cayman. Moving finance forward.

UP TO DATE ON FATCA

MINISTRY UPDATE

37 Central Beneficial Ownership Registry By David Roberts and Mark Lewis 40 Cayman Islands Ministry of Financial Services, Commerce and Enviromnent Update By Hon. Wayne Panton 44 National Risk Assessment By Sandra Edun-Watler 46 Superyachts and the Cayman Islands By David Cooney 48 AT A GLANCE: Banking 50 The Cayman Islands – Still a Top Choice for High Net Worth Individuals and Investors By Bruce John 53 Responding to Global Regulatory Challenges By Andrew Schofield 56 AT A GLANCE: Investment Funds 58 Cayman Fund Sector Rises to Regulatory Challenges By David Roberts 60 Big is Back – Private Equity in Cayman By Jason Allison and Bicrom Das 64 How Institutional Investors are Changing the Fund Industry By Kevin Phillip 66 Surge Predicted in Global Assets Under Management By Graeme Sunley

PRIVATE EQUITY IN CAYMAN

Cayman. Moving finance forward.

PORTFOLIO INSURANCE COMPANY

CAYMAN’S ACCOUNTING INDUSTRY

70 Export Cayman – Hedge Funds in Asia By David Bentley 72 AT A GLANCE: Insurance 74 The Portfolio Insurance Company By Paul Scrivener 78 AT A GLANCE: Trusts 80 Risk Retention and Emerging Structures By Mark Matthews, Nicola Bashforth and Stephen McLoughlin 83 Trust Industry Evolves in Changing World By William Walmsley and Tamara Corbin 86 CISPA: Promoting and Preserving Cayman’s Accounting Industry By The Cayman Islands Society of Professional Accountants 88 Cyber Security in the Mobile World By Alexandra Simonova and Nick Kedney 92 AIMA and Hedge Funds: A Long and Distinguished History By Jack Inglis 96 Q & A with Jude Scott 98 Cayman Finance Overview 101 Cayman Finance Board Members 105 Cayman Islands Financial Services Industry Associations

CYBER SECURITY

107 Member Firms 110 Other Useful Resources 111 List of Advertisers

Cayman. Moving finance forward.

Produced by Tower on behalf of Cayman Finance and the Ministry of Financial Services, Commerce and Environment. Cayman Finance PO Box 11048, George Town Grand Cayman, KY1-1007 Cayman Islands 1 (345) 623 6725 caymanfinance.ky enquiries@caymanfinance.ky Ministry of Financial Services, Commerce and Environment Cayman Islands Government Government Administration Building Suite 126, 133 Elgin Avenue Grand Cayman, KY1-9000 Cayman Islands caymanfinance.gov.ky financepr@gov.ky Tower 1 (345) 623 6700 tower.com.ky info@tower.com.ky

Contributing Writers Jason Allison Nicola Bashforth David Bentley Paul Byles David Cooney Tamara Corbin Bicrom Das Tim Dawson Sandra Edun-Watler Fraser Hughes Jack Inglis Bruce John Nick Kedney Mark Lewis Robert Lindley

Mark Matthews Stephen McLoughlin Hon. Wayne Panton Kevin Phillip David Roberts Andrew Schofield Cindy Scotland Jude Scott Paul Scrivener Alexandra Simonova Graeme Sunley William Walmsley Ian Wight Cayman Islands Society of Professional Accountants

Acknowledgments Cayman Finance would like to thank the following organisations for their contribution to this publication. Alternative Investment Management Association (AIMA) Cayman Islands Bankersâ&#x20AC;&#x2122; Association (CIBA) Insurance Managers Association of Cayman (IMAC) Society of Trust and Estate Practitioners (STEP)

All rights reserved. No part of this publication may be reproduced in any form of advertising without permission in writing from Cayman Finance. No responsibility for loss occasioned to any person acting or refraining from acting as a result of material in this publication can be accepted. The views and opinions of the writers of articles in this supplement are those of the authors and do not necessarily represent the views and opinions of any organisation that they are employed by, or otherwise associated with.

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www.deloitte.com/ky For more information contact: Taron Jackman Partner, Enterprise Risk Services Tel: + 345 814 2212 tjackman@deloitte.com

Alexandra Simonova Manager, Enterprise Risk Services Tel: + 345 814 3341 asimonova@deloitte.com

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms. Deloitte & Touche is an affiliate of DCB Holding Ltd., a member firm of Deloitte Touche Tohmatsu Limited. © 2015 DCB Holding Ltd., and its affiliates

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Cayman. Moving finance forward.

PREFACE FROM THE MINISTER OF FINANCIAL SERVICES, COMMERCE AND ENVIRONMENT

jurisdictions for trust and company management services. None of these achievements would have been possible without a strong partnership between Government and the private sector, and without an appropriate relationship with the Cayman Islands Monetary Authority – the country’s financial services regulator. Each of us upholds the discipline that ensures prudent checks and balances upon the business of our jurisdiction; indeed, that discipline unites us, in our commitment to excellence. And for the record, we define excellence as adhering to, and in some cases, surpassing international regulatory standards; and as being innovative in identifying and addressing the needs of Cayman’s global client base.

Based on our excellent and continually growing expertise in areas including accounting, law and banking, the Cayman Islands’ position as a key jurisdiction in global financial services is recognised by international governments, regulators, financial services media and current and potential clients, worldwide. Backed by strong legislation and regulation, Cayman maintains its place as an international financial centre by being the world leader in investment funds; the second largest domicile in the world for captives (and the number one domicile for healthcare captives); and by being one of the world’s leading

The end result is an attractive, wellregulated and respected business environment for global investors. The numbers tell the story only for today. In Cayman, our vision is for our jurisdiction to continue providing excellent client products and services in an industry that is constantly evolving, both in terms of complexity and standards, and for which global economic and political pressures are significant factors. Working together, Cayman Finance and the Ministry of Financial Services provide insight into Cayman’s current endeavours, as well as into the future services that will increase our commercial appeal and our reputation as a wellregulated International Financial Centre. I encourage you to read through this publication, and I hope that you will appreciate the various articles about our longstanding relationships and earned respect in global regulatory spheres, and the key feature contributions covering our stock exchange, insurance and other major industry sectors

– because together they present a comprehensive picture of Cayman’s strength and initiative. I also encourage you to read the articles because I believe you will be impressed by their quality, which reflects the standards of the professionals who have contributed to the publication. The authors, who are experts in their particular areas, represent some of the foremost minds not just on Cayman’s shores, but internationally. In large part we owe Cayman’s strength as a leading IFC to the valuable contributions of the many professionals in our financial services industry. It is no small feat that Cayman has attracted one of the highest concentrations of professionals, per capita, in the world. I repeatedly am told by individuals working in our financial services industry that they are drawn by our world-class financial services infrastructure and innovation; for us, this is good news, because our ability to attract persons of such calibre speaks unequivocally to our future success as an IFC. I understand this attraction on a personal level. Long before I became the Minister of Financial Services, I began my decades-long law career as an articled clerk, and in time became the chairman of one of Cayman’s leading law firms. Because of my background, I am fully aware that there are many worthy options for the conducting of global business. I trust this publication provides a clear understanding of why investors around the world, once all of the benefits are weighed, confidently choose Cayman. Hon. Wayne Panton Minister of Financial Services, Commerce and Environment

Cayman. Moving finance forward.

Cayman Islands Financial Services Industry 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 trusts sectors and world class fiduciary, legal, and accounting service providers across the industry.

The combined efforts of Cayman Finance, the 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 innovation, excellence and balance.

CIM A

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egal Services, P L , s ub lic ice v r Ac e S

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Fid uc ia ry

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How do we build a better working world? We start with the world that matters most to you. The world of your business, your customers, your career, your community, your family. The things that affect you and the things you affect. One step at a time. One insight at a time. Because when business works better, the world works better. How do we help to create better? By inspiring trust in the capital markets and helping to keep them flowing. By working with governments and business to foster sustainable, long-term growth. Enduring growth. By encouraging the development of the people who are—and will be—the builders, the visionaries, the achievers. We’re making it our purpose to help build a better working world. Starting with yours. better begins here: ey.com/betterworkingworld #betterworkingworld

When business works better, the world works better.

Cayman. Moving finance forward.

By Jude Scott

INDUSTRY

OVERVIEW I

n what can be described as a transformative year for the financial services industry in the Cayman Islands, continued development of legislation at the local level has significantly enhanced the jurisdiction’s offering in a number of key areas, while maintaining our strong record of cooperation with various global initiatives on transparency. As with all international financial centres, much of the past 12 months has been dominated by global regulatory initiatives, from the FATCA regimes in the US and the UK, to Europe’s AIFMD and ultimately leading to the Common Reporting Standard for tax information from the OECD. As an early adopter of the Model 1 IGA, Cayman has taken a leadership role among international financial centres. With most of the hedge and private equity funds registered in Cayman captured as reporting financial institutions, for FATCA purposes, the scale of the task involved is quite clear. While there has certainly been some extra burden and additional costs for Cayman service providers to get to the stage they are at now, in terms of being ready to provide the required information, our infrastructure is in place and demonstrative of the high standards of Cayman’s compliance culture.

In late 2014, following on from our initial commitment to the G5 pilot, the Cayman Islands government signed up to the Multilateral Competent Authority Agreement developed by the OECD as the worldwide standard for automatic exchange of information (AEOI). It has been a busy year for the Tax Information Authority – under the Department for International Tax Cooperation, which has launched an online AEOI portal, through which financial institutions can conduct their notification and reporting obligations, as well as issuing regulations for FATCA (US and UK) and Guidance Notes to cover the two IGAs. Our network of tax information exchange agreements continues to grow, with Belgium becoming the 35th nation to establish such a framework with Cayman. As we now move into the reporting phase, with deadlines upon us, FATCA will remain squarely in the spotlight for the financial sector. I agree with the view that FATCA reporting is an area where Cayman can excel, highlighting the quality of this jurisdiction and its professional advisers. The lawyers, auditors, fund administrators and corporate service providers have gone to great lengths to update and educate their clients on what their responsibilities are. It should also be noted that

most of the information required for FATCA compliance is already in place. We know who the beneficial owners are because our regulated network of corporate service providers have already been collecting and maintaining this kind of information for years. This leaves Cayman and its financial services providers extremely well placed to comply with the FATCA regulations. Both government and the industry are to be congratulated for the diligent manner in which they have conducted this whole exercise. We maintain that Cayman's approach to collecting beneficial information – which is one of the methods approved by the FATF – is superior to the UK proposed public register, in terms of keeping correct records. The Cayman Islands government has stated that this jurisdiction would not participate in a register without the application of global standards, otherwise leaving our clients at a disadvantage. For anyone working in the financial services industry globally, there must have been an element of regulatory fatigue, with multiple international initiatives coming on stream, and we have also had important changes locally, including a new licensing and registration regime for directors of investment funds. The good news is that the

Cayman. Moving finance forward.

financial industry in Cayman continues to grow and we have seen advances in a number of key areas, as the world’s leading investment managers, financial institutions and major corporates continue to trust Cayman structures and remain comfortable with our regulatory framework. Recent reports suggest that offshore M&A activity hit a record in 2014, with US$277 billion over 2,687 deals. Notably, the Cayman Islands was the number one jurisdiction, with the highest deal volume in each quarter of 2014. We can see from the number of partnerships formed in the Cayman Islands that the private equity industry continues to prefer Cayman vehicles for their offshore fundraising and downstream M&A business. Registry figures show 2,861 exempted limited partnerships – the primary vehicle for private equity fundraising – were formed in 2014, compared with 2,368 in 2013. With 791 ELPs established in the first quarter of 2015 alone, the rate of growth so far this year is equally impressive. Our Exempted Limited Partnership legislation has been completely revamped following an intensive period of consultation between government and the private sector, coming into force in July 2014. As

an industry, the special relationship we have with both the government and CIMA has been a hallmark of the jurisdiction’s success over the years – as it allows us to respond swiftly to changes in the marketplace. The new ELP Law is a good example, with changes driven by investors, local service providers and the market, including greater contractual flexibility for partners to determine their affairs. The changes further enhance the attractiveness of the Cayman Islands as a domicile for the formation of partnerships. Our investment funds sector remains strong. We are pleased to have been recognised as the ‘Best Hedge Fund Services Jurisdiction’ in the 2015 Hedgeweek Global Awards. This award not only demonstrates the popularity of the Cayman model, but validates the suitability of our legislative and regulatory framework among our clients, with the votes taken from industry professionals. This thread of excellence runs through the financial services industry, across the sectors and clients can rest assured that we will continue to innovate and develop solutions to the complex problems they encounter. There have been significant regulatory enhancements to the investment funds sector, with particular regard to corporate

governance. A new registration and licensing regime has been introduced for directors of funds, which followed on from the Statement of Guidance on Corporate Governance for Mutual Funds from CIMA, which sets out best practice for directors which in many cases highlighted the procedures and policies already ingrained into the behaviour of the fiduciary industry here. Cayman is well known as the second largest domicile worldwide, after captive insurance, and a leader in the healthcare sector, with a 34% share of the global market. Our insurance sector remains resilient to challenging international conditions and added 22 new licenses during the course of 2014, with the total number standing at 760. These companies have issued total premiums worth US$12.4 billion with total assets of US$54 billion as of March 2015. New legislation has introduced Portfolio Insurance Companies (PIC) to the Cayman Islands. Considered within the market as superior to the Incorporated Cell Company structures offered by other jurisdictions, the PIC vehicle increases the flexibility for insurers established as Segregated Portfolio Companies by providing a greater number of risk management

Cayman. Moving finance forward.

opportunities. The outlook for future growth in what is one of the more mature areas of our financial services sector remains bright and is evidenced by the record attendance at the 2014 Cayman Captive Forum. This showcase event, organised by the Insurance Managers Association of the Cayman Islands, attracted almost 1500 registrants to the island, confirming its place as the world’s largest captive insurance conference. Cayman has for many years also been renowned as a leading jurisdiction for aircraft registration and financing, mainly due to the significant comfort lenders obtain from our insolvency legislation. New legislation – the International Interests in Mobile Equipment (Cape Town Convention) Bill 2015 – will extend the Cape Town Convention to the Cayman Islands, now that it has been ratified by the UK. By participating in what

creates a standardised international framework for registration of international interests in aircraft, the Cayman Islands becomes increasingly attractive to financiers and at the forefront of developments in asset finance. Cayman Finance is the representative organisation of the entire Cayman Islands financial services industry.

Cayman Finance has grown to include members from every sector of Cayman's financial services industry, and our members collectively are as well placed as ever to assist our global clients, amidst the more favourable economic conditions, with market leading solutions in an ever more complex environment for international business and finance.

About the Author Jude Scott, CEO of Cayman Finance, is a former Audit Partner of Ernst & Young and former Global Chief Executive Officer of Maples and Calder. Jude has 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.

Building better business

TOGETHER With a vast wealth of industry focused expertise, our team of professionals will look after all your fiduciary needs, including:

www.caymanmanagement.com (345) 949-4018 Grand Cayman, Cayman Islands

• Independent Director Services • Specialist corporate services for Funds and Investment Managers, including registration and management • Full corporate registration and representation services for all business undertakings Working closely with clients and industry professionals in the Cayman Islands and internationally we provide you with the utmost professional service, delivered with that extra personal touch.

Cayman Islands Financial Services Nimbleness. Purpose. Strength.

The reason why the Cayman Islands is the premier jurisdiction for funds is simple: Third-party global bodies have noted our adherence to international standards, and our Government is dedicated to maintaining and further enhancing our legal and regulatory funds framework.

For more information on funds, visit www.cimoney.com.ky.

Cayman. Moving finance forward.

Cayman Islands

Economy: a snapshot

The Cayman Islands economy has continued to grow at a steady pace since economic recovery began in 2011. Real GDP is expected to grow by 2.1% in 2015, which is similar to the growth experienced in 2014. The government expects growth in the medium term to be driven by the construction sector. 2.1% 1.6%

1.5%

0.9%

‘10

‘11 ‘12 ‘13 ‘14

-2.9% Recovering Well: Real GDP Growth in the Cayman Islands* (2010-2014)

*Source: Cayman Islands ESO annual reports. 2014 estimates provided in ESO’s semi-annual report for 2014.

Financial Services

50-60% of GDP

Tourism Sector

25-30% of GDP

KEY

INDUSTRIES The main economic sectors are financial services and tourism. Various economic impact studies puts the financial services sector at approximately 50 to 60% of GDP, while the tourism sector is to contribute between 25 to 30% of GDP. Other sectors include construction, real estate and other business activities. Like many of the smaller islands in the Caribbean, the Cayman Islands economy is a service based economy. The natural resources of the Cayman Islands have not enabled it to pursue traditional industrial development. Historically the economy was relatively small until four decades ago when the country began to pursue tourism and financial services as a path to economic development.

50%

4.7%

Goods and Prices

Labour and Employment

The vast majority of the country’s locally consumed goods are imported, and most of this comes from the US as the primary trading partner. As a result of this and the monetary system described below, inflation rates in the Cayman Islands tend to track closely with that of the US and inflation has been fairly low over the past three years averaging 1.6% per year. 2.1%

6.1

1.5%

4.7

Unemployment Rate

6.2

Imported Labour

6.2

Inflation

6.3

Cayman. Moving finance forward.

The Cayman Islands economy is labour intensive. Due to its relatively small population and the impressive economic growth over the past four decades, the Cayman Islands relies heavily on imported labour to meet the skilled and unskilled human capital requirements for sustaining the economy. Imported labour comprises just over 50% of the entire labour force. This is likely to remain a key feature of the economy for the foreseeable future given the relatively small population. The unemployment rate in the country has declined significantly from 6.1% in 2013 to 4.7% in 2014, reflecting the increase in economic growth over the past year.

‘10 ‘11 ‘12 ‘13 ‘14 Steady: Unemployment in the Cayman Islands* (2010-2014)

1.5% 1.3% 1.2%

Taxes and Fiscal Stability There are no direct personal income, corporate or property taxes in the Cayman Islands. The government relies on a system of indirect taxation focused primarily in the following areas: 0.3% ‘10 ‘11 ‘12 ‘13 ‘14

• Banks, trust, insurance, company and mutual funds fees • Land or property transfers fees • Work permits

• Travel and cruise ship taxes • Tourist accommodations taxes • Business licences • Customs and import duties

Inflation in the Cayman Islands* (2010-2014)

Population

58,000 The country’s population is estimated at around 58,000 according to the last census. The country is very cosmopolitan and it is estimated that there are over 100 different nationalities represented in the Cayman Islands.

57%

Money Matters

43% The Cayman Islands uses the Cayman lslands dollar and the local currency is backed by US dollar denominated securities. This system is managed via a full currency board system and there is no equivalent of a central bank in the country. Non Caymanian

Caymanian

Diversity: Estimated Cayman Islands Population as at 2014*

Cayman. Moving finance forward.

FCs continue to face the growing challenges of dealing with ever changing global standards focused on regulation and other crossborder risk issues. Invariably when the question of the future of IFCs arises, we tend to examine how well they might deal with these various initiatives. For certain, the ability of IFCs to better handle these international initiatives and strike that ‘perfect balance’ between addressing jurisdictional risk management concerns and commercial success remains a key factor in any attempt to size up their future sustainability. It is also equally and increasingly important to reflect on the future of IFCs in other ways. One such approach is to take a serious look at whether IFCs have unwittingly found themselves in the position of primarily reacting to such initiatives in an effort to survive instead of working smarter to deal with the underlying issues behind them.

Initiatives: The Most Recent Goalpost Positions

Some of the challenges faced by the IFCs over the years have not only maintained their original format but intensified, while new initiatives have been introduced. CFATF Evaluations The Caribbean Action Task Force (CFATF) is one of the regional arms of the FATF, the global standard setting body in the area of fighting money laundering and the financing of terrorism. The original FATF Recommendations have been revised and several Caribbean IFCs are undergoing or about to undergo the next round of CFATF Mutual Evaluations of their anti money laundering and CFT regimes. The Cayman Islands, as an example, is set to undergo its fourth round mutual evaluation in 2017.

IFCs OUTLOOK:

LEADING THE DEBATE By Paul Byles

These newer rounds of evaluation will test whether a country’s legal and institutional framework is producing the desired results. The main factor for most IFCs to consider in this respect is whether they have the resources and infrastructure in place to fully comply with the various laws and regulations.

and Cayman Islands will have any challenges effectively dealing with the required changes resulting from any of these reviews. From a purely resource perspective some of the smaller jurisdictions, be it in the Caribbean or elsewhere, may face difficulties in terms of making the recommended changes in a timely manner.

For the most part, IFCs that are able to invest resources into full implementation of their own previously established legal and institutional frameworks will likely survive these latest round of reviews and come through them very well. It is unlikely that any of the larger IFCs in the Caribbean region such as the Bahamas, BVI, Bermuda

The main risks facing IFCs generally with these evaluations is the potential PR damage, as a result of being projected in the final reports as ‘largely non compliant’ in terms of the effectiveness of their regimes. This can in turn have a negative effect on existing and potential clients’ perception of the jurisdiction.

Cayman. Moving finance forward.

Cross-border Tax Information Exchange Many IFCs have previously implemented numerous tax information exchange agreements in line with the ‘information on request’ regime introduced by the OECD several years ago. Issues related to cross-border information have moved on significantly over the past six years with automatic exchange of information between tax authorities fast becoming the new standard.

IFCs Should Lead the Debate and Work Together

As an example, the Foreign Account Tax Compliance Act (FATCA), will require automatic reporting of certain information on US or UK persons, as defined by those respective countries’ FATCA regulations.

The immediate outlook for IFCs therefore continues to be determined disproportionately by external forces on key policy matters. It is crucial now that IFC governments should position themselves to better influence these types of policy developments.

Some jurisdictions chose Model 2 version of FATCA with most IFCs, including the Cayman Islands, choosing Model 1, the latter being where local financial institutions report via their local tax authority rather than directly to the authorities in the US/UK. At this stage, many IFCs have put the required infrastructure in place and local institutions are getting closer to being equipped for the first reporting date in the latter part of 2015. In addition to FATCA being imposed by the US and UK, the OECD’s Common Reporting Standard has evolved significantly over the past two years in particular with over 51 jurisdictions already committed to start sharing information automatically in the latter part of 2017 and 2018. This standard is an automatic exchange of information protocol based on FATCA. Some of the key IFCs which have already signed on to this new initiative to date are: Bermuda, the British Virgin Islands, the Cayman Islands, Isle of Man, Jersey and Switzerland.

The vast majority of the research and technical analysis that supports the existing approach by the major bodies such as the FATF, OECD, IMF etc is being carried out onshore in research centers in the USA or Europe for example. To date only a small amount of such activity has been undertaken in the IFCs’ jurisdictions themselves.

Individual IFCs have made great efforts to better communicate the positive contributions, as well as the quality and depth of regulatory standards in their jurisdictions. Gains in this area will likely continue to be somewhat limited unless there is an improvement in the area of policy debate. It appears that the very well intended efforts to rebrand ‘offshore centres’ as ‘IFCs’ or to push back whenever someone describes an IFC as a ‘tax haven’ have not in fact materially helped the general perception issues that these financial services centres face. At the heart of the issue is not the labeling and its connotation but the more important policy and political battle that lies beneath. IFC governments should work more closely together via an organisation that has: an agreed vision and set of objectives, the budget and central administration infrastructure to better research the issues and to be able to communicate the findings in more technical terms to key stakeholders in the major international standard setting bodies. The over-riding objective must be to establish IFCs as having a rightful

and meaningful place in the global financial system, facilitating the movement of international capital. With a recovering global economy and increasing demand from international clients for services in IFCs, the general economic outlook for IFCs remains strong in the short to medium term. Caribbean IFCs and indeed IFCs generally, now need to consolidate their experiences over the past two decades, by moving away from the current reactive approach to various initiatives, towards achieving greater involvement in the international debate regarding the role of IFCs in contributing to and controlling cross border risks, as well as whether perceived, or real, risks are being adequately addressed by the seemingly never ending wave of regulatory initiatives.

About the Author Paul Byles is CEO and Director of First Regents Bank & Trust in the Cayman Islands, which provides private banking and investment advisory services. He is an experienced economist and financial services professional having worked in the financial services industry for 20 years. He is a former director of a big four consulting firm and a former financial services regulator. He is author of the book ‘Inside Offshore’ which deals with the perception of offshore centres and Offshore Financial Services: a BVI text, an introductory textbook on offshore financial services.

Cayman. Moving finance forward.

of its role as trustee may be bespoke. This may not be the case if an institutional trustee is appointed which may not have a detailed knowledge of the family’s affairs or the ability to coordinate effectively the trust’s administration with the family and its family office or advisers. There are two categories of PTCs in the Cayman Islands: (1) Licensed PTCs and (2) Registered PTCs established under the Private Trust Company Regulations (2008). Registered PTCs are more lightly regulated and are not required to obtain a Restricted Trust Licence from CIMA. This is the most common form of PTC in the Cayman Islands, suitable for most clients’ purposes. Occasionally, a client will wish to establish a PTC with the benefit of a full Restricted Licence; this type of PTC is subject to direct regulatory oversight by CIMA.

PRIVATE TRUST COMPANIES IN THE CAYMAN ISLANDS By Robert Lindley More and more, ultra high net worth families are looking at the flexibility and economic benefits of establishing their own private trust companies (PTCs) to serve as trustee of one or more of their family trusts. To be established in the Cayman Islands, a PTC is required to be regulated or registered by the Cayman Islands Monetary Authority (CIMA).

a high degree of confidentiality or who may want to retain some control over the trust’s administration. Also, some settlors, particularly those who may be resident in civil law jurisdictions and not familiar with trusts and the role of trustees, may prefer to use a PTC in the trust structure, appointing family members on to the board of directors of the PTC.

PTCs are a good option for very wealthy families who wish to retain

A PTC may be tailored to reflect the settlor’s wishes and the scope

A Registered PTC must maintain its registered office at a company which holds a trust licence under the Banks and Trust Companies Law, that is at a licensed Cayman Islands trust company. A Registered PTC may be incorporated as either an Ordinary or an Exempted Company depending on the client’s requirements. An Exempted Company is most commonly used for private trust companies. The advantages of an Exempted Company are as follows: • the Company may receive a renewable guarantee from the Government that it will not be taxed for 20 years after incorporation should the laws of the Cayman Islands be changed to impose tax (and there are no indications that this is likely); • it is permitted shares of no par value; • the name of the PTC need not include the word “Limited” or “Ltd.”.

Cayman. Moving finance forward.

The requirements for registration of a Registered PTC include the provision of the following to CIMA: • an annual declaration, confirming: - the name of the PTC; - the names of the directors of the PTC; - the name of the holder of the trust licence providing the registered office of the PTC or the address of the PTC’s place of business; - the company is a PTC; - the PTC complies with the requirements of the Regulations. • the directors and senior officers of a Registered PTC are not required to be approved by CIMA. However, clients may be asked to provide the names and professional biographies of proposed directors. It is advisable that at least one of the directors have knowledge and experience in trust business. If not, clients may consider appointing an adviser to the board of directors who has trust administration experience. • the name of the PTC must include the words “Private Trust Company” or the letters “PTC”. • there is no minimum net worth requirement. • a Registered PTC is not required by CIMA to have audited accounts, although clients should maintain unaudited accounts of both the PTC and any underlying trusts for good corporate governance and in order to comply with the Trusts Law. The shares of a PTC are commonly held by one or more individuals who may be the settlor or members of his family, or by a company limited by guarantee or in a trust. It is not unusual for a purpose trust, such as a Cayman Islands STAR Trust, to be used to hold the shares of a PTC. STAR trusts are indefinite

in duration and so the ownership structure of the PTC need not change, which may be appealing to the settlor and his family for reasons of continuity. A Registered PTC may only carry out trust business on behalf of “connected persons”. A Registered PTC cannot administer trusts on behalf of third parties or the general public. The PTC may only administer trusts that fall within the scope of the definition of “connected persons” under the Regulations. CIMA should be notified of any significant change in the scope of business after registration.

About the Author

There is an initial registration fee of CI$7,000 payable to CIMA and thereafter an annual fee of CI$7,000. It normally takes approximately 3-4 business days to complete all aspects of establishing a Registered PTC. In some cases, certain aspects of the process may be expedited.

Robert Lindley is a senior associate with the Private Client & Trusts and Dispute Resolution practice groups at Appleby. He specialises in contentious and non-contentious trust and private client matters, advising on a wide range of Cayman Islands and BVI structures and issues of dispute.

PRIVATE TRUST COMPANY (PTC) Enforcer – professional or family member

STAR Trust

Trustee – external trustee

Owns shares in PTC

Private Trust Company • Family members • Trusted advisers • Licensed administrators

Family Trust

Holding Companies

Why is the Cayman Islands one of the worldâ&#x20AC;&#x2122;s leading international finance centres?

AD Innovative legislation. Practical regulation. Robust legal system. Tax neutral. Strong Government involvement. Quality and experienced professionals in the area of fiduciary services, legal services, public accounting, investment funds & asset management, trusts, capital markets, banking and insurance.

Innovation. Excellence. Balance. www.caymanfinance.ky

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THE CAYMAN

“OPPRESSION REMEDY” CONSIDERED IN RE-ACORN INTERNATIONAL, INC. By Fraser Hughes

ack in April 2009, I wrote about the changes made to the Cayman Islands’ Companies Law that created a form of “oppression remedy”. Such a remedy is a feature of most common law jurisdictions. It allows company shareholders to apply to court to obtain relief in circumstances where their interests are being unfairly disregarded. That relief often involves orders that regulate the affairs of the company going forward to remedy the conduct or a manner by which minority shareholders’ shares may be purchased – a kind of corporate divorce. In the Cayman Islands, the “oppression remedy” can only be obtained as alternative relief in a petition to wind up a Cayman

Islands company on the just and equitable ground. The 2007 amendments to the Companies Law contain those alternative powers, set out in subsection 95(3) of the Companies Law (2013 Revision). They include powers in the nature of injunctive relief and a general power to regulate the conduct of the company’s affairs in the future.

This creates a strange anomaly. In order to justify relief less invasive than ending the company as a going concern, a party must show that the facts justify ending the company as a going concern. This needs to be done on the basis of over 100 years of precedents that looked only to the question of whether winding up, and only winding up, was justified.

An unusual feature of the Cayman Islands “oppression” provisions is that a party seeking relief from the court must first meet the test for winding up the company (i.e. ending it as a going concern) in order to have recourse to the alternative relief (Camulos v. Kathrein [2010] 1 CILR 303). Put another way, a party seeking the “oppression remedy” relief in Cayman does not have a free standing remedy.

My 2009 paper on this issue speculated as to whether using the winding up principles as a type of jurisdictional trigger for granting less invasive relief could lead to either, i) the granting of alternative relief becoming rare in the Cayman Islands; or, ii) the various tests established to (previously) justify winding up the company would relax

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The oppression remedy was born to (among other reasons) provide a judicial mechanism to resolve shareholder battles without liquidating a company’s assets and ending it as a going concern.

in terms of the nature and severity of facts required to meet the test. A recent decision of the Honourable Mr. Justice Jones, Q.C. of 6 March 2015, in the matter of Acorn International, Inc1 (“Acorn”) considered and applied s.95(3). Acorn was a Cayman Islands company listed on the NYSE that served as a holding company for a group of businesses conducting TV direct sales business in PRC. A petition was brought by a company representing the majority shareholders (the “Majority Shareholders”) and a crosspetition was brought by companies representing the minority shareholders (the “Minority Shareholders”). A peculiar aspect of the Cayman oppression remedy was brought to light immediately in the decision as, “[b]oth petition and crosspetition necessarily plead that it would be just and equitable for the Court to make a winding up order, but both petitions ask the Court to exercise its jurisdiction under section 95(3) of the

Companies Law to make orders for alternative relief.” The oppression remedy was born to (among other reasons) provide a judicial mechanism to resolve shareholder battles without liquidating a company’s assets and ending it as a going concern. Where a company has going concern value, the last thing that a disgruntled shareholder might want is to realise his shares by the destruction of that going concern value – cutting the corporate baby in half. Yet case law interpreting s.95(3) suggests that a petitioner must seek the very thing he might not want (to wind up the company) in order to seek the thing that he actually wants (an alternative to winding up the company). This forces the petitioner to argue against (some of) the very relief that he seeks in the petition. In Acorn, the court concluded that the Minority Shareholders effectively used their control of the Board of Directors to, i) remove a representative of the Majority Shareholders from office; and ii) to refuse to hold an EGM in the face of a threat by the

Majority Shareholders to use such a meeting to change the Board of Directors and take it away from the effective control of the Minority Shareholders. The court concluded that, “[w]hether or not a winding up order is an appropriate remedy must depend on the basis upon which the Court comes to the conclusion that the jurisdiction is engaged. In this case the jurisdiction is engaged because the Petitioner has justifiably lost all confidence and trust in the Company’s directors who have acted in bad faith and exercised their powers for the improper purpose of disenfranchising the Majority Shareholders so as to perpetuate the Minority Shareholders’ control of the board. It is not necessary to make a winding up order to remedy this wrong. This complaint is capable of being remedied by an order that a meeting of the shareholders be convened for the purpose of considering and, if thought fit, passing the resolutions which Mr Roche has been attempting to put forward on behalf of the Majority Shareholders and I do

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not consider that the pursuit of this particular remedy is unreasonable in any way. I have also concluded that it would be unjust in the circumstances of this case to exercise the Court’s discretion by imposing upon the Petitioner (and the Majority Shareholders) a remedy which they are not seeking.” (at paragraphs 71 and 72) The Majority Shareholders might not have been seeking to wind up the company (in oral argument) but as this decision states, they were necessarily seeking to do that in their petition, because it has to be brought by a winding up petition. As stated above, recourse to s.95(3) can only be had if one can establish that it would otherwise be just and equitable to wind up the company. Put another way, but for s.95(3), would the court have wound up the company following established principles and case law? Arguably, the answer in Acorn should have been no. It is well established that a winding up might be justified on the basis of a justifiable loss of trust and confidence in a company’s directors and that loss is justifiable where there is a proven lack of probity in the conduct of the company’s affairs. However, it is also established that a winding up petition should be dismissed if the petitioner has an adequate alternative remedy (Camulos v. Kathrein [2010] 1 CILR 303). The court in Acorn concluded that the directors acted in breach of their fiduciary duties. This would normally ground a cause of action by the company, or a derivative action by its shareholder, against its directors and (on the facts in Acorn) likely justify an injunction to prevent the ongoing breaches. In addition, to the extent that the

actions of the directors amounted to a breach of Acorn’s articles the Majority Shareholders might well have been in a position to enjoin the breach. As succinctly stated by Justice Henderson in Russell Alternative Investments Funds Plc et al v Laurus Offshore Fund, Ltd. et al2, “First, the articles of association constitute a contract to which all of the members of the company and the company itself must adhere. Second, the Court may restrain a company and its directors from acting in a way which violates the articles.” Since these alternatives appear to have been available, the petition might well have failed on the basis that adequate alternative remedies were available.

a court can grant relief that is far short of ending a company as a going concern. It might not be intellectually sustainable to use a test meant to determine that winding up only (and no alternative relief) is justified – and to use it to determine if alternative relief is justified. The temptation to incrementally relax the jurisdictional trigger might prove irresistible. Acorn International, Inc. FSD 109 of 2014. Coram: Jones J

Ruling - Russell Alternative Investments Funds Plc et al v Laurus Offshore Fund, Ltd. et al Cause No.430 of 2008 18.09.08.

Ultimately, the relief granted in Acorn appears unassailably just by putting the control of the company back into the hands of the Majority Shareholders and (consistent with oppression remedy case law) the court went only so far as was necessary to remedy the oppression. The law of the Cayman Islands in respect of the “oppression remedy” continues to evolve. As it stands now, it is said to be the case that the jurisdiction of the court to make orders pursuant to s.95(3) is only engaged if it can be shown that the court could otherwise make a winding up order. The difficulty with that state of affairs is that the body of law established to determine when a winding up order can be justified (as taken from English and other common law jurisdictions) has evolved in jurisdictions where stand-alone oppression remedies are available. Naturally, the barrier to entry is high since the result is ending the company as a going concern, and disproportionately high if the same test is being used to determine when

About the Author Fraser Hughes (B.A., LL.B, J.D.) is a Litigation Partner with Conyers Dill & Pearman. He has particular expertise in fraud, accounting, insolvency and mutual fund-related litigation. Fraser has been involved in most of the significant hedge fund insolvency disputes in the Cayman Islands over the last seven years. Prior to joining Conyers in 2007, he was a distinguished member of the Ontario bar and has extensive trial experience, appearing as counsel in numerous high-profile insolvency and restructuring matters, including representing a key defendant in a civil conspiracy matter that turned into one of the longest civil trials in Canadian history.

Cosmopolitan Cosmopolitan Cosmopolitan Caribbean Caribbean Caribbean Certain images come to mind whenever we think of the Caribbean. Certain images come to whenever think Certain images come tomind mindwhite whenever we thinkofofthe theCaribbean. Caribbean. Images of crystal blue water and sandwe beaches. Images of Images of crystal blue water and white sand beaches. Images ofof Images of crystal blue water and white sand beaches. Images adventure, music, mood and culture. Images of being pleasantly, adventure, music, and Images pleasantly, adventure, music,mood mood andculture. culture. Images ofbeing being pleasantly, perhaps even mercifully, removed from the rest of of the world. perhaps perhaps even even mercifully, mercifully,removed removedfrom fromthe therest restofofthe theworld. world.

Overseas Territory where English is These images come with certain Overseas Territory where English is is These come with Overseas Territory where English These images images withcertain certain spoken, over 100 different nationalities perceptions. That thecome Caribbean is a spoken, over 100 different nationalities perceptions. That the Caribbean is a different perceptions. That the makespoken, up the over more100 than 55,000nationalities people place solely for retreats, not Caribbean advances.is a make up the more than 58,000 people place solely for retreats, not advances. make up the more than place solely for retreats, not advances. who call the Islands home. 55,000 people A paradise you discover once you’ve who A discover once whocall callthe theIslands Islandshome. home. A paradise paradise you onceyou’ve you’ve enjoyed success - you not discover a- not breeding ground enjoyed success a breeding ground enjoyed success - not a breeding ground Widely regarded to to be the safest for thatfor success. Widely Widelyregarded regarded tobebethe thesafest safest for that that success. success. destination in the Caribbean, Cayman destination in the Caribbean, Cayman destination in the Caribbean, Cayman alsoalso boasts perhaps the region’s most But one country in theinCaribbean defies boasts perhaps the region’s most But one country the Caribbean defies also boasts perhaps the region’s most But one country in the Caribbean defies diverse, cosmopolitan and prosperous those perceptions, offering in their diverse, cosmopolitan and prosperous those perceptions, offering in their diverse, cosmopolitan and prosperous those perceptions, offering in their society. What makes Cayman such aa simple For What makes Cayman such aa a place aplace simple truth. truth. For entrepreneurs, society. What makes Cayman such place simple truth. Forentrepreneurs, entrepreneurs, society. desirable place to invest, liveand andwork work corporate leaders and investment desirable place to invest, live corporate leaders and investment desirable place to invest, live and work corporate leaders and investment is the Islands’ legislative framework, managers the world over, tobetter live better is the Islands’ legislative framework, managers the world over, to live is the Islands’ legislative framework, managers the world over, to live better stability lifestyle. is tobetter. work better. Here the Cayman stability andand lifestyle. is to work Here in theinin Cayman stability and lifestyle. is to work better. Here the Cayman Islands, you will do both. Islands,Islands, you willyou dowill both. do both. A major factor that sets the Cayman A major factor thatthat setssets the the Cayman A major factor Cayman Islands apart is the absence of any direct Cayman is located just one hour from Islands apartapart is the absence of any direct Cayman is located just one Islands is the absence of any direct Cayman is located justhour one from hour from taxation. The government does not Miami, three hours direct from New taxation. government does three direct hours direct from New taxation. The The government does notnot Miami, Miami, three hours from New impose personal or corporate income York and is served by eight international impose personal or corporate income York and is served by international eight international impose personal or corporate income York and is served by eight airlines making more than 55 weekly taxes. There are no taxes on profits and taxes. There aretaxes no taxes on profits and airlines making more55 than 55 weekly taxes. There are no on profits and airlinesflights making more than weekly from 13 cities in the United States, gains from investment, nor are there any gains from investment, nor are there flights from 13 cities in the United States, gains fromtaxes. investment, nor are there anyany flights Canada from 13 and cities theInUnited States, estate theinUK. this British estate taxes. Canada and the UK. In this British estate taxes. Canada and the UK. In this British

ADVERTORIAL There are neither property taxes nor controls on foreign ownership of property, with a robust registration system guaranteeing clear title. There are no time deadlines for building on raw land, future generations. There are no exchange control restrictions or regulations in the Cayman Islands. The Cayman Islands dollar is tied to the US dollar and the latter is freely accepted and used within the local economy.

centre with more than $1.4 trillion in assets, Cayman is the world’s number-one hedge fund jurisdiction. Cayman has attracted all

the Cayman Islands’ legal and regulatory frameworks, stability, infrastructure and access. None comes close to Cayman’s quality of life - Caribbean living with amenities on par with many world capitals. With its state-of-the-art infrastructure excellent hotel and conference facilities, stable economic and political climate, high standard of living and a well-educated talent pool, Cayman is quite literally built for investment success. To live and work in Cayman is to be a part of something magical. A warm, welcoming community surrounded by unmatched natural beauty and an enviable quality of life, Cayman offers island ease with the conveniences of city living.

neighbourhoods and housing options, but also in the number of quality educational institutions that dot the Islands, as well as in the abundant sports and recreational activities and shopping options. The Islands also boast top-notch healthcare services and state-of-the-art hospitals, including Health City, recently opened centre of excellence in cardiac surgery, cardiology and orthopedics. Beyond the practicalities of living, Cayman offers seemingly endless opportunities for both adventure and serenity. If you love the water, few places compare to the Cayman Islands, not only for luxurious waterfront living it affords, but also for the thrills it provides.

Long regarded as one of the world’s premier dive and snorkelling destinations, Cayman is famous for watersports ranging and kayaking as well as environmental conservation efforts. If golf is your passion, Grand Cayman features an 18-hole Championship Course, along with two 9-hole courses designed by Jack Nicklaus and Greg Norman. Here you can also take part in tennis, squash, rugby, soccer and more. Dubbed the “Culinary Capital of the Caribbean”, Cayman is home to over 200 restaurants, including those by acclaimed chefs Michael Schwartz, Cindy Hutson and Eric Ripert of Le Bernardin, who hosts the annual Cayman Cookout– one of many international events held each year that have enhanced Cayman’s global visibility and cosmopolitan reputation.

All of which makes it little wonder why so many of the world’s leading funds in Cayman, but to build their lives here as well. Nowhere is the cosmopolitan Caribbean more vibrant than in the town of Camana Bay. Dart Realty’s mixed-use development offers shops, of being the most livable community in the Caribbean.

Cayman. Moving finance forward.

While Cayman’s role in the global economy is better understood in financial circles, it is less well appreciated that IFCs in general and the Cayman Islands to a large extent, also help development in emerging nations. IFCs have been responsible for some of the biggest moves out of poverty on the planet, according to leading economists, which contrasts with accusations that the activities offshore hinder the developing world. The definitive economic study on how IFCs and their institutions increase growth and alleviate poverty in developing countries was written by Professor Jason Sharman of Griffith University in Brisbane. In his paper: ‘International Financial Centres and Developing Countries – Providing institutions for growth and poverty alleviation’, Sharman outlines how China’s interaction with IFCs like Cayman and the British Virgin Islands helped drive the fast growth rates that China has seen over the past 35 years. Often cited as the greatest example of poverty reduction the world has ever seen, economic growth in China took 680 million people out of poverty between 1981 and 2010, according to The Economist, reducing its extreme poverty rate from 84% to 10% of the population along the way. Professor Sharman argues that this effect comes from the efficient institutions present in IFCs which are necessary to drive growth but are often unavailable locally. These efficient institutions promote growth by lowering transaction costs, which is attractive to companies in developing nations, often hampered by domestic laws and regulations which tend to be confusing, rigid, politically driven and poorly enforced. China is notable for its open door policy to IFCs, as a way of allowing foreign investment in its manufacturing industries and later

the service sector. The results of this deliberate policy have been extremely successful in terms of mobilising inward foreign direct investment. According to a 2010 report from the World Bank – Foreign Direct Investment – The China Story, China received some 20% of all FDI to developing nations over the previous ten years. The World Bank said that inbound FDI played a significant role in economic development

involved to a significant extent. Sharman’s report, citing 2008 data from the US China Business Council, showed that international capital routed through the Cayman Islands is the sixth biggest source of foreign direct investment to China at US$3.2 billion. For outbound investment, 10 times more Chinese capital flows into Cayman Islands structures than it does to the United States. What this means practically for China is that capital can be

IFCs AND GLOBAL GROWTH: in China, with foreign invested enterprises accounting for over half of China’s exports and imports. They also accounted for 30% of Chinese industrial output and 22% of profits. “Foreign investment has catalysed China’s economic reform,” the World Bank said, which supported a record high 10% growth rate during most of the period between 1980 and 2010. By engaging with IFCs, China allows its banks, corporates, and these days, its many HNWIs to take advantage of Cayman’s efficient corporate regime, which results in growth and investment back into the local economy. The foreign investment that flows into China – as well as the investment flows from China – typically pass through tax neutral IFCs, with the Cayman Islands

raised and deployed in the most efficient manner possible, which means greater investment at home, higher employment and rising incomes. With its close proximity to Hong Kong it is no surprise that most FDI to China comes from there (US$41 billion in 2008), but there is still a further role for both Cayman Islands and British Virgin Islands companies which are interposed in structures with the Hong Kong vehicle, to take advantage of the efficient and flexible offshore corporate regimes, for example the Cayman exempted limited partnership vehicle is used for private equity investment into China. In his analysis, Sharman outlines various ways in which Chinese

Cayman. Moving finance forward.

companies or financial institutions engage with IFCs and the drivers for that behaviour. Interestingly in most cases Cayman’s tax neutrality is not considered the primary motivating factor. Of more significance are the sophisticated, robust and efficient institutions they host.

Sharman concludes his analysis with a review of events in April 2009 when the G20 met in London with France, Germany and the UK pressing for sanctions and an endorsement of the OECD’s list of tax havens. After strong disagreement from the Chinese delegation, which threatened to Real value is added to the Chinese derail the process, a compromise economy through lower transaction ensured that China’s own financial costs as foreign capital raised overseas centres of Hong Kong and Macau through IFCs is then channeled back would be excluded from the list into the domestic economy, essentially with an immediate end to talk of augmenting investment. Drawing sanctions. With China well aware on research from Chinese companies of the beneficial role these centres listed in New York, Sharman said play in developing its economy, while the ease of incorporating in while its opposition to sanctions Cayman is important (it takes just against IFCs may have been self two to three days), even more so motivated, China’s actions will have is the compatibility of Cayman positive implications for future companies with listing requirements global growth in emerging markets on both the New York and Hong and poverty alleviation for the Kong stock exchanges, which critically developing world. means that the listing can take place in the market that will provide the As global economies have recovered highest valuation. from the worst of the financial crisis, there has been greater When a Chinese company is looking acceptance that the crash was to attract international investors for caused more than anything by an IPO or acquisition, one would regulatory failures onshore, in tend to see a Cayman Islands holding particular regulatory failures in company in the US or Hong Kong, the US mortgage market. Offshore which owns the operating Chinese jurisdictions like the Cayman subsidiary. In addition to creating a Islands, meanwhile, have seized solution for Chinese firms to transfer the opportunity to demonstrate foreign currency to and from China, a high level of cooperation with as is needed in complex operations, international regulatory authorities companies formed in IFCs provide and support the global initiatives greater flexibility for share issues, on tax transparency, such as compared with the single class FATCA and the exchange of tax that China allows for foreign information. invested firms. IFC incorporated companies also help remove some of the risks of doing business abroad. Where a number of international parties are looking to invest in China through a joint venture, each partner typically forms an IFC company which holds the operating firm in China. The benefit here being that if any dispute were to arise, it would be handled in a more sophisticated court system, which brings great comfort to investors and underpins investment activity.

At the same time, there has been a greater appreciation of the benefits that IFCs such as Cayman bring to global economic growth. Cayman structures have been in place for many years to help US and European aircraft manufacturers sell commercial aircraft to airlines all over the world, resulting in more jobs for that industry. There is also greater understanding of Cayman’s role in the insurance sector as the traditional captive market has developed along the cutting edge with catastrophe bonds and alternative risk transfer. Despite condemnation by certain US politicians at the height of the financial crisis, Cayman vehicles even played an important role in the US government’s TALF program (Term Asset-Backed Securities Loan Facility), which aimed to get private investors to take toxic assets off bank balance sheets to try and help banks recover from the crisis and reset the financial system. With the economic recovery that followed and the spending cycle we are now in, billions of dollars of private equity investment is still to be deployed – much of which will go to the emerging markets. As these geographical hot spots become the new centres for global growth, Cayman partnerships and companies are helping channel these funds back into the emerging economies through infrastructure and energy projects, which in turn increase growth in the developing world.

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THE CAYMAN ISLANDS FINANCIAL SERVICES

REGULATORY FRAMEWORK By Cindy Scotland Prudent and robust regulation is central to the Cayman Islands being an international financial centre of repute. As the principal regulator for the financial services industry of the Cayman Islands, the Cayman Islands Monetary Authority (CIMA) takes its responsibilities very seriously. Part of the CIMA’s strategic planning process for the period 2014-16 included the crafting of a new mission statement to reflect CIMA’s evolving role, and

the dynamic nature of the industry which it regulates. CIMA’s renewed mission is, “To protect and enhance the reputation of the Cayman Islands as an International Financial Centre by fully utilising a team of highly skilled professionals and current technology, to carry out appropriate, effective and efficient supervision and regulation in accordance with relevant

international standards and by maintaining a stable currency, including the prudent management of the currency reserve.” In addition, CIMA developed its first vision statement to reflect its dedication to continuous improvement, which reads: “Committed to continually enhancing the Cayman Islands Monetary Authority’s position

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as a financial services regulator of excellence, consistent with the jurisdiction’s standing as a leading international financial centre.” The Regulatory Framework There are several elements which make up the framework for CIMA’s regulation and supervision of financial services, and its cooperation with fellow regulators. Among these elements are the relevant laws and regulations passed by the government of the Cayman Islands; the rules and statements of principle and of guidance issued by CIMA; the regulatory policies and procedures detailed in CIMA’s Regulatory Handbook and other manuals; the memoranda of understandings (MOUs) undertaken by CIMA; and the international standards to which CIMA adheres. The relevant international standards are those set by the Basel Committee on Banking Supervision; the International Organisation of Securities Commissions (IOSCO); the International Association of Insurance Supervisors (IAIS); and the FATF’s 40 Recommendations. CIMA takes a combined rulesbased and risk-based approach to regulation and supervision of financial services. CIMA processes licence/registration applications and performs due diligence. CIMA’s remit includes responsibility for registration, licensing and supervision of banks, money services businesses, cooperative and building societies, trusts, insurance business, companies management, corporate services, investment funds and securities services. A major development which occurred since our last update for this publication is the coming into effect of the Directors Registration and Licensing Law (DRLL). Under this legislation, non-resident directors and Cayman Islands-based directors of entities regulated under the Mutual Funds Law are now required to be either registered or licensed with

the Cayman Islands Monetary Authority. This requirement is also applicable to certain “excluded persons” under the Securities Investment Business Law. The filings must be done electronically through CIMA’s Director Gateway portal. This requirement is expected to improve data quality and significantly enhance the CIMA’s ability to effectively carry out its mandate under the Monetary Authority Law. Status of Cayman’s Financial Services Industry The Cayman Islands is home to 195 banking institutions. The jurisdiction is ranked fifth internationally based on the value of cross-border liabilities booked from the Cayman Islands and sixth in terms of cross-border assets booked. With regard to captive insurance, the Cayman Islands is the second largest jurisdiction in the world, the leading jurisdiction for healthcare captives, and a leading jurisdiction for catastrophe bonds. The Cayman Islands also continues to be the premier jurisdiction of choice for fund domiciliation. As at 31 December 2014, the total number of regulated funds under CIMA’s supervision was 11,010. It comprised 7,835 registered funds; 2,685 master funds; 386 administered funds; and 104 licensed funds. Such numbers indicate the strength of the hedge funds industry and also the confidence the global community has in the jurisdiction. It is therefore abundantly clear why the Cayman Islands was named the Best Hedge Funds Services Jurisdiction at the Hedgeweek 2015 Awards in London. There were 137 trust services companies operating in the jurisdiction at 31 December 2014, thus maintaining the country’s standing as a leading domicile for the provision of these services.

International Cooperation The Cayman Islands Monetary Authority is very cognisant of the fact that the jurisdiction’s thriving financial services industry exists as part of a global system. Therefore, every effort is made to increase international cooperation and collaboration, without compromising the rights to confidentiality of legitimate clients in order to ensure compliance with financial services best practice. CIMA is represented in various bodies, including: the Group of International Financial Centre Supervisors (GIFCS) (formerly the Offshore Group of Banking Supervisors (OGBS)); Caribbean Group of Banking Supervisors (CGBS); Association of Supervisors of Banks of the Americas (ASBA); International Association of Insurance Supervisors (IAIS); Group of International Insurance Centre Supervisors (GIICS); International Organisation of Securities Commissions (IOSCO); and the Financial Stability Board’s Regional Consultative Group for the Americas. CIMA keeps abreast of relevant legislation in other jurisdictions which has an impact, or potential impact, on the Cayman Islands. This is done with a view to reassessing the adequacy of the jurisdiction’s regulatory regime. For example, the Alternative Investment Fund Managers Directive (AIFMD), which was implemented across Europe on 22 July 2013. This directive is aimed at bringing managers of alternative investment funds, such as hedge funds and private equity funds managed or marketed in Europe, under similar regulatory arrangements as mutual funds and pension funds and their managers. In order to ensure that Cayman domiciled funds continue to be marketed in the European Union (EU) under the AIFMD, CIMA has entered into MOUs with 27

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The Cayman Islands is the second largest captive insurance jurisdiction in the world. EU countries and the Monetary Authority Law was amended in March 2013, to give CIMA additional powers to provide assistance to EU regulators pursuant to AIFMD requirements. CIMA is looking at the suitability of the current regulatory framework in light of the potential extension of the passport regime to third countries (countries outside the EU – including Cayman) by the European Union during the course of 2015. In August 2014, the Authority’s board commissioned the establishment of a working group to examine how the regulatory framework for funds and fund managers can be adapted to meet the needs of funds that would like to market their units in the European Union under a potential passporting regime. The working group met in December 2014 through February 2015 and examined potential amendments to the Mutual Funds Law and the Securities Investments Business Law, including the creation of new regulations. In January 2015, CIMA issued two surveys to solicit the views of the financial services industry on matters relating to the AIFMD. One survey was intended to determine the needs and views of industry relating to the impact of the delegation provisions of the AIFMD on the Cayman Islands funds industry. This feedback will help CIMA to assess whether there is a

need to strengthen the regime for fund managers that are delegates of European Union managers. The other survey looked at depositaries and managers. The AIFMD requires a fund manager to appoint a depositary for each fund it manages. There is currently no regulatory regime for depositaries in the Cayman Islands, and any such regime implemented in the jurisdiction must meet the requirements for depositaries contained in the AIFMD. Conclusion CIMA is committed to playing its part in helping to ensure the continued success of the Cayman Islands financial services industry. A significant development in the first part of 2015 was the establishment of a dedicated Onsite Inspection Unit. This Unit is focussing primarily on high-risk entities and developing best practices and standards for onsite inspections across all regulatory divisions. Another component of CIMA’s role is continued enhancement of our processes to make it easier for industry stakeholders to do business, primarily through the use of technology. CIMA launched a new online portal in January 2015, which enables registered companies and licensees to submit applications and make change requests electronically. The system is called Regulatory Enhanced Electronic Forms Submission (REEFS).

The Cayman Islands – with its modern infrastructure; legal and financial services providers with strong multinational experience and capabilities; efficient regulatory body with an outstanding, proven track record – is well known as an attractive domicile for business. In fact, the Cayman Islands regularly receives high ratings and ranks well in the Global Financial Centres Index (GFCI), placing 39th in the GFCI 17 publication, which was released in March 2015. Working together with government and industry, CIMA has been an active participant in the National Risk Assessment (NRA) currently being conducted for the Cayman Islands. This NRA will assist in identifying any deficiencies, which exist in how the jurisdiction identifies, assesses and understands money laundering and terrorist financing risks, and contribute to efforts to maintaining Cayman as a leading international financial centre.

About the Author Cindy Scotland is the Managing Director of the Cayman Islands Monetary Authority. She represents the jurisdiction on all regulatory matters with other international bodies including the Group of International Financial Centres Supervisors, the International Organisation of Securities Commissions, the International Association of Insurance, and the Financial Stability Board Regional Consultative Group.

Looking for an independent director? in 1974, International Management Services (IMS) is one of the largest and Looking for Formed an independent director? longest established offshore company management firms in the Cayman Islands.

Our Management Fiduciary Team focuses onisthe of directors and trustees to hedge Formed in 1974, International Services (IMS) oneprovision of the largest and funds. We havemanagement over 200 yearsfirms of collective experience in the fund industry and provide longest established offshore company in the Cayman Islands. services to provision some of the global fund organizations. Our Fiduciary Team focuses on the of largest directors and hedge trustees to hedge funds. We have over 200 years of collective experience in the fund industry and Senior staff members of IMS areorganizations. all professionally qualified and are recruited from provide services to some of the largest global hedge fund Independent Directors household names in the funds industry. IMS staff are not only independent of the investment manager, but alsoedindependent of thefrom fund administrator and other Senior staff members of IMS are all professionally qualifi and are recruited Responsive, Dedicated Service serviceindustry. providers. household names in the funds IMS staff are not only independent of the investment manager, but also independent of the fund administrator and other We have capacity constraints limiting the number of director appointments Qualified, per Experienced Personnel service providers. Fiduciary Team member. We take our role as directors and trustees seriously, thus providing exceptional corporate governance of the highest standard. We have capacity constraints limiting the number of director appointments per Fiduciary Team member. We take our role as directors and trustees seriously, thus Give usgovernance a call to findofout providing exceptional corporate themore. highest standard.

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What is FATCA? FATCA refers to US legislation more fully known as the Foreign Account Tax Compliance Act and includes the US Treasury regulations implementing it. It was enacted as part of the Hiring Incentives to Restore Employment Act of 2010 (otherwise known as the, “HIRE Act”) on 18 March 2010. The goal of FATCA is to enable the IRS to identify US persons (generally US citizens or residents) seeking to evade US taxation by holding assets in foreign (i.e. nonUS) accounts, whether in their own name or via non-US structures such as trusts or funds. FATCA requires

information about US persons and their foreign accounts to be reported directly or indirectly to the IRS. Non-compliance with FATCA may lead to a US withholding tax of 30% on US source income, including the gross sales proceeds of certain U.S. assets. What is UK FATCA? UK FATCA (also known as “son of FATCA”) is the name popularly (but not officially) given to a regime, which the UK government promoted from 2012 onwards in response to FATCA. In essence, the goal of UK FATCA is the equivalent of FATCA but in respect of UK

residents rather than UK persons, i.e. it is to enable HMRC to identify UK residents seeking to evade UK taxation by holding assets in foreign (i.e. non-UK) accounts, whether in their own name or via foreign structures such as trusts or funds. How is FATCA Implemented in the Cayman Islands? The Cayman Islands entered into a Model 1 inter-governmental agreement (US IGA) with the US. Under Model 1 IGAs, financial institutions gather the relevant information and report this to their home country (usually its tax authority). The home country then forwards on the information to the

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GETTING UP TO DATE ON

FATCA A RECAP AND UPDATE By Tim Dawson

IRS. A similar inter-governmental agreement was signed with the United Kingdom (the UK IGA) (together with the US IGA, the IGAs), with respect to the automatic exchange of tax information relating to UK tax resident persons and entities. The draftsmen of UK FATCA deliberately adopted terminology and approaches used by FATCA in order to create a reporting regime that is similar to FATCA with a view to minimising the compliance and systems burdens faced by financial institutions. In particular, the UK IGA is based on the US IGA and the Guidance Notes (discussed

below) combine the guidance issued in respect of FATCA with UK FATCA. There are, however, some key differences, as follows: (a) There is no equivalent in UK FATCA to the 30% withholding tax under FATCA as a penalty for noncompliance. Instead criminal penalties for non-compliance are contained in the domestic legislation enacting UK FATCA; (b) UK FATCA is targeted at UK residents (not citizens), whereas FATCA is targeted at US citizens (wherever resident) and US residents; and

(c) There is a special regime in UK FATCA applicable to individuals who are resident but not domiciled in the UK known as the Alternative Reporting Regime. (d) In Cayman the US IGA and UK IGA has been given the force of law by domestic legislation. The relevant statutory provisions for the US IGA and the UK IGA are found in the Tax Information Authority (International Tax Compliance) (United States of America) Regulations, 2014 and the Tax Information Authority (International Tax Compliance) (United Kingdom) Regulations, 2014 respectively, each coming into force on 4 July 2014. The Cayman regulations in essence impose obligations on reporting Cayman financial institutions to adopt due diligence procedures for identifying and reporting US and UK Reportable Accounts and require them to make an annual return to the Cayman Islands Tax Information Authority (TIA). Failure to comply with the regulations is an offence punishable by a fine and/or imprisonment of a term of two years. The IGAs and the domestic legislation are supplemented by extra-statutory guidance notes (the Guidance Notes) that provide some practical help on the manner in which the IGAs should be implemented. The latest version of the Guidance Notes from the TIA was issued on 15 December 2014. Additionally, the Cayman Islands Department for International Tax Cooperation (the DTIC) has released a user guide in respect of the Cayman Islands Automatic Exchange of Information Portal (the Portal), which is discussed further below. What are the Reporting Requirements of Cayman Financial Institutions? Broadly, â&#x20AC;&#x153;financial institutionsâ&#x20AC;? are defined in the relevant Cayman

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All Cayman Islands financial institutions will be reporting financial institutions unless they fall within a narrow range of exemptions, which will be relevant in very few cases. legislation and guidance notes under the categories of investment entities, custodial institutions, depositary institutions and specified insurance companies. A Cayman Islands financial institution is any financial institution organised under the laws of or resident in the Cayman Islands. All Cayman Islands financial institutions will be reporting financial institutions unless they fall within a narrow range of exemptions, which will be relevant in very few cases. Therefore, for instance, the vast majority of hedge and private equity funds will be reporting financial institutions. Pursuant to the Cayman Islands implementing legislation, all Cayman Islands reporting financial institutions have to register on the IRS website and obtain a global intermediary identification number (GIIN). Cayman Islands reporting financial institutions had until 30 April 2015 to notify the DTIC of:

• their name • their FATCA classification • GIIN • Principal Point of Contact The deadline for submission of FATCA reports by Cayman Islands financial institutions is 31 May annually. The reporting format is consistent with currently published Schemas by the IRS for US FATCA and by the OECD for the Common Reporting Standard (see further below), and is in XML format. Cayman Islands financial institutions have the option of submitting reports to the DTIC individually, by entering information manually on the website, or via bulk submission by uploading an XML file(s). Cayman Islands financial institutions that have registered as a sponsoring entity have the ability to upload an XML file containing information for multiple financial institutions. However, according to DTIC releases, and contrary to domestic legislation in force at the time of writing, it is not necessary to file a nil return. Given their customer base, many Cayman financial institutions may not have anything to report. The DTIC has however noted that the Portal will accept nil returns. Furthermore, the Office of the Chief Counsel at the IRS has stated that submitting a nil return is “best practice” and that the IRS intends to use non-filing for three consecutive years as an indicator of possible non-compliance. Once a financial institution is registered on the Portal (and has carried out all its requisite due diligence), filing a nil return is straightforward. Therefore we expect that many financial institutions will choose to file a nil return as a matter of course. The Extension of FATCA to Other Countries The OECD, working with the G20 is working on proposals to develop a global standard for the automatic

exchange of information on tax, to be known as the “Common Reporting Standard”. In January 2014 the OECD published a report containing its proposals including a template form of IGA, which is substantially influenced by the FATCA approach. On 29 October 2014, 51 jurisdictions (including the Cayman Islands), signed an agreement to automatically exchange information based on Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters. This agreement specifies the details of what information will be exchanged and when, as set out in the Common Reporting Standard. Many other countries have agreed to become signatories. Therefore, it is reasonable to expect that, in the near future, automatic exchange of information on tax will be rolled out to other EU member states and G20 countries and other nations after that.

About the Author Tim Dawson, Senior Associate, leads Mourant Ozannes’ regulatory practice in the Cayman Islands. His work includes acting on mergers, acquisitions and disposals of regulated and unregulated entities, joint ventures, advising on regulated activities, stock exchange listings and the establishment and servicing of investment funds. Tim is fluent in Portuguese and Spanish and has lived and worked in Brazil.

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CENTRAL BENEFICIAL OWNERSHIP REGISTRY:

A CAYMAN PERSPECTIVE By David Roberts and Mark Lewis

s UK politics in 2015 moved towards the May general election, it was little surprise that the issue of beneficial ownership and the introduction of a central registry for the main offshore financial centres, returned to the political agenda. With the main parties battling a tight contest, the opportunity to shift the spotlight to ‘tax havens’ as hiding places for elusive corporate profits, provided plenty of sound bites for politicians in the run up to the election, with little regard for the flaws in the UK

proposed system, the absence of similar reporting in other leading economies or the merits of beneficial ownership collection systems in IFCs, particularly the Cayman Islands. As part of the continued repercussions of the financial crisis, pronouncements from the G8 and G20 groups of nations have encompassed an international strategy to counter cross-border tax evasion and tax avoidance by identifying and disclosing to

the public true beneficial ownership of assets and wealth within cross border and interlinked corporate structures. As part of this strategy, UK Prime Minister David Cameron stated in 2013 that “a publicly accessible registry provides the best outcome for sound corporate behaviour”, with benefits for effective law and tax enforcement and allowing authorities, particularly in the developing world, to prevent misuse of corporate structures.

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Alongside a raft of measures outlined at the G8 summit in Northern Ireland in summer 2013, Prime Minister Cameron proposed a public register of beneficial company ownership, revealing ultimate ownership and control. Taking the lead on the issue, Prime Minister Cameron insisted that the UK’s Crown Dependencies and Overseas Territories (IFCs) outline the steps they would take to implement central registers of information and open the contents of those central registers to law enforcement agencies. From the perspective of the IFCs, the UK proposals were

Far from being a corporate domicile, which enables secrecy, Cayman’s regulatory framework for licensed corporate service providers ensures that the correct information is requested, recorded and verified, due diligence takes place and also that information on beneficial ownership information is regularly refreshed and updated. This contrasts with the UK’s selfreporting system, which, despite accessibility to the public, is easily manipulated where real criminal intent to conceal ownership exists. Individuals engaged in fraud are highly likely to provide false or inaccurate information, while those on the right side of the law that do

The right to privacy for law-abiding citizens is a fundamental principal of common law and is enshrined in the Cayman Islands constitution. counter intuitive. Recognising the importance of improving transparency of ownership and control of companies, but on a level playing field, the Cayman Islands government highlighted the merits of Cayman’s existing central data collection system where beneficial ownership information is collected by its licensed and regulated corporate service providers and trustees. This has been a legal requirement in Cayman for over 10 years, as part of a licensing and supervision process – which includes onsite regulatory inspections. Industry bodies, including the IFC Forum, raised concerns about the viability of a public register of beneficial ownership on privacy grounds, as well as for the potential for abuse of the system.

make full disclosure run the risks of loss of privacy and cybercrime, such as identity theft. The right to privacy for law-abiding citizens is a fundamental principal of common law and is enshrined in the Cayman Islands constitution. While considerable doubts have emerged over how accurate information could be collected via a central public register, from a commercial standpoint, industry figures in Cayman argued that it would not be in the jurisdiction’s best interests to lead such an initiative, without certainty that the same standards would be upheld in all competing jurisdictions. The impact of the Fourth EU Directive on Anti money-laundering (AMLD) is still a while away

(Member States having two years to implement central registries in accordance with its provisions). It is noticeable that many EU Member States, including France and Germany, as well as the US, have failed to announce plans for any kind of public corporate register. Without a global standard yet being devised or applied, if any – or all – of the smaller IFCs introduced a publicly accessible database of ownership information, additional costs would likely see client business migrate to jurisdictions where a central register is not required. This opinion was shared by the leading IFCs, with a firm view being expressed that their processes for corporate ownership record keeping far exceed the proposed central registry in the UK. For the Cayman Islands, its regulatory framework is significantly superior to its onshore counterparts in many ways – for example, in 2000, when Cayman’s anti-money laundering regulations were introduced, Cayman also required full retrospective duediligence on existing client relationships, something said to be too onerous to undertake in the UK, US and elsewhere. Late last year, following a period of industry consultation, the Cayman Islands rejected the introduction of a central register, in the form proposed by the UK for its IFCs. The Cayman Islands government announced that it would instead continue with its current regime of providing beneficial ownership information to law enforcement, tax and regulatory authorities, in the way it had been doing for the past 10 years and which was in line with the global standards dictated by the Financial Action Task Force (FATF). The FATF prescribes three alternative methods of collecting beneficial ownership information: requiring a jurisdictions companies registry to obtain and hold the information (as the UK proposed), requiring companies to hold such information, or by using existing

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information collected by licensed and regulated corporate services providers (as Cayman already does). With its regime also in line with the G20’s High Level Principles on Beneficial Ownership Transparency, issued in November 2014, the Cayman Islands government said it would continue with its current practice, rather than introduce a central registry, until such time as there is global agreement on appropriate exemptions and safeguards. It is interesting to note that in Article 30 of AMLD proposed registers are referred to as “central” or “public” which gives the impression that even in the Directive endorsed by the European Parliament on 20 May 2015, there is still uncertainty as to exactly how the proposed registers are expected to operate. All the more reason for the Cayman Islands to wait and see how the AMLD will be interpreted and applied in the onshore EU Member States. Political posturing continued going into the final weeks of the UK election, when Ed Miliband, leader of the opposition Labour Party, suggested that unless the IFCs cooperate with the drive against tax avoidance within six months of his taking office, a new Labour government would introduce sanctions and demand the OECD blacklist these nations. These comments clearly demonstrated a significant lack of understanding about the extensive tax avoidance activities already adopted and supported in the financial services sector in the Cayman Islands, but perhaps could only be expected of politicians ahead of a public vote. For 2015, the Cayman Islands government has taken the initiative of introducing its own Action Plan, which will, among other things, streamline access to beneficial ownership information for tax, regulatory and law enforcement

authorities. The Action Plan includes the introduction of legislation that will require corporate service providers to ensure that relevant information requested by law enforcement or regulatory officials is made available within a period of 24 hours from initial request. Other proposals aim to further improve the quality of information collected, including a required annual filing of legal beneficial ownership for exempted companies – the most popular Cayman vehicle for international business – by corporate service providers to the General Registry, something already in place for all Cayman ordinary companies. Corporate services providers will also have to designate a person locally to be accountable to Cayman authorities for making the beneficial ownership information available and for the ongoing monitoring and testing at specified intervals.

Further, legislation will be enacted to allow the General Registry to wind up an entity, which has not complied with legal or beneficial ownership filing requirements within a specified timeframe. While it remains to be seen whether a significant number of jurisdictions will line up behind the UK’s plan for a public registry of beneficial ownership information, the Cayman Islands has said the steps it is taking to enhance its method of collecting and verifying this data will ensure it continues to provide an efficient platform for legitimate international business. Collection, verification and recording of beneficial ownership information are areas in which Cayman can justifiably say it not only plays its part, but leads the way. The G8 and G20 nations would do well to not only take note, but learn from the Cayman Islands extensive experience in this area.

About the Author

David Roberts is the Managing Director of Cayman Management Ltd., a licensed Companies Management firm providing a broad range of corporate and Funds services in the Cayman Islands for over 40 years. David is a Fellow of the Institute of Chartered Secretaries and Administrators, a long standing Director of Cayman Finance and sits on a number of specialist finance sector boards and committees.

Mark Lewis is the Senior Partner at Walkers and specialises in all aspects of the firm’s mainstream investment funds practice, particularly hedge funds. He has in excess of 30 years post qualification experience, the last 20 of which have been with Walkers in the Cayman Islands. Mark is a Director of Cayman Finance, a member of the Council of the Cayman Islands Stock Exchange and a former Chairman of the Executive Committee of AIMA Cayman.

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CAYMAN ISLANDS GOVERNMENT

By Hon. Wayne Panton

MINISTRY OF FINANCIAL SERVICES, COMMERCE AND ENVIRONMENT UPDATE In recent months, the Cayman Islands government has made amendments and introduced legislation to stimulate and improve the industry, while allowing industry to better serve its clients. In April 2015, my Ministry passed three bills through the Legislative Assembly that will broaden the scope for business in the aviation sector. The International Interests in Mobile Equipment (Cape Town Convention) Law 2015; The Civil Aviation Authority (Amendment) Law 2015; and The Bills of Sale (Amendment) Law 2015 are intended to increase the international prestige of Caymanâ&#x20AC;&#x2122;s aviation sector and attract additional aircraft finance business to Cayman. The International Interests in Mobile Equipment (Cape Town Convention) Law 2015 seeks to enable the extension of the Cape Town Convention to the Cayman Islands. The Cape Town Convention is an international treaty that aims to standardise transactions involving movable property, such as aircraft, which often utilise Cayman.

The Civil Aviation Authority (Amendment) Law 2015 intends to add the registration of aircraft mortgages as a function of the Civil Aviation Authority, which that regulatory body currently deals with on a day-to-day basis. However, for historical reasons, this function is presently governed under a UK statutory instrument.

Within the last fiscal year, it should also be noted that our jurisdiction witnessed the introduction of regulations under our Insurance Law to allow for portfolio insurance companies, or PICs. Available for use by the international insurance market, this new product ranks with other jurisdictions, including the Delaware Series LLC.

Also in April, government passed The Directors (Registration and Licensing) (Amendment) Law 2015. Although it is a minor change, the legislation adds an additional overseas regulatory body to the list of foreign authorities in the Schedule to the Directors Registration and Licensing Law, 2014 as well as clarifies the section regarding appeals to the Grand Court.

Developed in conjunction with the Cayman Islands Monetary Authority (CIMA), our financial services industry regulator, we believe PICs offer better value for global captive sponsors and their consultants when considering a cell company structure.

PICs have been structured to achieve all the benefits of an incorporated cell company (ICC) This legislation complements several and the Delaware Series LLC. major laws or amendments that However in addition, PICs operate were enacted in 2014, including the squarely within fundamental and Contracts (Rights of Third Parties) well-understood principles of Law; the Mutual Funds Law; and corporate law, and do not involve the wholesale revision of our the highly creative and untested Exempted Limited Partnerships Law, jurisprudence involved in an ICC. which provides a product that better Moreover, as an extension of manages the increasing complexity of our existing segregated portfolio transactions undertaken in Cayman. company regime, as opposed to the creation of standalone legislation,

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PICs have the dual benefit of being as robust as ICCs, while being more efficient and cost-effective. In addition to these laws, Cayman is modernising its intellectual property regime, by enhancing copyrights, trade marks and patents. Our improved IP framework is intended to position technology as another pillar of the Cayman economy. Potential investors will have the added security provided by stronger IP protection to safeguard their current works, and to engage in either the development of new business or the relocation of businesses to Cayman. We achieved an important step when the UK extended its 1988 Copyright Act to Cayman, with the UK Privy Council passing the Copyright (Cayman Islands) Order 2015 in March. The 1988 Act revokes the extension of the UK’s 1956 Copyright Act to Cayman. The Order will come into force in the next fiscal year, after a public education campaign has been conducted and necessary arrangements made for local implementation. With trade marks, we plan to introduce local registration by the second half of 2015, which will make this protection more accessible to local individuals and companies. We are also improving the ability of local trade mark holders to extend rights internationally, through several international treaties and conventions. With patents, minor updates are currently planned to existing legislation. Our focus is on becoming part of several international treaties and conventions that will assist in securing protection internationally. Legislatively, we plan to continue developing products that will

Cayman is a member of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes, which is the largest tax body in the world with 127 member countries. maintain and strengthen Cayman's position as the premier financial services jurisdiction. In order to deliver total value for clients, the operations which underpin our legislation must be exceptionally strong. With that, Cayman has made two significant operational improvements in technology. First, feedback from industry has been overwhelmingly positive regarding the Cayman Islands Online Registry Information Service, or CORIS. Subscribers to CORIS have the benefit of tracking their submissions and easily retrieving documents, but perhaps the biggest benefit to industry is that by going paperless, our Companies Registry has significantly reduced turnaround time. Instead of taking three to five days to register a company, regular incorporations now take fewer than 48 hours through CORIS. An

expedited service is also available within four hours, compared to the previous time of 24 hours. In order to continue to provide a more robust platform for service providers, the next phase of CORIS is now being developed. We will share the full details later this year, but in brief it is a portal platform that will revolutionise access and delivery of information to clients of the jurisdiction and will even allow information in relation to nonCayman Islands companies in client portfolios to be maintained in the client’s secure portal platform and accessed 24/7. Over at CIMA, the first phase of the Regulatory Enhanced Electronic Forms Submission system, known as REEFS, is now being piloted. CIMA officials expect the online system will allow their analysts to devote more time to financial oversight and review.

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Phase 1 of REEFS, which was launched in January 2015, focuses on the fiduciary and insurance divisions. Once it goes fully live, REEFS will allow industry to prepare and submit financial filings; facilitate new applications and registrations; and submit any changes to existing licencee information already on file. The next phase of REEFS, which will focus on both the banking, and investments and securities divisions, will roll out later this year. In addition to legislation and operations, Cayman continues to be engaged in the exchange of information (EOI) for tax purposes. In March 2015, we announced the opening of our portal for automatic exchange of information (AEOI), which completes our process for building an AEOI compliance framework. The portal enables Cayman financial institutions to comply with their reporting obligations under domestic law, and in accordance with intergovernmental agreements including US FATCA; and it permits the secure transmission of the reported information, direct by the Cayman Tax Information Authority to the US IRS. Moreover, the portal positions us to respond to future global AEOI initiatives. The portal opening is another indicator of the strength of Cayman’s EOI position, which is based on our consistent global engagement, spanning decades, in these matters. Our extensive network now includes nearly 100 EOI relationships, all of which are in line with the global standard. This figure includes partners covered by the OECD Multilateral Convention; and Cayman’s own 35 bilateral agreements. Cayman is a member of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes, which is the largest

tax body in the world, with 127 member countries. We sit on the Global Forum’s 19-member Steering Group, which prepares and guides the Global Forum’s work; and we are one of the 30 members, and one of the four vice-chairs, of the Global Forum’s Peer Review Group, which carries out extensive Peer Reviews to evaluate the tax information exchange regimes of OECD and non-OECD countries. In addition to the Global Forum, Cayman’s engagement in international regulatory initiatives includes our participation since 2005 in the EU Savings Directive; and our membership through CIMA in the Offshore Group of Banking Supervisors; Working Group on Cross Border Banking; Caribbean Group of Banking Supervisors; and the Association of Supervisors of Banks of the Americas (ASBA), among others. Cayman’s legislative and regulatory framework makes it absolutely clear that Cayman is a progressive country. We have a demonstrably strong track record of thinking globally and acting locally, in response to international financial services initiatives. We are applying this same process to the subject of beneficial ownership. Following a period of international public consultation, on 30 December last year the Cayman Islands government published a report stating that Cayman will continue with our current method of providing beneficial ownership information to law enforcement, tax and regulatory authorities, through licenses and regulated corporate service providers. Our stance is validated by the fact that Cayman’s regime is firmly in line with the G20’s High-Level Principles on Beneficial Ownership Transparency, which were issued in November 2014; in other words, we align with principles that the

G20 countries themselves uphold. Cayman’s current system also is consistent with the global standard, as defined in the Financial Action Task Force Recommendations. We conclude our report by stating that in light of evolving, current international discussions, we will make further improvements to our financial services regime. As such, Cayman has identified specific steps – including enhancing the accuracy, accessibility, availability and monitoring and enforcement of ownership information – that will further strengthen our beneficial ownership framework. In Cayman, we appreciate our Islands are recognised as a worldclass international financial centre because of our strong and sustainable infrastructure. With our recent amendments and new legislation; and our continuing engagement and adherence to global regulatory standards, we will maintain our strength and attractiveness for clients, both now and in the future.

About the Author Minister Wayne Panton’s successful law career included sitting on Walkers’ threemember Management Committee during a very significant growth period; he retired as the Walkers group’s chairman in 2011. He was elected to the Cayman Islands Legislative Assembly, and appointed Minister of Financial Services, Commerce and Environment in 2013.

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NATIONAL UNDER THE RISK MICROSCOPE ASSESSMENT By Sandra Edun-Watler

he Cayman Islands is currently undergoing its first National Money Laundering/Terrorist Financing (“ML/TF”) Risk Assessment. The objective of a risk assessment is to identify the threats or potential threats to the AntiMoney Laundering (AML) regime that the jurisdiction has in place. History The requirement to perform a National Risk Assessment stems from the Financial Action Task Force’s (FATF) 40 Recommendations on International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation issued in 2012. The FATF is an intergovernmental body established in 1989, and its mandate is to set standards and to promote effective implementation of legal, regulatory and operational measures for combatting money laundering, terrorist financing and the financing of proliferation, as well as other related threats to the integrity of the international financial system. This is achieved by member countries, of which there are 34, adopting these standards and adhering to the recommendations that have been issued. Although the Cayman Islands are not a member of the FATF, they are a member of its regional standard setter associate

member, the Caribbean Financial Action Task Force (“CFATF”), which was established in 1996. The CFATF is an organisation of 27 states and territories in the Caribbean basin which have agreed to implement common countermeasures against ML/TF through endorsing the 40 recommendations produced by the FATF. The National Risk Assessment comes about as a result of the revisions to the FATF Recommendations in 2012. The first recommendation in this list is that countries should identify, assess and understand the money laundering and terrorist financing risks that exist in their countries and should take action to coordinate efforts to assess these risks. As this is a completely new global process, introducing a brand new methodology for assessments, it is being undertaken for the first time at a national level by many countries that adhere to these international standards. Norway and Spain have been the first two countries to be assessed with the new methodology last October by the FATF. Assessments are done via mutual evaluations that are conducted with the country and representatives of the FATF or regional standard setter.

Why is it Being Done? Any jurisdiction that expects to be at the forefront of international financial services should ensure that risks are identified, assessed and action taken to mitigate issues regarding money laundering and terrorist financing. The National Risk Assessment is to ensure that the Cayman Islands have appropriate ML/TF policies and procedures in place, that these policies and procedures are being followed and that all the identified ‘risk’ areas can be addressed. The successful passing of this assessment will ensure Cayman retains its high international reputation. This means that there must be policies, controls and procedures in place, not only at a national level but also within the various industries and sectors that enable the management and effective mitigation of risks that have been identified. Additionally, systems need to be installed to monitor the implementation of those controls and to enhance them, if necessary. It is useful if the process is as inclusive and co-operative as possible. The objective and the whole basis of a National Risk Assessment is to ensure that measures in place to prevent or mitigate money laundering and terrorist financing are proportionate with the risks

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that have been identified. A risk-based approach, through a risk assessment, is an essential foundation in allocating AML/ Combating the Financing of Terrorism (CFT) resources efficiently to the perceived threats. Importantly, there should be sufficient breadth and depth devoted to potential threats and vulnerabilities, as well as their consequences. It is worth noting that ML/TF risks are inherently difficult to describe or to measure in quantifiable or numerical terms, therefore a risk assessment will involve making judgements about these perceived issues. The National Risk Assessment is the forum for which jurisdictions will demonstrate that these issues have been considered and therefore ensure that exposure to these elements are limited. Jurisdictions should consider the capacity and AML/CFT-relevant experience of particular sectors and industries, because in order to properly assess the risks, it is important to identify certain key components where such vulnerabilities may exist. Risk is not static but is a constantly changing metric. More significant areas of vulnerability can be found where it has been determined that certain customers, countries or geographic areas, products, services or transactions may pose a higher threat to the financial system for ML or TF. It is important to point out that the risk approach for money laundering and terrorist financing, while intrinsically linked, can actually vary significantly as the mechanisms for detecting them are quite different. While the focus on TF aims to prevent future such acts of terrorism from taking place, authorities looking to combat money laundering are usually dealing with criminal activity that has already happened. Essentially, private sector involvement can be extremely valuable to this process, in order to help build up a complete picture of the national ML/TF risks.

Who Will it Impact? The National Risk Assessment will impact any entity conducting relevant financial business including, and not only, regulated entities such as banks, corporate service providers, insurance companies investment and securities services, but also ‘Designated Non-Financial Businesses and Professionals’ (DNFBPs), such as money remittance service providers, jewellery stores and real estate agents, basically anyone where such risks are inherent to their businesses. While traditionally seen as only relevant to the financial industry and parties regulated by CIMA, AML/CFT transcends that notion and is at the heart of any financial transaction. Anywhere where there is movement of money there is a perceived threat and the aim is to prevent criminals from using the financial system to move their ill-gotten gains. Have There Been Any Previous Types of National Reviews? Since the implementation of the FATF recommendations in 1989, there have been three rounds of mutual evaluations internationally, this now being the fourth round with new and revised recommendations. All countries adhering to the FATF standards will have to implement this new recommendation before their mutual evaluations are conducted. In the past the focus has been more on ensuring that legislation and systems are in place by countries to detect ML/TF. This mutual evaluation, however, is different as the focus now is on the effectiveness of the regime in place. Hence this risk assessment is very important as it will determine how effective the systems put in place really are. In previous reviews, blacklists had been implemented as a deterrent for financial business in certain listed jurisdictions. The last CFATF review of the Cayman Islands took place in June 2007, and the Cayman

Islands financial services sector was reported as having a ‘Strong Compliance Culture.’ That evaluation rated Cayman as ‘compliant’ or ‘largely compliant’ with 38 out of 40 of the then FATF recommendations and nine special recommendations (as it then was). The ratings are Compliant, Largely Compliant, Partially Compliant and Non-Compliant. This compared very favourably with third round evaluations to date of other FATF countries. When Will it Take Place? The fourth round of evaluations for the Cayman Islands will take place in the first quarter of 2017. Preparations can take place as early as a country would like. The process itself starts roughly six months before the onsite visit by the assessors and lasts roughly six months after the visit with follow up meetings and the presentation of the final assessment and findings at the Plenary, held bi-annually. The onsite inspection includes not only interviews with government officials but also with various financial industry and association members.

About the Author Sandra Edun-Watler is the Head of Compliance (Americas) for Walkers with responsibility for the firm’s Cayman and BVI offices. She is an attorneyat-law with expertise in all aspects of regulatory law and is the current President of the Cayman Islands Compliance Association.

SUPERYACHTS AND THE CAYMAN ISLANDS By David Cooney

“Money can’t buy you happiness, but it can buy you a yacht big enough to pull up right alongside it.” — David Lee Roth According to Boat International’s “Market Intelligence“ a total of 412 superyachts changed hands in 2014, having a combined asking price of over £3.2 billion (approximately US$5 billion). That amount is greater than the IMF’s calculation of the GDP of Kyrgyzstan for 2013. Sale numbers were up 16% over 2013 figures and up over 52% against equivalent 2012 figures. The superyacht market is booming and 2015 looks set to be an even stronger year. The world’s wealthiest families have more money than ever at their disposal and are finding ever-more expensive toys on which to spend it. The world’s longest superyacht is around 180 metres (590 feet), with longer yachts under construction, or in the design stages. Whether seen as the ultimate status symbol, a decadent display of wealth, or merely a fun and luxurious way to escape to a floating palace of solitude, more and more people are joining the superyacht owners club. Once a decision to purchase a superyacht has been made, two very important decisions follow almost immediately. The first is how to own the vessel, the second is where to flag the vessel. Cayman offers attractive solutions to both of these decisions.

How to Own the Vessel Most superyachts are owned by companies established solely for that purpose. This has long been considered best practice by maritime lawyers. These corporate ownership vehicles offer liability protection and a degree of confidentiality around ownership: whilst the wealthy are keen to own these vessels, they are often less keen on others knowing they own them. Ostentatious displays of wealth can make the owners, and their families, targets for kidnappers, nuisance lawsuits, or adverse publicity, in a world that only recently emerged from a global recession. The ownership of the shares in the owning company varies from case to case, influenced by the wider considerations and concerns of the ultimate owner. In many cases the shares of the owning company are held by another company. In other cases, the ultimate owner directly holds the owning company shares and, in other cases still, those shares are held as part of a trust structure. Where families own multiple superyachts (another emerging trend), it is common to see each vessel held in a separate company and for all of the shares to be owned by the same trust. Cayman has long been a hub for private client structuring and

offers a flexible trust regime to allow clients to tailor the terms of the trusts to meet their family’s unique needs. Coupled with the fact that Cayman has a high number of wellqualified professionals to establish and support the structures required by clients, it is a popular place for superyacht purchasers to set up their ownership structures. Company incorporation procedures are quick and well-established in Cayman. There are no nationality or residency requirements for shareholders and directors. When the owners look to “flag” the vessel (to which we turn below) they can be confident that the process of doing so in Cayman is simplified where the vessel is owned by a Cayman company. Flagging the Vessel The second consideration for a would-be superyacht owner is where to “flag” the vessel. “Flagging” is the process of registering the vessel with a shipping registry somewhere in the world, the vessel thereafter flying the flag of that jurisdiction. Flagging is a requirement for vessels sailing in international waters and entering foreign ports (because it allows a vessel to prove its nationality), it secures title to a movable asset for the owner, and it allows the vessel to be used as security to obtain a marine mortgage (the mortgage, in turn, being registered).

Cayman. Moving finance forward.

Selecting an appropriate flag for a superyacht is a complicated matter and one of the most important decisions for an owner. That decision needs to take into account privacy, taxation, commerciality, liability considerations and (in some cases) borrowing needs. It is also necessary to look at international reputation and the crew employment requirements imposed by each potential flag state. The tax considerations surrounding flag state selection are magnified where the vessel will, or might, be chartered. Cayman is part of the “Red Ensign Group”. Collectively, this group flags around 80% of the world’s superyachts, with Cayman leading the way amongst the members. Cayman is considered to be the world’s leading superyacht registration jurisdiction, having more large yachts on its register than anywhere else in the world. The Red Ensign Group is comprised of the UK, and such of its crown dependencies and its overseas territories that operate shipping registers. Cayman, as an overseas territory, operates a “Category 1 register”, meaning that it can register ships of unlimited tonnage and type. Amongst a long list of benefits of flagging in a Red Ensign Group jurisdiction is that it uses the “Large Yacht Code” (the Code) for building and equipping commercial yachts. The Code means that vessels which are built and/or operated under it are recognised as complying with high international standards. It is accepted throughout the yachting industry that compliance with the Code can also result in higher resale values for vessels. In addition, Cayman features on the “white list” maintained by the Paris Memorandum of Understanding on Port State Control, and has done so for many years. By appearing on the white list, Cayman flagged vessels

are subject to fewer boardings (for inspection purposes) when they enter foreign ports. This offers a considerable practical benefit to flagging in Cayman. Cayman Islands Shipping Registry The Cayman Islands Shipping Registry (the Registry) was established well over 100 years ago, in 1903. It presently has offices in Cayman as well as the UK, Greece, USA, France, Japan, Singapore and Hong Kong. This allows the registry to offer assistance in a variety of time-zones and geographical locations. The Registry does not impose a formal age limit on vessels that it is willing to register, although an ongoing target of the Registry is to keep the average age of its fleet at less than 15 years. Several types of vessel registration are available, including a form of registration for vessels under construction. This is essential where the construction is to be financed by borrowed funds as it allows the lender to register the mortgage against the vessel. Here at Ogier in the Cayman Islands, we have dealt with a number of superyacht registrations where we have needed to close the deal whilst the vessel was in international waters somewhere in the world. This requirement means that the closings often happen in the middle of the night, Cayman time. The fact that the Cayman Islands Shipping Registry is always able to make arrangements to accommodate this requirement, even on short notice, is a major attraction of the jurisdiction. Why Cayman? The superyacht industry continues to grow at an impressive rate, as does competition between jurisdictions for new vessels. Cayman enters this battle from a position of strength: as the

acknowledged front-runner for superyacht registrations. The jurisdiction fights hard to ensure that it retains this title. Overseas registry offices, out of hours (and same day) registration services, a wide network of vessel surveyors, and slick and efficient registration services all help to maintain this reputation. More broadly, the absence of income tax, capital gains tax, corporation tax, wealth tax, estate tax and gift tax (minimising the “tax leakage” involved in any deals), coupled with a favourable climate for proper structuring allow Cayman to offer a complete package for anyone looking to own and operate a superyacht. For as long as uber-rich continue to believe that a superyacht buys them a mooring right alongside ‘happiness’, the value of this market internationally will continue to rise. Cayman is well placed to capitalise on this growth and to consolidate the view that it is the best place in the world to flag a superyacht.

About the Author David Cooney, Partner at Ogier, specialises in Private Client & Trust work, with particular expertise in structuring involving the acquisition and ownership of superyachts, relocation of ultra-high net worth clients to the Cayman Islands and the establishment of complicated trust structures.

Cayman. Moving finance forward.

AT A GLANCE

BANKING Overview: Cayman’s banking sector is a vital support mechanism for the financial services industry. Banking in Cayman provides a dual-functioning role, providing a full range of products and services to residents and international clients alike. Cayman banks also have speciality industry knowledge and expertise to support the needs of other financial services, such as the investment fund and captive fund and insurance captive sectors. insurance sectors.

he banking sector in Cayman experienced unprecedented growth in the late 1960s after the first banking and trust law was enacted in 1966, laying the foundation for the modern financial services infrastructure that exists today. The banking industry thrived as the jurisdiction’s broader financial services industry took shape and grew in sophistication and service offering. Today Cayman offers a breadth of banking services that is on par with the major financial centres of the world. As at the end of 2014, there were 195 licenced banks in Cayman, six of which are retail category ‘A’ banks licensed to conduct business with domestic and international

clients. There are seven non-retail category ‘A’ banks and 185 category ‘B’ banks, servicing international clients and carrying out limited domestic activity. The retail category ‘A’ banks in Cayman are: Butterfield Bank (Cayman) Limited, Cayman National Bank Ltd., Fidelity Bank (Cayman) Limited, FirstCaribbean International Bank (Cayman) Limited, RBC Royal Bank (Cayman) Limited and Scotiabank & Trust (Cayman) Ltd. The retail banks report total assets of US$14.8 billion, are well capitalised and maintain a sound financial position as highlighted in Tables 1 and 2.

The Cayman Islands Monetary Authority (CIMA) is the governing body with responsibility for supervision and regulation of the banking industry. The jurisdiction is recognised by the IMF and other global agencies as having a comprehensive regulatory and compliance framework and is underpinned by a well-developed banking infrastructure and internationally experienced workforce. Today both local and international clients can expect a full range of banking products and services, including personal, corporate and wealth management. Specific offerings include foreign exchange, deposit products, residential

Cayman. Moving finance forward.

THE STATS Table 1: Cayman Retail Bank Figures All currencies in US$ billion

mortgages and commercial loans. Retail banks offer robust electronic-delivery channels including online banking, as well as local and international ATM and POS networks. Banks in Cayman also manage and administer a variety of corporate structures, which cover aspects of the industry such as managed banks and trust companies, and custodial and treasury services. Cayman, as a global financial centre, plays an integral role in the management of capital flows worldwide. Cayman continues to be ranked fifth based on banking liabilities of US$1.49 trillion, as highlighted in Table 3, highlighting its role as a key financial intermediary. The banking industry in Cayman remains multi-faceted and is extremely effective at servicing the needs of residents and international clients alike.

Produced with kind assistance from the Cayman Islands Bankersâ&#x20AC;&#x2122; Association (CIBA).

Total Assets

of which

Total Loans

Resident Loans

of which Total Deposits

Resident Deposits

2011

17.5

7.5

3.57

15.9

6.42

2012

13.6

7.6

3.69

11.8

6.25

2013

14.8

8.4

3.58

13.1

6.26

Table 2: Financial Soundness Indicators for Cayman Retail Banks (in %)

Capital Adequacy Regulatory capital to risk-weighted assets Asset Quality Non-performing loans to total loans Liquidity Liquid assets to total assets

2011

2012

2013

21.5%

20.63%

21%

2.7%

3.51%

3.4%

48.1%

32.2%

28.3%

Table 3: Cross-Border Assets & Liabilities All currencies combined in US$ trillion Assets

Liabilities

Jun 2011

1.65

1.69

Jun 2012

1.42

1.47

Jun 2013

1.50

1.49

Statistics sourced from Cayman Islands Monetary Authority (CIMA)

Cayman. Moving finance forward.

While the global private banking sector continues to face numerous challenges, the Cayman Islands is crucial to servicing the worldâ&#x20AC;&#x2122;s ever increasing wealth.

BANKING

THE CAYMAN ISLANDS STILL A TOP CHOICE FOR HIGH NET WORTH INDIVIDUALS (HNWIs) AND INVESTORS By Bruce John

espite 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 worldâ&#x20AC;&#x2122;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

Cayman. Moving finance forward.

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

Cayman. Moving finance forward.

BANKING AT A GLANCE: INVESTMENT 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.

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.

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.

“The team impresses clients with its commercial and practical advice.” - Chambers Global (Cayman) Experienced legal specialists in Cayman Islands investment funds, litigation, insolvency, trusts and corporate transactions.

www.harneys.com

BANKING

STRIKING THE RIGHT BALANCE –

RESPONDING TO

GLOBAL REGULATORY CHALLENGES By Andrew Schofield

n the wake of the global financial crisis, an unprecedented wave of regulation has swept through the financial services industry, impacting market participants at every level. As the industry grapples with the challenges and costs of implementation, it is an opportune time to pause and reflect on initiatives undertaken in the Cayman Islands to implement global regulatory changes in an innovative and balanced manner. As a preeminent international financial centre, the Cayman

Islands faces unique challenges implementing regulatory reform as it does business with every recognised financial centre globally. Accordingly, it is subjected to regulatory reforms originating from numerous international regulators. These global regulatory initiatives have, for the most part, focused on two key themes: • enhancing financial stability in the wake of the financial crisis; or • raising revenue for fiscally challenged governments.

The Cayman Islands is also subjected to international regulatory reform across a number of industries. More than 40 of the world’s top 50 banks are licensed in the Cayman Islands, and liabilities on deposit total US$1.4 trillion, making it the world’s fifth largest financial centre in terms of cross border liabilities. The Cayman Islands is also home to over 11,000 registered hedge funds which comprise the majority of the estimated US$2.9 trillion hedge fund assets under management globally, as well as thriving captive

Cayman. Moving finance forward.

BANKING

insurance and structured finance markets. All of these industries have attracted the attention of global regulators, looking to address one, or both, of the objectives described above. The Challenge All of these factors combine to create a challenge for Cayman Islands regulators: how to create a framework where businesses, and the jurisdiction as a whole, are able to comply with these regulatory changes while maintaining a competitive environment where capital can be allocated efficiently across the globe.

formulating policies in response to international regulatory changes. An extensive industry consultation exercise was undertaken for both the US Foreign Account Tax Compliance Act (FATCA) and the Alternative Investment Fund Managers Directive (AIFMD). By undertaking industry consultation and acting to implement the legislation and associated tax information agreements quickly, the Cayman Islands government has demonstrated its commitment to implementing solutions that balance the needs of the local financial services industry with the broader international regulatory agenda.

prior to the implementation of the Basel II framework. Banks are required to report prudential, statistical and financial information to CIMA as below: • annual audited financial statements within three months of the bank’s financial year-end; • quarterly Locational Banking Statistics Survey; • quarterly Basel II and Quarterly Prudential Reports (“QPR”) Form; and • annual Basel II – Pillar II Internal Capital Adequacy Assessment Process (“ICAAP”).

A look at the Cayman Islands’ track record in response to recent regulatory challenges shows good results to date.

A look at the Cayman Islands’ track record in response to recent regulatory challenges shows good results to date. A Collaborative Approach The Cayman Islands government has demonstrated a willingness to collaborate with the financial services industry to ensure that an optimal outcome is achieved when

Bank Specific Regulations Basel II The implementation of Basel II provides an example of the financial services regulator, the Cayman Islands Monetary Authority (CIMA), undertaking industry consultation, in this instance with the Cayman Islands Bankers Association, to ensure appropriate feedback and resolution of issues

Foreign Regulation CIMA also recognises that many banks licensed in the Cayman Islands are regulated by another regulator in the home country of the bank. In this instance, CIMA will ensure that the licensee is subject to effective supervision as part of the home country regulator’s supervision of the overall group. Such supervision must be

Cayman. Moving finance forward.

conducted under an internationally recognised regulatory framework that is acceptable to CIMA. In this way, banks operating in Cayman remain under effective, consolidated supervision by the home regulator, while not overly burdened with redundant supervision by CIMA. Flexibility of Licensing The Cayman Islands offers a flexible range of bank licensing options, depending upon the nature and extent of the operations the bank will undertake. The categories of licenses can be paraphrased as: Class A – allows the licensee to carry on banking services within the Cayman Islands as well as internationally. Class B Unrestricted – allows the licensee to carry on unrestricted banking services internationally. Making loans to and accepting deposits from residents of the Cayman Islands is specifically prohibited. Class B Restricted – allows the licensee to carry on banking services outside the Cayman Islands only with persons listed in the license application. This is typically used to facilitate the treasury functions of large corporations. Banking in Cayman The different licensing options provide banks with the ability to cost effectively execute their strategy through a structure that is tailored for their needs. The licences allow them to operate out of a jurisdiction with a legal system that is both traditional and robust yet flexible and conducive to business. Of the 229 bank licences issued as of Q1 2015, the vast majority (183) were Class B. For the large international banking groups, operating out of many markets, the domestic restrictions are not relevant, as their Cayman branches or subsidiaries interact with other entities within its group, or with international

clients, in order to set out their financial transactions in the most efficient manner. Many bank licences in Cayman are issued to banks in developing countries, which allows them to offer certain products and services that they would be unable to do in their home countries, where foreign exchange controls limits access to global markets. Trade finance instruments, such as letters of credit, that smooth the process of international business are important in this regard. Banks also trade Eurobonds through Cayman for their own treasury operations or those of their customers. Capital Adequacy Requirements CIMA has set minimum capital adequacy requirements of 12% for subsidiaries of foreign banks that are subject to consolidated supervision, as described above, and 15% for locally incorporated banks. Branches (rather than locally incorporated entities) of foreign banks do not need to meet the above capital adequacy requirements subject to the overall bank group meeting the capital adequacy requirements of its home jurisdiction. Longstanding Recognition Evident of the high esteem in which international banking clients hold the Cayman Islands, a recent survey in The Banker magazine named the Cayman Islands as the world’s best Specialist Financial Centre, which was the sixth consecutive year in which Cayman had topped the rankings in this particular survey. This shows how the industry professionals in the Cayman Islands are consistently providing high levels of service and really underscores how Cayman is perceived as the leading international financial centre in terms of providing specialized financial products. The industry is represented domestically and abroad by the Cayman Islands Bankers

Association (CIBA), which was formed in 1979. In addition to playing a role in shaping new legislation and the implementation of international regulation, through its work with government and the various legislative committees, CIBA is active in supporting training and industry relevant education in the areas of banking, trust administration and fiduciary practices. Innovative Solutions to Strike the Right Balance As the global regulatory reform process continues, CIMA, the Cayman Islands government and the financial services industry will need to adapt to the challenges of new regulation. Given the recent history of industry consultation, a willingness to implement legislative changes and the adoption of innovative solutions, the financial services sector in the Cayman Islands is well-placed to strike the right balance between maintaining an efficient model to facilitate the global allocation of capital and conforming to ever-changing international regulation.

About the Author Andrew Schofield is a Director with KPMG in the Cayman Islands and leads KPMG’s banking practice. Andrew provides audit and advisory services to a range of banking, alternative investment and structured finance clients.

Cayman. Moving finance forward.

AT A GLANCE

INVESTMENT

FUNDS

Overview: The Cayman’s growth banking of the sector offshore is asector vital support in Cayman mechanism coincidedfor with the the liberalisation financial services industry. of international Bankingfinance, in Cayman as well provides as thearemoval dual-functioning of currency role, providing controls and a full international range of products trade barriers. and services This resulted to residents in a growing and international demand for clients the core alike. services Cayman Cayman’s banksfinancial also have experts speciality provide, industry andknowledge as hedge funds and expertise emerge to a as support prominent the needs investment of other vehicle financial globally, services, Cayman suchbecame as the fund the incorporation and captive insurance sectors. jurisdiction of choice. The Cayman Islands laid the foundation for its status as a leading hedge fund domicile in 1993, by being the first Caribbean jurisdiction to implement hedge fund legislation.

he Cayman Islands hedge fund sector has facilitated hundreds of billions of dollars of investment into OECD-based economies such as the United States using hedge funds. These funds enable investors from countries around the world to participate in a tax-neutral venture for the purpose of investing into major projects. Hence, contrary to popular opinion, there is effectively no true “capital flight” from OECD economies as a result of international financial centres such as the Cayman Islands. In fact, when one follows the path of funds in a typical hedge fund transaction it shows that offshore centres actually facilitate major inward capital flows

into OECD-based economies from global investors. In addition to the successful legislation governing the Cayman Islands hedge fund sector, and the value added to international investors, the hedge fund sector’s impressive growth is also due to the very high calibre of professionals servicing investment fund clients. The Cayman Islands continues to boast impressive access to the world’s leading legal, accounting and fund-administration firms in this respect. The fund industry continues to grow in the Cayman Islands. With 7,481 registered funds in 2006, growing to 10,273 (registered and master funds) as at 31 March 2015, Cayman

continues to be the domicile of choice for global investment managers. The fund landscape will continue to develop throughout 2015, with further implementation of fund specific initiatives such as the AIFMD, the EU Financial Transaction Tax, the OECD Common Reporting Standard and the first round of FATCA reporting for hedge funds. As at 31 March 2015, approximately 8,000 fund directors have been registered and licensed with CIMA. In addition, impact will be felt from the Base Erosion and Profit Shifting project, as well as issues arising from IRS code section 871(m)

Cayman. Moving finance forward.

THE STATS Mutual Funds withholding on convertible debt and swap contracts. Also on the horizon will be; the proposed introduction of capital gains taxes in such jurisdictions as Hungary, Mexico, Ukraine, Argentina and Poland; the continued focus upon cybersecurity for fund service providers and directors along with changes to the Markets in Financial Instruments Directive.

Registered

Master

Administered

Licensed

Total

2006

7,481

–

548

105

8,134

2007

8,751

–

543

119

9,413

2008

9,231

–

510

129

9,870

2009

8,944

–

448

131

9,523

2010

8,870

–

435

133

9,438

2011

8,714

–

424

120

9,258

2012

8,421

1,891

408

121

10,841

2013

8,235

2,635

398

111

11,379

2014

7,835

2,685

386

104

11,010

*2015

7,597

2,676

379

103

10,755

* to 31 March 2015

Mutual Fund Administrators

Produced with kind assistance from the Alternative Investment Management Association (AIMA).

Full

Restricted

Exempted

Total

2006

153

2007

152

2008

102

155

2009

141

2010

134

2011

129

2012

124

2013

121

2014

115

*2015

112

* to 31 March 2015

Statistics sourced from Cayman Islands Monetary Authority (CIMA)

Cayman. Moving finance forward.

CAYMAN FUND SECTOR RISES TO REGULATORY CHALLENGES

INVESTMENT FUNDS

By David Roberts

ith a demonstrable commitment towards transparency, alongside new legislation, which has left the jurisdiction advantageously positioned for the implementation of global regulatory reform, recent events in the Cayman Islands have served to underscore its attractiveness as an international fund domicile. Modern and forward-thinking, Cayman’s regulatory framework constantly evolves to meet the ever-changing needs of investors. Recently named the best Hedge Fund Services Jurisdiction in the Hedgeweek Annual Global Awards 2015, the Cayman Islands continues to be recognised as the market leader. All sectors of the industry work together, including service providers, professionals, industry associations and the regulator, to ensure that Cayman’s fund product sets the highest standards. Investors and stakeholders appreciate Cayman’s robust legal system and its political and economic stability, as much as the high calibre of its professional advisors. Investor protection is paramount and, while CIMA regulates the industry

The international regulatory picture is constantly changing and, as fund managers have been considering the likely impact of FATCA and the Alternative Investment Fund Managers Directive on their operations, the Cayman Islands has responded positively to recent international initiatives. CIMA has shown a strong desire to cooperate with all global regulatory requirements, understanding that the reputation of the jurisdiction would only be enhanced by following this course of action. The CIMA has taken a proactive approach in respect of AIFMD and signed a Memorandum of Understanding with European regulators to enable the continued marketing of Cayman Islands hedge funds throughout the European Union.

legislation in the UK – is only really starting to be felt now, as the first reporting deadlines are reached. Fund managers can then begin to focus on the next significant initiative looming on the horizon, the full effect of which can only be imagined, with the implementation of the Common Reporting Standard (CRS) for automatic exchange of information. Sometimes referred to as “Global FATCA”, CRS poses significant difficulties for fund managers in jurisdictions that have adopted the standards. Significantly, funds will need to identify financial accounts held directly or indirectly by residents in a large number of partner jurisdictions, which will be a huge undertaking. The Cayman Islands was among the first group of jurisdictions to sign up to CRS and is expected to adopt the necessary legal framework in a timely fashion in order to effect reporting in 2017. It is suggested that those institutions that adopted a flexible approach to FATCA compliance will be best prepared for the more extensive and broader scope of CRS. Either way, there will certainly be more volume in terms of information to be reported.

FATCA has, of course, presented a considerable challenge to service providers, but the industry as a whole has stepped up with all sectors working together to ensure that entities subject to the regulation are fully compliant. The full impact of FATCA – and that of similar

Locally, there have also been some important developments regarding corporate governance, as the industry digested the introduction of a Statement of Guidance on governance standards from the regulator, as well as the repercussions of the “Weavering

effectively, it is still able to maintain a strong relationship with local professionals and service providers which is built on consultation and mutual trust and respect.

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Case” (which may yet be subject to a further appeal). Clearly, many diverse matters have impacted the funds industry over the past year. However, the sector remains strong. Regulation in balance Predominant in the international hedge fund industry, it has been no surprise that the Cayman Islands has played an important part in the global debate on corporate governance for hedge funds and, in particular, the role of directors. The Directors Registration Law of 2014 was enacted by the Cayman Islands government in order to ensure that directors will be subject to regulation and inspection by CIMA and will be expected to undertake their roles in an appropriate manner and in accordance with sound corporate governance practices. It is intended that, in due course, directors will be required to consider their personal capacity before taking on new director appointments. Adherence to the Statement of Guidance on Corporate Governance for Mutual Funds is not onerous and should be appreciated as a safeguard to proper performance by those entrusted with the control and direction of fund activities. When compared to other fund domiciles, the current regulatory framework in the Cayman Islands achieves a perfect balance, in helping to preserve our reputation as a global leader in the funds industry while contributing to the ultimate protection of the investor and his/her money. The global initiatives have had a seismic impact on the funds industry which has had to adapt to the new regulatory order. From our

discussions with managers, there is not just a greater understanding of the benefits of independent directors on the board, but an appreciation of the particular attributes that the right board of directors can provide to a fund. The independent directors of today need to have a flexible approach backed by a wealth of experience. Funds should be looking for breadth of skills and a responsible attitude in selection of their directors. Importantly, funds should understand that this is not a “nominee” appointment and a director should be expected to engage fully with the investment manager and the administrator of the Fund, as well as other service providers, usually through the medium of regular board meetings. Attendance at regular meetings should be expected, to discuss and determine the complex issues affecting current day funds, whilst ensuring the maintenance of high standards of corporate governance. Whilst the delegation of certain specialist responsibilities is to be expected, independent directors must not forget their ultimate responsibility to the investors. There is a wealth of experience in the Cayman Islands offered by the many long established professionals who have worked in the industry since its inception in the 1990’s. There are some that believe that, in the future, it will become more and more important that funds operate with at least one Cayman based independent director. Fortunately, such services are available through a spectrum of service providers, ranging from large, multi-national firms to niche Cayman based offices. Going Forward With the improved global economic picture, financial commentators seem to be in broad agreement that the funds industry worldwide is

set to continue to show consistent growth, as investors persist in their search for alternatives to traditional equity and fixed income markets. As Cayman’s industry professionals and service providers continue to demonstrate excellent service and sound products, as well as face the challenges of the ever increasing regulatory climate, there is no reason to suggest that the Cayman fund industry should not continue to benefit from this trend and continue its growth and market leadership. Industry stakeholders are well aware that business will only continue to flourish while Cayman maintains the confidence of investors through a robust regulatory framework. Meeting the international initiatives “head on” has been a successful model for Cayman in the past and the real challenge ahead will be to maintain its position as the domicile of choice through the provision of quality, timely and cost effective services, with high levels of corporate governance, in a progressive but balanced regulatory environment.

About the Author David Roberts is the Managing Director of Cayman Management Ltd., a licensed Companies Management firm providing a broad range of corporate and Funds services in the Cayman Islands for over 40 years. David is a Fellow of the Institute of Chartered Secretaries and Administrators, a long standing Director of Cayman Finance and sits on a number of specialist finance sector boards and committees.

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INVESTMENT FUNDS

PRIVATE EQUITY IN CAYMAN By Jason Allison and Bicrom Das

IG IS BACK â&#x20AC;&#x201C; The increased global momentum in private equity activity has been reflected in the Cayman Islands, highlighting its importance as a centre for fund formation, secured fund financing and downstream transactions. But whilst the big

players have been raising, and looking to spend, eye-catching amounts there remains space at the table for the mid-market houses and ambitious start-ups. The number of Cayman Islands exempted limited partnerships, the

primary Cayman Islands vehicle through which private equity funds and investments are structured, has been rising steadily. There were 2,861 such partnerships registered in 2014, a 20% increase from 2013, whilst the first quarter of 2015 alone has shown a 22% increase

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3500

New Partnerships Registered 2005 - 2014

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from the corresponding period in the previous year. The increased formation activity is indicative of the work which we have been doing for our institutional clients recently, from which a few key points have stood out: • The power players are flexing their muscles: The last few months have seen the closing of a number of multi-billion dollar mega funds by the major private equity houses. Investors are comfortable in continuing to allocate capital to private equity but, sensitive to memories of the trauma of the crash, feel more comfortable investing with the established global managers. This has led to some big launches and the prospect of significant dry powder to be expended as investment periods start to kick in. • But there is still some space at the table: Mid-market firms have also been active in the market, having some success in raising capital, and even one or two start-up managers have successfully closed initial funds with the backing of cornerstone investors. There is still some appetite for less established managers that are able to provide a compelling story, but the perceived risk is typically required to be mitigated by pressure on both management and performance fees, as well as exposure to removal rights.

We are also seeing the reemergence of managers who had shelved plans to raise funds back in 2008/2009. • Investors remain comfortable with Cayman: The status of the Cayman Islands as a well-established, stable jurisdiction from which to conduct private equity activity continues to attract managers and investors alike. The Exempted Limited Partnership Law, revised in 2010 and replaced in its entirety in 2014, specifically addresses a number of the issues for which we have previously needed to provide legal workarounds when advising on private equity matters. The private sector worked closely with government to make the exempted limited partnership an even more user-friendly vehicle specifically tailored to the needs and concerns of the private equity industry, with a statutory footing behind such focus. The ability of service providers in the Cayman Islands to communicate the concerns and issues faced by the private equity industry to the lawmakers and the willingness of the Cayman Islands government to carefully consider and enact legislation to address certain of those issues has highlighted the flexibility of the Cayman Islands as a jurisdiction, a flexibility that has continued to be rewarded by ongoing and

increased activity in the private equity space. • Even more so than before…: Most funds have historically had onshore (typically through Delaware) and Cayman access points for investors. Whilst, in general, successor funds have sought to retain the structure of their predecessors we have seen a couple of large successor funds move their primary fund vehicles from Delaware to the Cayman Islands, highlighting further the increased confidence in the jurisdiction amongst managers and investors alike. • Multi vehicle structures are OK: For larger funds with material numbers of limited partners, and significant capital to deploy, managers and investors are often looking to segregate categories of investors into various side-by-side silos, with investors able to access such funds through a choice of fund partnerships. Cross-voting and cross-collateralisation are common features in these structures. The additional costs and administrative burden in maintaining a larger number of Cayman Islands exempted limited partnerships are not proving to be material, highlighting once more the efficacy of the exempted limited partnership as a private equity vehicle. • I would rather play on my own: Leading on from above, we have seen an increase in the number of funds-of-one

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INVESTMENT AT A GLANCE: FUNDS INVESTMENT FUNDS

whereby large investors have asked to be split out into a separate Cayman Islands exempted limited partnership in which they are the sole limited partner, and this partnership broadly participates in the same investment program as the main fund. • Side letters have not been put aside: Whilst the prevalence of “most favoured nation” provisions and the administrative issues in tracking terms agreed with multiple investors in separate agreements had led to a feeling that the majority of commercial terms would end up being reflected in exempted limited partnership agreements going forward, a number of closings have continued to be accompanied by the negotiation and entry into detailed side letter provisions with multiple limited partners covering, as expected, both fee terms and any esoteric regulatory issues but also more general commercial terms which managers have felt obliged to concede but uncomfortable including in the constitutional documents of their funds. • We want more: Whilst exempted limited partnership agreements have historically contained a general ability to co-invest, more and more limited partners are notifying managers of their interest in coinvestment opportunities, often formally recording such interest in side letters. For funds which have moved into their investment periods we have seen, from initial investments onwards, the establishment of further Cayman Islands co-investment vehicles through which select limited partners have sought to access a further slice of the relevant investment through the Cayman Islands (often for lower fees).

• Subscription line financings are going strong: We have seen a large number of financing deals secured over, among other things, the unfunded capital commitments of limited partners. As the rights to call and receive capital are set out in the Cayman Islands law governed exempted limited partnership agreements the situs of the asset is the Cayman Islands, and lenders are requiring comfort from Cayman Islands counsel that their security will be enforceable. The procedures required to ensure that security over capital commitments is valid and will have priority are well understood in the jurisdiction, and they are becoming familiar to lenders and their onshore advisors. With so much capital raised and dry powder still to be spent for existing funds, downstream M&A and IPO activity has continued to be busy with a large proportion of such

About the Author Jason Allison is a partner in the Walkers Global Investment Funds Group. He advises on Cayman Islands corporate and investment funds law, with particular expertise advising institutional clients on all aspects of structuring and establishment of private equity funds and hedge funds, and the related downstream M&A and corporate finance aspects.

activity continuing to be structured through the Cayman Islands. The nature of the deals being undertaken has been varied, reflecting the wide number of asset classes in which private equity now deals and is comfortable taking through the Cayman Islands. We have seen a wide range of investments, from acquisitions of infrastructure to highly regulated financial services providers, real estate to heavy industry, all of which have been structured with a Cayman Islands component. As such, the Cayman Islands are continuing to consolidate their position as a jurisdiction ideally suited to accommodating the entire range of matters arising throughout the lifecycle of a private equity fund structure. As more funds close and more capital is subsequently deployed the Cayman Islands will continue to cater to and service the needs of the private equity industry and provide a range of innovative solutions to satisfy its requirements.

About About the the Author Author Duis eu ligula auctor, Bicrom Das is an associate in fermentum eu,Investment sagittis the Walkers felis Global diam. Nam gravida convallis Funds Group who advises on libero, sodales metus privatein equity fund formation tincidunt sit amet.transactional Aliquam and downstream mollis pharetra tellus finibus work. orci Bicrom has extensive finibus. Pellentesque experience advising aornare broad semper in sagittis lectus range ofligula, investment managers, semper eget. Aenean dignissim private equity houses and other convallis nulla at commodo. institutional clients in respectInof nec placerat libero. Nunc vel various Cayman legal issues. luctus lectus.

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HOW INSTITUTIONAL INVESTORS ARE CHANGING THE FUND INDUSTRY

INVESTMENT FUNDS

By Kevin Phillip

s institutional investors continue to drive asset growth in the hedge fund industry since the 2008 financial crisis, they are also acting as a catalyst for positive change that benefits the interests of all investors. These institutional investors include pension funds, both public and private, insurance companies, foundations and endowments and sovereign wealth funds, whose capital account for the majority of the industry. A global survey of institutional investors, conducted in 2013 by AIMA’s Investor Steering Committee, found that institutional investors had either invested in hedge funds for the first time, or had increased their allocations, in some cases to more than double since the financial crisis. Quite significantly, the survey also revealed that investors viewed hedge funds as a vehicle to help them “meet individual objectives in terms of risk-adjusted returns, diversification, lower correlations, lower volatility and downside protection” and that they were

quite bullish about allocating even more to hedge funds in the future.

and its service providers is being further underscored.

A Call for Greater Transparency Generally, institutional investors welcomed the industry’s increasing emphasis on transparency, the survey found, and were not at all daunted by the increasing regulation of the industry, except for some disquiet about the cost of such regulation. In fact, these investors have called for even greater transparency, changes to governance within the industry and enhanced operational infrastructure.

The U.S. Securities and Exchange Commission’s (SEC) fund governance standards released in 2004 (Federal Register/Vol. 69, No. 147/Monday, August 2, 2004/ Rules and Regulations) provide the hedge fund industry with benchmark guidelines for some of the key governance issues that are of lingering concern to institutional investors. In particular, the role of independent directors on the fund’s board and how directors act in the interest of investors will always be a salient issue. Institutional investors are making it a point to not only ensure that the funds they’re investing into have independent directors, but to meet with and assess these independent directors.

These and other considerations are helping to fuel a new round of debate amongst industry participants and give institutional investors, in particular, a bigger say about the future of the industry. Indeed, new investor advocacy groups of influential institutional investors formed during 2014 are adding new perspectives to these core issues. A Focus on Independent Directors Governance is of particular importance and the value of independent directors who are nonaligned to the investment manager

From our experiences, we have seen the benefits of an independent board where a fund finds itself in a distressed situation. Where questions of redemptions and payouts arise, an investment manager could act on his own accord and, without the impartial oversight and other checks and

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balances, could potentially “loot” the fund of its resources under the veil of a required indemnity for example, or make preferential payments to affiliated parties. Quality, institutional hedge fund boards must be capable of managing conflicts of interest and ensuring that investors have all the information they need to make an informed investment decision. Approving material changes within the fund structure like service providers, approving side letter terms, approving financial statements and ensuring the fund’s compliance with what has been stated in its Offering Memorandum are a few of the examples of the responsibilities that an independent hedge fund director may need to undertake to achieve this. Today, some key fund governance considerations remain around board performance and the quality of fund documentation. Board Performance Board and committee performance continues to be a focal point of institutional investors and should be assessed in-depth at least annually. Consider whether the composition of the board, the capacity of its members, plus the frequency (and location) of its meetings and transparency reporting meet stakeholders’ expectations. Direct interactions with board members have continually increased since the 2008 financial crisis, with board members now providing greater transparency and more information to demonstrate and explain board involvement, performance and effectiveness. A critical part of this assessment, however, is out of the control wof the board and the scope of its authority. If the voting shares of the fund are not held by an independent party, or the fund is a feeder into a master fund that is not governed independently, or the fund documents impose

undue constraints, the board may be rendered impotent or severely hampered in achieving effective fund governance. In these instances, board composition, capacity and other performance considerations become less relevant. It is important to review the tax status of the board members annually and ensure that all directors or officers of the fund have provided evidence of required filings with their home jurisdictions. For example, US citizens and US residents who are officers, directors, or shareholders in certain foreign corporations (including offshore investment funds) may be responsible for filing Form 5471 Information Return of US Persons With Respect to Certain Foreign Corporations. The form and attached schedules are used to satisfy the reporting requirements of transactions between foreign corporations and US persons under sections 6038 and 6046 of the Internal Revenue Code. Substantial penalties exist for US citizens and US residents who are liable for filing Form 5471 and who fail to do so. The location of board meetings is also important. In recent years, a series of US court decisions have found that the center of main interests (COMI) of various Cayman Islands funds was not in the Cayman Islands. An important consideration of these courts in determining the COMI, included the finding that “none of the directors resided in the Cayman Islands and there was no evidence of any board meeting taking place there”. If a Cayman Islands fund is assumed by an official authority to not conduct a trade or business in the Cayman Islands, it may cause adverse tax and regulatory consequences for the fund. It is generally accepted that “substantially all” of the board meetings of a Cayman Islands fund be conducted in or from the Cayman Islands.

Fund Document Review Material fund documents should be reviewed at least annually to ensure they are fully and fairly informing investors of current practices, considering the pace of regulatory changes in the industry and fiduciary obligations. The board should consult with its professional advisors on any proposed changes, including benchmarking current and proposed practices against industryleading trends, to ensure fund documents remain compliant with best industry practices. Conclusion With greater scrutiny from institutional investors, and as the hedge fund industry evolves its governance structure to respond to the new reality, the onus is not just on directors, but all service providers and fiduciaries to hedge funds to advance their practices to institutional standards.

About the Author Kevin Phillip is an Executive Director of DMS Offshore Investment Services and Business Unit Leader of the DMS International Tax Compliance Group and DMS Outsourcing Ltd. He leads a team of professionals at DMS, supervising the governance of hedge funds and Cayman Investment Managers, and provides guidance on accounting, regulatory, legal and financial matters. He also serves on the boards of a variety of hedge funds and related structures.

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INVESTMENT FUNDS

SURGE PREDICTED IN GLOBAL ASSETS UNDER MANAGEMENT By Graeme Sunley

With an overview of the conditions that the global asset management industry will face over the medium term, PwC examines the impact on the leading offshore fund domicile.

ith significant implications for the Cayman investment fund sector, research from PwC predicts that global assets under management (AuM) will rise to around US$101.7 trillion by 2020, from a 2012 total of US$63.9 trillion. This represents a compound annual growth rate of nearly 6%. The report, Asset Management 2020: A brave new world, finds that assets under management in the SAAAME (South America, Asia, Africa, Middle East) economies are set to grow faster than in the developed world in the years leading up to 2020, creating new pools of assets that can potentially be tapped by the asset management industry. However, the majority of assets will

still be concentrated in the US and Europe.

regulatory and tax reciprocal rights extend across the globe.

The report also predicts that alongside rising assets, there will be rising costs. The costs of responding to and complying with regulation will remain high. Fees will be under continued pressure amid the ongoing push for greater transparency and comparability from investors and policymakers. Investment in technology and data management will need to be increased in most cases to maximise distribution opportunities and to cope with regulation and reporting. In addition, full transparency over investment activity and products will exist at all levels, resulting in there being nowhere for noncompliant managers to hide as

Asset managers will need to respond PwC has identified six game changers that asset managers will have to analyse and address in order to capitalise on the opportunities this changing landscape presents: 1. Asset management moves centre stage: Asset management has long been in the shadows of its cousins in the banking and insurance industries. By 2020, it will have emerged definitively from their shadows. 2. Distribution is redrawn â&#x20AC;&#x201C; regional and global platforms dominate: By 2020, four distinct regional fund distribution blocks

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2020 will see the emergence of global managers, with highly streamlined platforms, targeted solutions for the customer and a stronger and more trusted brand.

will have formed which will allow products to be sold pan-regionally. These are: North Asia, South Asia, Latin America and Europe. As these blocks form and strengthen, they will develop regulatory and trade linkages with each other, which will transform the way that asset managers view distribution channels. 3. Fee models are transformed: By 2020, virtually all major territories with distribution networks will have introduced regulation to better align interests for the end-customer, and most will be through some form of prohibition on having the asset manager allocate to distributors as evidenced in the UK’s Retail Distribution Review (RDR) and the Markets in Financial Instruments Directive II (MiFID II). This will increase the pressures of transparency on asset managers and will have a substantial impact on the cost structure of the industry. 4. Alternatives become more mainstream, passives are core and ETFs proliferate: Traditional active management will continue to be the core of the industry as the rising tide of assets lifts all strategies and styles of management. But traditional active management

will grow at a less rapid pace than passive and alternative strategies, and the overall proportion of actively managed traditional AuM will shrink. PwC estimates that alternative assets will grow by some 9.3% a year between now and 2020, to reach US$13 trillion. 5. A new breed of global managers: 2020 will see the emergence of global managers, with highly streamlined platforms, targeted solutions for the customer and a stronger and more trusted brand. These managers will not only emerge from the traditional fund complexes, but from among the ranks of large alternative firms, too. 6. Asset management enters the 21st century: Asset management operates within a relatively low-tech infrastructure. By 2020, technology will have become mission critical to drive customer engagement, data mining for information on clients and potential clients, operational efficiency and regulatory and tax reporting. At the same time, cyber risk will have become one of the key risks for the industry, ranking alongside operational, market and performance risk.

PwC survey finds 88% of Asset Management CEOs are confident of revenue growth in 2015 More recently, PwC’s 18th Annual Global Survey of more than 1,300 CEOs, which includes responses from 155 Asset Management CEOs in 46 countries, found that Asset Management CEOs are also confident about revenue growth. A high of 88% are either ‘very’ or ‘somewhat’ confident about their revenue growth, rising to 95% over the next three years. China and the US are viewed as the most important countries for growth prospects. However, with fees under pressure from the rise of ETFs and passive funds, asset management CEOs remain vigilant on costs, with almost half (46%) aiming to cut costs in 2015 and 28% looking to outsource. More than a quarter of asset managers reported entering a new segment of the industry over the past three years. A further 18% say they have looked into doing so. Indeed, PwC has seen asset managers disrupt banking by, for example, acquiring portfolios of real estate loans and lending to corporates. Alternative asset managers have broadened their product ranges to include private lending arrangements, primary

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INVESTMENT AT A GLANCE: FUNDS INVESTMENT FUNDS

securitisations and off balance sheet financing. Asset Management CEOs see their future competitors coming from technology, financial services or business services. Already ‘robo adviser’ business models are appearing to threaten to disrupt wealth management activities through automating asset allocation. From a business perspective, 68% of asset management CEOs are concerned about the availability of key skills whilst 63% fear mounting cyber threats, such as data security, which have become an ongoing business risk. What is more, even seven years on from the financial crisis, lack of thrust in business remains a concern according to 61%. On the regulatory front, asset management CEO anxiety about tax issues is a constant theme. 67% in PwC’s survey state an internationally competitive and efficient tax system should be a government priority in their country, although half see government as having failed to achieve this. However, they do see some benefits from regulation with 53% saying improved regulatory coordination is increasing crossborder capital flows. What does this mean for the Cayman Islands? From a Cayman perspective this predicted growth is certainly positive news. Home to the majority of the world’s offshore alternative fund products, including hedge and private equity funds, Cayman will without a doubt continue to fulfil a crucial role in the industry. With regard to alternatives in particular, which is especially relevant from a Cayman perspective, alternatives will become more mainstream. As noted earlier, alternative assets are predicted to

grow by some 9.3% a year between now and 2020, to reach US$13 trillion. It should also be noted that the majority of assets will still continue to come from the US and Europe – which are the traditional stronghold markets within which Cayman funds are distributed and from which they are managed. Such growth is predicted within the environment of a maturing alternatives industry, which will also experience the rise of the so so-called ‘mega manager’. In other words, growth in alternatives AuM does not necessarily indicate a proportional increase in the number of managers or funds coming to market. The Cayman industry and all of its participants need to be cognisant of this dynamic. The PwC research confirms that regulatory and tax reciprocal agreements will continue to expand across the globe. It can therefore be expected that the Cayman Islands Monetary Authority (CIMA) will continue to negotiate and refine its regulatory and tax cooperation agreements with its global regulatory counterparts. Furthermore, arrangements similar to the Cayman Islands Governments (CIG) recent Model 1B Intergovernmental Agreement reached with the US pursuant to the US Foreign Account Tax Compliance Act (FATCA) are planned to be expanded to multiple jurisdictions. Cayman will continue to stay at the forefront of such regulatory and tax transparency initiatives, thanks in part to a constructive and consultation based relationship that exists between CIMA, CIG and the private sector. Other recent developments in this regard have included bringing master funds into the scope of the mutual funds law and the recent registration and licensing regime for directors to certain Cayman registered funds. All of these are examples of appropriate

responses to the international regulatory agenda. Considering these growth prospects, for the Alternatives sector in particular, there will be significant opportunity, and the influence and reach that Cayman has as a relevant player in the financial services industry will continue to be significant. To download a copy of Asset Management 2020, please visit www.pwc.com/assetmanagement PwC’s report ‘Redefining competition in a world without boundaries: Asset Management Summary’, is based on the response from 155 asset management CEOs in 46 countries. To see the full results of PwC’s 18th Annual Global Survey, please visit www. pwc.com/ceosurvey

About the Author Graeme Sunley is a Partner as About the Author well as the Asset Management Duis Territory eu ligulaLeader auctor,of PwC and fermentum felis eu, Cayman Islands. He sagittis has nearly diam. Nam convallis 20 years of gravida professional libero, in sodales metus in experience and specialises tincidunt sitInvestment amet. Aliquam Alternative fund mollis orciwith pharetra tellus products a variety offinibus finibus. Pellentesque ornare strategies and legal structures. semper ligula, in sagittis lectus Graeme is a Past President of semper eget.Islands Aenean dignissim the Cayman Society of convallis nulla at commodo. Professional Accountants andIn nec placerat libero. Nunc vel former member of the Executive luctus lectus.of the Cayman Committee Chapter of AIMA.

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INVESTMENT FUNDS

EXPORT CAYMAN

HEDGE FUNDS IN ASIA By David Bentley

he importance of Asia, its growing dominance of global financial assets – and its role as an engine of growth for the world economy, is reflected in the region’s strong links with the Cayman Islands financial services industry, particularly Hong Kong, Singapore and Japan, all key export markets for Cayman financial product. When the major Cayman Islands law firms were looking to open offices in Asia to provide time-zone sensitive support to an expanding client base in the region, Hong Kong’s stable environment and well developed financial architecture made for a natural choice. Singapore has also become an important outpost for the leading firms in recent years, while Appleby and Ogier have each established a presence in Shanghai.

regime under UK common law and is widely used for financing work, corporate restructurings and forming investment vehicles. “Much of the work we do for our clients in the region continues to involve the use of Cayman Islands structures,” said Walkers partner Arwel Lewis, based in Hong Kong. “In particular in China, Chinese State Owned Enterprises and private entities use these structures for outbound investments, both as holding companies for external investment and to provide investment capital in investment funds for outbound investment.” Walkers said it has demonstrated a longstanding commitment to the Asia-Pacific region having established a dynamic presence through continual regional growth. “Over the last 12 years, we have steadily expanded in Asia to meet the growing demand from The success of Brand Cayman in the increasingly sophisticated regional Far East can be attributed to the fact clients, not only by offering that Cayman Islands corporates and time sensitive advice but also in partnerships are both widely accepted the client’s own language be it and familiar to investment managers Mandarin, Cantonese, Japanese and financial institutions. Cayman and others,” Lewis said. is favoured for its flexible corporate

“Asia has always been an important part of Maples and Calder’s global footprint. Established in 1995, our Hong Kong office was the first office our firm set up outside of the Cayman Islands as we recognised the importance of Asia to the alternative investment industry,” stated Global Managing Partner, Henry Smith. “We expect this trend to continue as fund managers based in the region continue to grow and diversify their business, and we anticipate that fund raising outside the region from US and European investors and use of Cayman, BVI and Irish domiciled investments funds and holding companies will become even more important and prevalent.” Maples said its Asian investment funds team is recognised as a market leader across all the key fund jurisdictions in the region, including Hong Kong, Mainland China, Singapore, Japan, Korea and Taiwan. With strong Chinese language capabilities and a team of lawyers from diverse backgrounds, Maples said it advises a large number of start-up and established hedge fund managers in the region, while its MapleFS affiliate has grown substantially. Cayman’s influence on corporate dealmaking in Asia is significant and well illustrated by the recent move by Hong Kong billionaire Li Ka-Shing to restructure his US$100 billion business empire away from Hong Kong to the Cayman Islands. In what was described as an exercise to improve transparency within his conglomerate corporate structure, news that Asia’s richest man was re-domiciling to Cayman certainly grabbed the headlines. “Cayman Islands structures are increasingly popular in Asia, with over 75% of the companies listed on the Hong Kong Stock Exchange in the last 10 years being incorporated in the Cayman Islands,” Walkers’ Lewis said. “We have seen increasing use of Cayman Islands domiciled

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hedge and private equity funds and Cayman Islands corporates being used as holding companies to pool investor funds into investments in the region.” Alex Last, partner with Mourant Ozannes in Hong Kong, which set up its office there in 2012, said Cayman’s traditional leadership in the offshore funds sector is an important factor. “In Asia, Cayman is almost seen as the default option when structuring investment funds. It has had first mover advantage and is supported by a very high quality network of lawyers and other service providers who operate in the Asia time-zone,” Last said. “Cayman has an important role to play in both inbound and outbound investment into the region,” Last added. “The stable and robust legal regime in the Cayman Islands makes it an attractive structuring option for international investors who are looking to invest in emerging markets. Typically, such investors are looking to take investment risk but are unwilling to take structural risk. Using a jurisdiction like Cayman which provides a significant degree of legal certainty helps to mitigate this.” Across the region As hedge fund and private equity markets have developed further in Asia, since the financial crisis there have also been regional regulatory changes and an influx of new managerial talent. A number of high profile launches have taken place where managers have broken away from their former shops or investment banks in response to the Volcker Rule, such as former Goldman Sachs star trader Morgan Sze in Hong Kong with Azentus Capital. The capital raising environment is as tough in Asia as it is elsewhere and with ever increasing compliance costs, the larger managers have had more success fundraising as they are better able to meet the new

regulatory requirements. In Singapore, tighter regulations introduced by the Monetary Authority of Singapore, have had a more significant impact on the smaller end of the market. Among the changes were new capital requirements and limits on investor numbers, along with more onerous requirements for reporting and auditing. Smaller managers have been able to overcome these tricky regulatory issues and meet the licensing requirements by joining platforms which provide office space and infrastructure to managers that otherwise wouldn’t be able to get to the launch stage. The 2014 partnership between Singapore sovereign wealth fund Temasek and one such platform – Dymon Asia – was a landmark event for the jurisdiction, as the state agency’s $500 million investment was seen as a major vote of confidence and likely to spur further growth. Japan was thrust back into the spotlight for institutional investors as the Abenomics-inspired market bounce in 2013 saw asset allocation and exposure to the region increase. Increased risk appetite internationally for Japanese assets came alongside a notable move by Japan’s Government Pension Investment Fund – the pension fund for public sector employees in Japan and one of the biggest retirement savings pools in the world – to increase exposure of its US$1.2 trillion portfolio to equities. The announcement in October 2014 saw target exposure to domestic and international stocks more than double from 12% to 25%, while domestic bonds dropped from 60% to 35% of the portfolio and international bonds increased from 11% to 15%. Officials said the move was a response to Japan’s departure from an economy with persistent deflation and analysts expect funds to continue their focus on Japan, with major infrastructure investments taking place ahead of the 2020 Tokyo Olympics and

continued recovery from the 2011 Tohoku earthquake. Japanese equities continued to perform during the first half of 2015, with the Nikkei 225 reaching a 15-year high. Managers with funds targeting Japan continue to favour Cayman exempted limited partnership and unit trust vehicles, Walkers said in a recent research note, with most of the bank and trust companies they deal with, establishing Cayman unit trusts for ultimate distribution in Japan. Against a global backdrop of rapidly increasing compliance and operational costs, raising barriers to entry in the hedge fund sector, managers located in Asia have also had their own local regulatory challenges to contend with. Despite the obstacles, funds continue to launch in this competitive market. If we are now living in the ‘Asian Century’, Cayman Islands funds look set to play an increasingly prominent role.

About the Author David Bentley is a financial writer and editor with over 20 years’ experience, specialising in offshore finance and regulation. Reporting in London, he worked for Dow Jones Newswires, appeared in the Wall Street Journal and covered structured finance for the International Financing Review. Currently with a specialist Cayman-based writing agency, he is a former editor of the Cayman Financial Review and spent six years with one of Cayman’s biggest offshore law firms.

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AT A GLANCE

INSURANCE Overview: Fuga. Itae vendam nonectia sequi offictora quam excessitem

S C

hit rerum liquis expliquis audiciis eiciam etur? Udaepero ellupta ssimetur aut hitiore commoluptat lam eictiunt iundae. Invelesequi consecuptur aut providucid ince the early 1970s, the Cayman manner. Instead of enacting a in 1980, according to the AM Islands have been blazing the trailet quatios whole new swathe ofgnimporum legislation, Best Captive Thenos Cayman mo minctotae repeliciis possima earci dolutCentre. et que nim for the development of the captive Cayman wisely chose to amend Islands remains the second-largest in net enda beatemquid ssimpella sundior alistorit insurance and thenullatusdae alternative risk officitsto long established and quidele widely captive domicile in the world pa transfer industries. By providing understood Segregated Portfolio (Cayman, Bermuda and Vermont ima evento quias aut as robust yet familiar corporate Company (SPC) legislation. This being the most well-known) out structures for captive insurance companies, enacting progressive legislation and implementing risk-based regulation, the Cayman Islands quickly became a leading domicile of choice for captives as well as other corporate insurance products, including insurance linked securities. Cayman has continued to innovate, modernising its legislative and regulatory infrastructure and responding to market demands in a business-centric, yet appropriately governed environment. The most recent legislative development has been the implementation of the Portfolio Insurance Companies (PIC) Regulations (2015), which reinforce and enhance the insurance statutory framework by providing greater flexibility and do so in a robust and efficient

gives to Cayman all the beneficial characteristics of Incorporated Cell Company legislation but none of the potential uncertainty or the law of unintended consequences, which can be associated with enacting “new” legislation. Cayman’s regulatory model is noteworthy as it provides regulation based both on the type of structures utilised as well as the composition of the given risk profile. Transparency is paramount, providing a perfect balance between heightened oversight for companies with higher risk profiles and a more efficient approach for those vehicles that are predominately investment in nature. There are more than 5,000 captive insurance companies in the world, up from roughly 1,000

of the more than 70 jurisdictions now providing captive insurance domiciliation. Cayman has continued to fare comfortably in this increasingly competitive marketplace because of its long and successful history and its extensive level of experience and expertise. The healthy, but arms-length industry-to-regulator-to-legislators relationship fosters innovation and timely implementation of leadingedge products that answer market demand. To be more specific, as at 31 March 2015, there were 760 Class B, C and D insurance companies under supervision of the Cayman Islands Monetary Authority with pure captives and SPCs representing the lion’s share of these, 414 and 139 respectively. Total assets held were reported at US$54 billion and total premiums at US$12.4 billion.

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THE STATS

Healthcare captives are particularly prominent and Cayman has been the leading jurisdiction for this sector of business since Harvard Medical School selected Cayman over Bermuda as its domicile of choice back in 1976. Thirtyfour percent of Cayman’s captive insurance companies are healthcare related and medical malpractice liability is the largest line of business underwritten. That being said, Cayman has developed other areas of business including workers’ compensation, life, professional and product liability, property and a host of other categories, including some that are non-traditional, such as environmental pollution, cyber and terrorism risks. The Insurance Managers Association of Cayman (IMAC), the industry body with responsibility for promoting the jurisdiction’s captive insurance industry in its target markets, is actively developing previously untapped markets, including Canada and Latin America, where there are numerous benefits for companies in these regions to use a Cayman-domiciled captive insurance company, in addition to those traditionally used by American companies.

Produced with kind assistance from the Insurance Managers Association of Cayman (IMAC).

Total Companies by Category Updated as at 31 March 2015

Total Companies by Risk Location Updated as at 31 March 2015

0.13% Reinsurance Companies 4.34% Special Purpose Vehicle 5.66% Commercial Insurer 16.97% Group Captive 54.47% Pure Captive

0.26% Pacific Rim 0.79% Africa, Asia & Middle East 1.97% Europe 3.03% Caribbean & Latin America 3.95% Worldwide 90.00% North America

Statistics sourced from Cayman Islands Monetary Authority (CIMA)

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INSURANCE

The new Portfolio Insurance Company structure gets the best out of the popular Segregated Portfolio Company regime in the Cayman Islands.

PORTFOLIO INSURANCE COMPANY THE

ANOTHER IMPORTANT TOOL IN THE BOX FOR CAYMAN’S CAPTIVE INSURANCE INDUSTRY By Paul Scrivener

ince their introduction in 1998, segregated portfolio companies (SPCs) have proved to be extremely popular vehicles in Cayman’s captive insurance industry. SPCs were originally developed to provide an improved model of the traditional contractual rent-a-captive. However, in the almost 17 years that they have been on the statute book, they

have been used in many different circumstances. Indeed, they have been used wherever there was a need to create legally “ring-fenced” accounts or portfolios within a single licensed insurer thereby ensuring that policyholders or other creditors only had recourse to the assets of a specific account or portfolio and not the entire balance sheet of the SPC. Statistics

of the Cayman Islands Monetary Authority (CIMA) bear witness to their popularity with captive owners and their consultants. As at 30 September 2014, there were 138 SPC insurers, out of a total of 765 Cayman captives, writing in excess of US$750 million in premiums. Can the SPC be Enhanced? Although not relevant to all SPC

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insurers, for some a drawback of the SPC was that none of the segregated portfolios, or cells for short, was a separate legal entity. Only the SPC itself was a legal entity and the cells were simply ring-fenced divisions of that legal entity. Why was this a drawback? There are two principal reasons. First, any contract between one cell and another cell of the same SPC can never be legally binding. This is because of the absence of two legal parties. This therefore prevents reinsurance and risk pooling arrangements between cells of the same SPC, which for some SPCs is a definite disadvantage. Second, there is considerable uncertainty over the US federal tax status of an unincorporated cell of an offshore insurer casting doubt over whether a cell can be treated as a separate taxpayer and make its own tax elections such as a 953(d) election and an 831(b) election. These issues were capable of being addressed if it were possible for an SPC insurer to incorporate one or more of its cells and thereby create the separate legal identity that was needed. How could that be best achieved? On 16 January 2015, the Cayman Islands government brought into force certain sections of the new Part 4A of the Insurance Law, 2010 and passed the Insurance (Portfolio Insurance Companies) Regulations, 2015, thereby allowing SPC insurers to enjoy the same benefits as incorporated cell companies in other jurisdictions. It is, arguably, the most significant legal development for Cayman’s insurance sector since the introduction of SPCs in 1998. These legislative developments was widely anticipated and were the product of a tremendous collaborative effort between the Cayman Islands government, the Insurance Managers Association of Cayman (IMAC) and the Financial Services Legislative Committee, a private sector/public sector committee tasked with maintaining

Cayman’s financial services legislation at the cutting edge. Cell Incorporation the Cayman Way Incorporated cell legislation is not new and was first developed in Jersey several years ago. However, the Cayman Insurance Law now provides a model for incorporated cells, which differs from that in Jersey and other domiciles. It is specific to the insurance sector because of the pressing need for incorporated cells for the reasons outlined above and, at this stage, does not extend to other sectors of Cayman’s financial services industry. The primary legislative amendments have been made to the Insurance Law rather than the Companies Law and were deliberately crafted as a modification to the existing regulatory regime for SPC insurers rather than a change to substantive law, which would have taken much longer to implement. However, the most important difference with the Cayman model is that cell incorporation is achieved by a separate company being established by the SPC underlying the relevant cell and registered with CIMA rather than the cell itself taking on incorporated status. Cayman has adopted a more conservative solution than competitor jurisdictions, one that is based on clear and well-established principles of corporate law. An SPC insurer that wishes to incorporate one of its cells will set up a regular Cayman exempted company – called a portfolio insurance company or PIC for short – which will be owned and controlled by the SPC insurer on behalf of the cell in question. Effectively, the cell will own the PIC and the PIC, for all practical purposes, will replace the cell. So if the cell has an existing insurance program, going forward, that program would be expected to be operated by the cell’s PIC and no longer by the cell. A PIC is simply a subsidiary of the SPC but tied to a particular cell of that

SPC, a concept which can readily be understood by parties dealing with an SPC and its PICs. Only one PIC can be established under each cell. Whilst PICs were developed to address the intra-cell contracting problem and provide much greater certainty as to the US tax status of a cell of an offshore insurance company, PICs have a number of other benefits over a traditional cell. Although they would have to be approved by CIMA (unless already approved), the members of the board of directors of the PIC need not be the same people as the members of the board of directors of the SPC insurer itself. This provides governance flexibility and gives a voice at the board table for the economic owners of the cell, which they typically do not have with an unincorporated cell. This is because for an SPC with unincorporated cells there is a single board at the core level responsible for the affairs of all cells of the SPC as it is not possible to have boards of directors at the cell level. For third parties unfamiliar with SPCs and the cell concept, a PIC is probably easier to understand than a cell simply because it is a separate company. A PIC can also transition more easily to a standalone captive than a cell because it is a separate legal entity with its own constitutional documents and board of directors. Therefore, the transition is likely to be much less disruptive than would be the case with the hiving-off of a cell. In addition, a PIC is able to merge with another

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INSURANCE AT A GLANCE: INVESTMENT FUNDS

company under statutory merger provisions and can be used to facilitate the redomestication of a foreign captive into the Cayman Islands. It is also worth noting that there is very limited judicial authority in any jurisdiction surrounding the legal efficacy of the ring-fencing concept in a traditional cell company and whilst legal experts generally agree that the concept will withstand close judicial scrutiny in the case of a properly established and operated cell structure, there is no doubt that a PIC will benefit from already well-developed case law supporting corporate limitation of liability. Regulatory Aspects A PIC will be regulated by CIMA but as long as it remains a PIC it will not need its own insurance licence. Instead it will operate under the umbrella of the licence held by the SPC insurer, which controls it. The legislation provides for a straightforward registration process with CIMA for each PIC and once registered the PIC will be able to write its own insurance business within the parameters of its business plan filed with CIMA. The level of regulatory oversight that CIMA will have over a PIC will be largely the same as for a stand-alone captive. So, for example, audited financial statements reflecting the financial condition of each PIC will need to be filed with CIMA. A PIC must at all times be under the control of the relevant cell of its SPC and so the voting shares in the PIC must be registered in the name of the SPC on behalf of the relevant cell although it is permissible for non-voting participating shares to be issued to the economic owner(s) of the PIC. So that its status is readily identifiable, a PIC must include in its corporate name “Portfolio Insurance Company”, “PIC” or “P.I.C.”.

The minimum capital (MCR) and risk based capital (PCR) for a PIC will be the same as for a standalone captive writing the same level of related party business. So for example, for a PIC which would fall within class B(i) if it were a stand-alone captive, the total MCR will be US$100,000 and the PCR will be the same as the MCR. It is anticipated that many PICs will fall within this categorisation. To provide a level of flexibility in circumstances where it would be inappropriate for a PIC to be capitalised as outlined above, CIMA has the discretion to modify both MCR and PCR. The minimum margin of solvency for a PIC will be the same as its PCR. Automatic Novation The incorporation of the PIC will be the same as any incorporation in the Cayman Islands – a 24 hour process once the necessary due diligence/ know your customer information has been provided on the directors and shareholder(s). The registration of the PIC with CIMA will be largely the same as the current procedure for creating a new cell for an SPC. Creating a cell generally takes just a matter of a few days at the most. In developing the new legislation one of the issues that had to be considered was the need for a streamlined process for novating the assets and liabilities of an existing cell program to the underlying PIC. This is addressed in the legislation by providing for an automatic novation by operation of law by simply filing with CIMA a straightforward declaration sworn by two directors of the SPC containing certain prescribed particulars. In addition, creditor consents must be obtained. Of course, some PICs will be established for a brand new insurance program rather than an existing program and in that case the PIC will be formed under a

newly established cell of the SPC. Potential Discussions with clients and consultants in Cayman and the U.S. point to the fact that the ability to set up PICs will bring new insurance business to Cayman which might otherwise have been lost to other domiciles. Therefore, PICs should provide an important new revenue stream for CIMA and the Cayman Islands government and help in maintaining Cayman’s position at the cutting edge of developments in alternative risk management. It is certainly very encouraging that the very first PIC was incorporated within a few short days of the new legislation coming into force.

About the Author Paul Scrivener is a partner and head of the insurance group at leading Cayman Islands law firm, Solomon Harris. Paul is a well-recognised captive insurance expert with over 15 years’ experience in the sector. He has been instrumental in the development of the portfolio insurance About the Author company and the associated Duis eu ligula auctor, legislative changes required fermentum eu, sagittis to establish felis this brand new diam. gravida convallis type ofNam entity and chaired the libero, in insurance sodales metus portfolio company tincidunt sit amet. Aliquam sub-committee of the Financial mollis orci pharetra Committee. tellus finibus Services Legislative finibus. Pellentesque ornare semper ligula, in sagittis lectus semper eget. Aenean dignissim convallis nulla at commodo. In nec placerat libero. Nunc vel luctus lectus.

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AT A GLANCE

TRUSTS Overview: Cayman’s banking sector is a vital support mechanism for the financial services industry. Banking in Cayman provides a dual-functioning role, providing a full range of products and services to residents and international clients alike. Cayman banks also have speciality industry knowledge and expertise to support the needs of other financial services, such as the fund and captive are companies established for the s a recognised global centre of Cayman has evolved to meet the sole purpose of engaging in trust excellence for sectors. trusts, Cayman’s rapidly changing needs of the insurance

A T

financial sector has serviced international clients for decades with what is the most flexible instrument for wealth structuring and estate planning within a common law framework.

The Cayman Islands Monetary Authority’s (CIMA) regulatory framework covers a range of licences for the trust sector, allowing for the provision of trust services to individuals, families and organisations. An unrestricted Trust Licence authorises the undertaking of business acting as a trustee, executor or administrator for private wealth, corporate, collective investment schemes or charitable structures. There are also categories of licences for Restricted Trust and Nominee Trust business, which allow for operating in a specific role only. In addition, CIMA regulates private trust companies, which

business, effectively as a corporate trustee to either a trust or a group of ‘connected’ trusts, usually within the same family and typically utilised by high net worth families. Finally, there is a further licence category for trust services involving a Controlled Subsidiary where there is a desire for a licensed provider to operate a certain category of clients under a specific entity without requiring an additional full license.

In addition to traditional wealth planning, Cayman’s trust companies are used extensively in capital markets transactions and structured finance deals, by major institutional investment managers, financial institutions and investment banks. Japanese investors, for example are very familiar and comfortable with Cayman unit trusts to structure hedge fund investments. As with other sectors, trust legislation in

industry. The innovative STAR Trust regime, developed in 1997, significantly expanded trust planning capability, providing for trusts to be established for any purpose, provided it is lawful and not against public policy.

With steady and dependable growth, trusts have remained an important component of the financial services industry in Cayman, where there are currently 140 licensed trust companies, confirming the jurisdiction’s status as a leading centre for global wealth management and planning.

Produced with kind assistance from The Society of Trust and Estate Practitioners (STEP).

Cayman. Moving finance forward.

THE STATS Licensees/Registrations under the Fiduciary Services Division Licensees under the Companies Management Law

Trust Companies

Period

Unrestricted

Restricted

Nominee

Total Number of Trust Companies

2001 2002 2003 2004 2005 2006 2007 2008 2009 QTR. I QTR. II QTR. III QTR. IV 2010 QTR. I QTR. II QTR. III QTR. IV 2011 QTR. I QTR. II QTR. III QTR. IV 2012 QTR. I QTR. II QTR. III QTR. IV 2013 QTR. I QTR. II QTR. III QTR. IV 2014 QTR. I QTR. II QTR. III QTR. IV 2015 QTR. I

54 53 49 51 48 51 51 54

62 67 74 74 78 83 87 87

31 28 26 22 20 27 21 18

147 148 149 147 146 161 159 159

– – – – – – – 4

55 53 53 53

86 85 85 83

22 22 22 21

163 160 160 157

52 50 51 51

78 78 78 76

21 21 22 23

53 53 52 54

72 71 71 69

53 53 53 52

Registered Registered Controlled Private Trust Subsidiaries Companies

Company Managers

Corporate Services Providers

– – – – – – – –

51 81 73 69 68 70 69 74

0 1 5 5 5 5 7 6

8 9 13 15

7 9 18 24

75 77 82 77

6 6 7 7

151 149 151 150

13 14 18 20

29 37 40 44

77 77 79 80

7 7 7 9

23 23 23 24

148 147 146 147

21 23 28 29

50 56 60 65

81 82 82 83

9 9 10 9

71 71 69 66

24 24 24 24

148 148 146 142

32 34 34 30

65 70 77 77

84 86 87 86

10 11 12 12

52 51 51 50

67 67 67 67

23 22 22 22

142 140 140 139

32 35 34 34

83 85 87 88

91 93 92 93

14 15 17 17

49 49 49 47

65 65 64 63

27 27 27 27

141 141 140 137

38 38 38 36

88 91 93 95

90 97 98 96

18 16 16 16

140

100

Statistics sourced from Cayman Islands Monetary Authority

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RISK RETENTION AND EMERGING STRUCTURES

TRUSTS

EXTRACTED FROM MAPLES AND CALDERS’ THE CLOSER, PUBLISHED FEBRUARY 2015 By Mark Matthews, Nicola Bashforth and Stephen McLoughlin

isk retention (RR) has loomed large on the US CLO horizon since 2011, and despite industry lobbyists having advocated hard for the exclusion of CLOs from the ‘skin in the game’ provisions during the intervening period, the final rules, which were adopted in October 2014 and published on 24 December 2014, made no exception for CLOs. RR comes into effect on 24 December 2016. Those managers that do not already have RR financing in place are now seriously looking at sources of RR capital and at structural solutions that may alleviate or reduce funding shortfalls. Structural solutions already adopted for European RR, and some of the newer structures developed in the last few months of 2014 for US RR, certainly provide some room for optimism, although market

participants are still searching for a ‘holy grail’ RR structure that meets the RR requirements of both EU and US regulators and one which is tax efficient and not overly complicated. The European market has been grappling with RR for several years now, yet 2014 was the most successful year for the European CLO 2.0 market. Some of the solutions and structures that are seen in Europe are transferable to, and have already been utilised by, the US market whose RR rules are substantially similar. Summary of the Rules Whilst we defer to the expertise of our onshore legal colleagues in providing a complete and comprehensive analysis of the US and European RR rules, we have, in layman’s terms, outlined some of the key rules

below for the purposes of this article. US Rules Under the final rules, the ‘sponsor’ of a CLO is required to hold at least 5% of the credit risk of all of the securities issued in the transaction for the active life of the deal. There are different sunset dates but the general view is that the retained notes will have to be held until, at the earliest, the end of the reinvestment period (typically four years from the closing date of the CLO). A sponsor is the person who organises and initiates the securitisation transaction by selling the assets directly or indirectly (e.g. through an affiliate) to the CLO issuer. As CLOs do not originate the loans that they securitise but purchase them from third party originators in the open

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market, lobbyists and the industry participants sought to differentiate CLOs and CLO managers from other ABS products/managers on this basis. However, no exemption was granted. The retention requirement can be complied with by the sponsor either: (a) taking a 5% vertical slice of each class of securities issued (based on par value); (b) taking a portion of the equity tranche equal to 5% fair value of all the securities issued (horizontal interest); or (c) a combination of (a) and (b) above (a so-called “L-shaped” interest). In terms of who and how the retained interest can be held, there are four main options: the CLO manager as sponsor; a majorityowned affiliate of the CLO manager, or retention by the originator or the arranger. Where a manager cannot take a direct 5% holding, or chooses not to, the majority-owned affiliate (of the manager) is a good alternative as it significantly reduces the capital required to meet the RR requirements, while ensuring retention by the manager of a significant financial interest in the affiliate. One point of interest is the narrower interpretation of the US rules, compared with the EU, on what constitutes ‘originating’. In the US, for example, whilst middle market lenders are considered to originate loans, lenders under US broadly syndicated loans are limited for these purposes to lead arrangers and do not include CLOs that take participations in such loans. In the European market, however, the consensus is that an originator can be any named lender of the original loan, including entities taking participations on to their balance sheet in order to sell them on to a CLO. Conversely, in Europe there are no majority-owned affiliate or arranger options, only sponsor, originator

and “original lender” and only some EU regulated managers may satisfy the definition of sponsor. One of the current areas of debate, particularly in Europe, is how long an asset must be ‘seasoned’ or held by an entity before it can be transferred to the CLO issuer to enable such entity to qualify as an “originator” for these purposes. EU regulators have not given any guidance on this issue yet and the concern among industry participants is that the regulators will clamp down on originators that only hold assets for short periods of time, such as 24 to 48 hours, before transferring them. Consensus seems to be building, however, that 15 to 30 days or so is a reasonable time period to ‘season’ loans before selling them into a CLO. The regulators in the EU and the US have also taken different approaches in terms of enforcing compliance with the applicable RR rules. In Europe, non-compliance affects ‘credit institution’ investors whose capital risk weighting requirements increase significantly where they invest in non-compliant deals. In the US, however, the onus falls upon the sponsor of the CLO to ensure compliance with the rules with significant penalties for failure to do so. Structures We are Seeing As the Maples group acts on the Cayman Islands legal and fiduciary side on over 60% of the US CLO market, and a significant portion of the European market, and has capabilities in the Cayman Islands, Ireland, Luxembourg, Holland and Delaware, we see the innovative products that are being developed on both sides of the pond to address RR. Whilst a number of US deals in 2014 closed as EU RR compliant with the manager sponsor retaining the 5% stake, below are just some of the other solutions we are seeing implemented to address RR.

Originator/Originator Funds GSO pioneered the first originator fund in the summer of 2014. In outline, an originator fund invests in a loan originator entity established by the manager (the “Originator”) via the purchase of equity (shares) or profit participating notes, or a combination thereof, issued by the Originator. The Originator in turn makes direct investments in European and/or US senior secured loans and on a CLO closing, transfers some or all of the loans to the CLO issuer under, for example, either a sale and purchase, a forward sale or a master participation agreement. The Originator will then typically retain a majority portion of the equity in that CLO. Maples and Calder acted on the first US CLO originator transaction in 2014 structured to meet and comply with EU RR rules as well as strategic preparation for US risk retention. A special purpose Cayman Islands vehicle acted as retention holder and accumulated middle market loans, at the same time as entering into a matching future sale agreement with the CLO issuer. We have been working with a number of managers who are setting up their own European originator structures and originator funds. These funds tend to be established by asset managers that already run investment or hedge fund businesses and can easily accommodate a CLO originator fund alongside existing investment and credit funds. Majority-Owned Affiliates We have also established Cayman Islands majority owned affiliate vehicles in which the manager owns a majority interest but which have significant third party investors. The special purpose affiliate then typically acquires a horizontal interest in the CLO by purchasing subordinated notes to satisfy the 5% retained risk requirement. As the horizontal 5% equity investment will have

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TRUSTS AT A GLANCE: INVESTMENT FUNDS

to be calculated based upon ‘fair value’ we understand that this option may become less attractive going forward because, in order to calculate fair value, accountants will require disclosure in the CLO offering document of any discounts provided to investors across the entire capital stack. Cross Border Solutions We have already seen, and expect to see, an increase in structures established to maximise jurisdictional advantages and to combine features across jurisdictions to provide structural solutions for RR. The use of Irish section 110 companies tacked on to Cayman Islands structures and Cayman Islands incorporated Irish tax resident entities are two such examples which provide cross border flexibility.

CLO Manager Consolidation? While the expected market consolidation at the start of the decade failed to materialise, as the CLO 2.0 bull run reinvigorated the space, with RR and other regulatory concerns, such as Volker, now very much in focus, it would actually appear that the forecasters may have been right with their predictions, albeit a year or two early. Consolidation is now front and centre once again as pundits predict a significant amount of manager consolidation ahead of the RR rules going live at the end of 2016. We believe that, whilst a modest amount of consolidation is inevitable, a number of factors mitigate the effects of mass consolidation that some market participants foresee. These

include the development of structural solutions to address RR, the availability of risk retention investors (including certain arrangers providing such assistance) and the fact that many managers, including smaller managers with whom we have spoken, already have alternate solutions in place through access to other sources of capital. There may be surprises as certain ‘smaller’ managers not only continue to issue CLOs but also look to increase issuance volumes and move into the ‘larger’ manager bracket. On the flip side, not all larger managers have RR financing locked down so, whilst the CLO manager landscape will no doubt change, it may change in ways people do not necessarily anticipate.

About the Author

Mark Matthews specialises in structured products and has extensive experience in SIVs, securitisations, repackagings and credit funds including hybrid funds and CLO/CDOs. He has also worked on private equity and hedge fund related matters since 1998. Mark also has experience in general corporate, partnership, banking and regulatory matters.

Nicola Bashforth specialises in structured finance transactions, particularly CLOs, securitisations, repackagings, credit funds and other CLO investment structures. Recognised as a leading offshore lawyer in the credit market, she works closely with all arrangers, CLO managers and their counsel, helping to establish and structure their CLOs, warehousings and refinancings, based on a solid understanding and experience of the market pre, during and post credit crisis. Nicola also has experience in general corporate, finance and regulatory matters.

Stephen McLoughlin advises on a wide range of capital markets and structured finance products and related issues, including CLO, RMBS and About the Author other securitisation structures, Duis eu ligula auctor, products, fund-linked structured fermentum felis sagittis repackagings andeu, debt issuance diam. Nam gravida convallis programmes. He also advises libero, in sodales metus on regulatory issues impacting tincidunt sit amet. Aliquam on structured finance vehicles mollis orcithose pharetra tellus finibus including in relation to finibus. Pellentesque ornare the Prospectus Directive, Market semperDirective, ligula, in AIFMD, sagittis lectus Abuse EMIR semper Aenean dignissim and risk eget. retention requirements convallis nulla at commodo. In for securitisations under nec Capital placeratRequirements libero. Nunc vel the luctus lectus. Regulation.

Mark is head of the Cayman Finance group and co-head of the Sports, Media & Entertainment group.

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TRUSTS

TRUST INDUSTRY EVOLVES IN CHANGING WORLD By William Walmsley and Tamara Corbin

he private trust industry is changing and will undoubtedly continue to evolve as the industry moves forward. The robustness of private trusts is being tested through challenges such as the right to privacy, versus the desire on the part of governments for greater transparency and reporting initiatives, including the US Foreign Account Tax Compliance Act (FATCA), UK FATCA and

the Organisation for Economic Co-operation and Development (OECD) Common Reporting Standard (CRS). As a result of high profile tax evasion cases in recent years and the need for governments across the world to grow tax revenue, the industry is under increased scrutiny from international legislators, regulators and tax authorities. These initiatives and pressures increase the cost of carrying on trust business and the

risks associated with that business, leading some to question the future of the industry. However, there is and will continue to be a place for private trusts in the wealth planning for international families and businesses. In order to appreciate how the local industry will evolve it is important to understand how the landscape of trusts in the Cayman Islands has changed in the past two decades.

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TRUSTS

Twenty years ago a typical portfolio of trust business was comprised of relatively straightforward trusts of varying types, with underlying holding companies mainly holding asset classes of financial investments or real estate for the first generation of stakeholders. Today, trust structures are generally much more sophisticated. They hold a full range of asset classes including operating businesses, they involve private trust companies (PTCs), and family office functions and they are often for the benefit of two or three generations of family members living in multiple jurisdictions. Trust companies servicing those structures provide a full range of services, including provision of independent directors to PTCs and other family companies, and they are required to liaise with international advisers on an ongoing basis to assist family members to remain tax compliant in the relevant jurisdictions. Cayman is one of the leading international centres for the creation of complex trust structures. The trust industry in Cayman has kept pace with client requirements over the years due to a number of important factors. Cayman has a solid Trusts Law, it led the way with the creation of the Special Trusts Alternative Regime (STAR), it provides for the licensing of PTCs as restricted licensed trust companies, and has more recently introduced a registered PTC regime. Trust legislation is supported by a strong and highly regarded local judiciary. In addition, the industry has been assisted by the jurisdictionâ&#x20AC;&#x2122;s ability to respond and deal appropriately with various international initiatives including US and UK FATCA and other challenges that have been ongoing for over a decade. The demonstrated ability of local service providers to support the more sophisticated trust structures has been crucial in enabling the jurisdiction to stay ahead of its

competitors. Cayman's service providers are amongst the most highly regarded trust practitioners internationally.

Cayman is one of the leading international centres for the creation of complex trust structures.

The before mentioned factors form a solid foundation for the future. The question now is how does the industry continue to evolve to meet the changing needs of families as their wealth continues to grow, as that wealth transitions to second, third and even fourth generations, and as the more charitableminded consider how they can change the world for the better through their philanthropic giving. The industry will also need to consider how it can assist families to balance their growing international reporting obligations while maintaining the privacy that they require regarding their personal affairs. A glimpse into the future would suggest that some of the developments around the world that will provide opportunities for the Cayman trust industry include those outlined below.

Tax Planning and Beyond While historically the creation of trusts offshore has often been driven by tax planning for the current generation, this is changing. While overall tax considerations will always be taken into consideration, the focus is changing to planning for the protection of assets and wealth succession for future generations of the family. Cayman provides a tax neutral, stable, sophisticated environment for such planning. The jurisdiction seeks to balance the need for privacy against the demands for greater transparency in a sensible and mature manner. The New Rich There has been significant wealth generation in both new and

developed markets across the globe. A significant portion of that wealth has been generated by entrepreneurs, and as those entrepreneurs reflect on their recent riches they need to consider how to protect and sustain that wealth going forward. They require sophisticated structuring advice which often includes trusts. This creates new opportunities for Cayman service providers as they can not only assist with the creation and administration of such structures, but also with the education of the family members to ensure the ongoing integrity of such structures, the sale or listing of private companies within those structures and the future investment of funds raised from such sales or listings. Relocation of Families The world has changed. The ability to stay in touch with family members across the world is easier than ever. People can work from anywhere there is an internet connection. This allows families to be even more mobile than they have been previously, and to move

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to jurisdictions that provide them with a high quality of life and which welcome them and provide an environment conducive to the management of their wealth. Cayman provides that type of environment and service providers need to communicate that message to their wealthy clients. Relocation to Cayman provides a different set of opportunities for local service providers as those families will seek to invest in the jurisdiction over time. Family Office Functions As trust structures become more sophisticated it may be important that they include a family office to support the administration of such structures. Looking forward it is likely that the location of a family office in the jurisdiction in which the structure is created will become more important. This means the movement of staff and their family members to that jurisdiction and the creation of additional jobs for local residents. The Cayman Islands boasts world class living accommodations, restaurants, schools, political stability and a legal framework that is attractive to wealthy families considering family office possibilities. Service providers have an opportunity to assist stakeholders with the establishment of family offices and/or to provide family office functions. Philanthropic Giving Wealthy families are increasingly looking for opportunities to use their wealth for positive social change around the world. While many do this through existing charitable organisations, others create their own foundations to focus on their own particular areas of interest. There is an increasing opportunity for Cayman service providers to assist with such foundations, which can be created within Cayman trust structures. These structures often use Cayman PTCs to allow the family some active involvement in the day-to-day

decisions of the foundation. STAR trusts provide opportunities to create structures that are not for strictly charitable purposes but which are still philanthropic in nature. Wealth Management Wealth management is not as prevalent in Cayman as it is in other jurisdictions. There is certainly an opportunity to attract such business to Cayman for many of the reasons already noted. As the industry continues to grow, families and family offices will require an increasing range of services from wealth managers located in Cayman. As those services are demanded locally there will be international managers who will seek to take advantage of the opportunities as they arise.

Conclusion In summary, while the trust industry has faced, and continues to face, international pressure and challenges there remain many opportunities for it to grow and thrive in Cayman. The complex structures that families now require to hold established business ventures, intellectual property rights, alternative financial investments, real estate and other assets provide many opportunities for Cayman. Private trust companies, family office services and philanthropic foundations require a jurisdiction that meets all their needs and Cayman practitioners are strategically placed to seize the opportunities and provide the services to trust structures that global private clients require and demand.

About the Author

Tamara Corbin is a Partner with Rawlinson & Hunter Cayman Islands. She specialises in private client services including international trust structures, private trust companies and purpose trusts, estate planning and wealth management.

William Walmsley is a Partner with Rawlinson & Hunter Cayman Islands. He specialises in private client services and advises on the establishment and ongoing administration of Cayman Islands trusts and companies, including acting as a director of a number of private trust companies and other regulated entities.

Tamara is a qualified CPA, a member of STEP and CISPA. She is an Executive Committee Member of the Cayman Islands branch of STEP.

William is an FCA (Ireland), a member of STEP, former Vice Chairman and Treasurer of the Cayman Islands branch of STEP, is a board member of Cayman Finance and a member of CISPA.

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CISPA:

PROMOTING AND PRESERVING CAYMAN’S ACCOUNTING INDUSTRY By The Cayman Islands Society of Professional Accountants

he Cayman Islands Society of Professional Accountants’ (CISPA) story began in 1970 when Cayman’s financial services was in its infancy. The local accounting fraternity recognised that together, they could help blaze the trail for accountancy in Cayman. For more than 30 years, the society worked alongside fellow financial services providers to help catapult the Cayman Islands to become one of the world’s largest financial centres. As the regulatory landscape changed, CISPA needed to change with it. In 2008, the Public Accountants Law came into effect ushering in a new era of regulatory oversight of the accounting profession in the Cayman Islands, with CISPA taking on the role of regulator. In 2014, CISPA appointed its first CEO, Sheree Ebanks, to shift management responsibilities from a voluntary council with outsourced support, to a full-time office. The regulatory framework is itself

evolving, as draft changes to current legislation will further strengthen CISPA’s regulatory oversight. CISPA’s fifth strategic objective is, “to strengthen and promote highquality practices by the accounting profession locally.” Achieving this objective requires a multifaceted approach including quality assurance reviews of firms, stringent requirements for Regular Members and Licensed Practitioners, as well as a complaint and investigation process. Quality Assurance Reviews In 2013, CISPA was admitted as a full member of the International Federation of Accountants (IFAC) representing another milestone in Cayman’s accounting infrastructure. Since then, CISPA has been monitoring compliance with the International Standard of Quality Control (ISQC1) within the firms of licensed practitioners. In 2014, one large network firm, three midtier firms and six small firms were

selected for reviews. The reviews are undertaken by the Institute of Chartered Accountants of England and Wales and look to ensure audits comply with professional standards, and firms meet the requirements of ISQC1 and applicable audit standards. Once the reviews are complete, firms are provided with the findings, and a summary report is published on cispa.ky. Membership & Licensing Requirements The criteria for membership and licensing speaks to applicants’ competence, compliance with International Accounting Education Standards (IEASB) and governing legislation. Ongoing membership of CISPA is conditional on fulfilling continuing obligations. Regular Members and Licensed Practitioners are expected to act diligently and in accordance with technical, professional and ethical standards. In order to be admitted as a Regular Member of CISPA, an accountant must be in good standing with its

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Overseas Professional Accounting Institute (OPAI), maintain a minimum requirement of continued professional development hours and comply with IAESB. According to sections 11 and 12 of the Public Accountants Law (2009 Revision), anyone engaging in public practice must be licensed by CISPA. Because of the nature and level of trust placed in professional audits, the requirements for Licensed Practitioners are more rigorous. Applicants must provide evidence of continuing professional development, a clear police record and must be a partner, director or hold an equivalent position within their firm. All complete applications for licensing and membership go before the Membership and Licensing Committee for review and approval. Complaints and Investigation Membership requirements and quality reviews look at competence and compliance, but that is only part of the picture. No oversight framework is complete without a complaints process. Governed by Part IV of the Public Accountants

Law (2009 Revision), anyone may bring a complaint against a member of CISPA based on grounds ranging from incompetence to breach of professional standards. Once a formal complaint is received, it is reviewed by Council which determines whether the claim should be referred to an Investigation Committee. The Investigation Committee further refers the complaint to a Disciplinary Tribunal if there is a prima facie case. The Disciplinary Tribunal has three rotating chairs who are not CISPA members. This structure ensures a fair and impartial approach to complaints and disciplinary actions. Additional Oversight CISPA is not the only organisation with oversight responsibilities when it comes to accounting. For example, audit firms are licensed by the Cayman Islands Monetary Authority (CIMA), with additional reporting requirements. CISPA works closely with CIMA and the audit firms to ensure compliance with the Proceeds of Crime Law. In 2011, the Auditors Oversight Law was passed establishing the Auditors Oversight Authority (AOA). The

AOA is charged with regulating and supervising firms that conduct audits of the accounts of market traded companies. CISPA is also working with AOA to develop efficiencies in the review and oversight processes. Looking Ahead CISPA has been working closely with the Ministry of Finance on amendments to the Public Accountants Law. During CISPA’s 2015 Annual General Meeting, incoming president Baron Jacob said, “We will continue to push toward realising the new Accountants and Public Practice Law, as well as new Quality Regulations and amended Disciplinary Regulations.” The proposed legislation reflects changes in international oversight practices, while ensuring CISPA has the framework to enforce international standards. Globalisation has created a competitive landscape in the world of accounting, and CISPA is poised to lead the accounting profession and the Cayman Islands into the future.

About CISPA

CISPA’s newly elected Council with CEO Sheree Ebanks at the 2015 Annual General Meeting. Back row: Sheree Ebanks-CEO, Norm McGregor-Treasurer, Mike Mannisto-Secretary, James George, Baron Jacob-President, Ian Lomas, Colin Nicholson. Front row: Ben Leung, Serge Berube-Vice President, Peter Small, Sheenah Hislop, Chris Gauk, Joel Dodson, Simon Conway. Not pictured: Mike Penner, Graeme Sunley

CISPA was formed in the Cayman Islands in 1970 and has evolved into one of the largest professional societies in the Cayman Islands with more than 900 members. The organisation’s mission is to further the public interest through the regulation of the accounting profession, promoting the highest standards of professional and ethical conduct in line with the values of transparency, proportionality and accountability. In 2013, CISPA became a full member of the International Federation of Accountants (IFAC), the worldwide organisation representing the profession.

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CYBER SECURITY

IN THE MOBILE

WORLD

By Alexandra Simonova and Nick Kedney

obile devices, including smartphones, tablets, e-readers, etc. have become an important and inevitable part of our lives. In the past decade mobile technologies have advanced to the point where individuals and organisations can take advantage of everything true mobility has to offer. Employees, including senior executives, are demanding greater choice, flexibility and capabilities

as they rapidly adopt and extend their use of smart phones and tablets, and increasingly leverage these devices in their day-to-day work and personal lives. For the enterprise, application enhancements extend the desktop to handheld devices and deliver more powerful tools to employees, potentially increasing productivity and improving bottom line performance. Organisations are motivated to utilise the maximum

efficiency from its employees, so they are supporting Bring Your Own Device (BYOD) policies. Additionally, companies take advantage of mobile technologies to extend their current online business models, open up new channels and expand their reach into new and existing markets. We see organisations across the industries developing internal and externalfacing mobile applications that drive revenue, build brand loyalty

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and create tighter partner and customer relationships. However, increased dependence on mobile devices for carrying out financial, business transactions has made these devices an attractive target for cyber criminals which in turn has put mobile security on the radar of the enterprise board. In considering the current environment we have below outlined the key threats and their impact, which enterprises should take into account when developing a go-forward strategy. We also examine incident response and litigation support issues from the perspective of collecting mobile device data. Mobile Security Challenges What makes mobile devices valuable from a business perspective – portability, usability and connectivity to the internet and corporate infrastructure – also presents significant risk. In the past decade new risks have been introduced at the device, application and infrastructure levels, requiring changes in security policy and strategy. There are also a number of challenges that organisations face when implementing security programs related to mobile devices. As the number of devices grow and increasing numbers of employees use their personal devices for work, significant challenges for the enterprises may arise relating to data ownership on BYOD devices, as well as complex operations management with entropy of supported devices, and customised Operating Systems. We see a continuing evolution of the landscape of Mobile Device Management (MDM) and Mobile Application Management (MAM) platforms, whilst the scope of control is significantly reduced for IT and traditional methods of operations including configuration management policies and procedures. Those challenges are magnified by a lack of security

awareness, training and security policies governing usage of data, as well as inadequate security controls to protect sensitive data.

malware is an emerging threat that requires dynamic security controls and comprehensive security policies and procedures.

Looking at the history of mobile devices, we can see that most common smartphones and tablets in use only appeared on the market in the last decade in conjunction with rapidly increasing demand in applications. Mobile application development is a relatively immature science and a developer’s simple mistakes can lead to vulnerabilities that are easily exploited and not yet addressed, as more mature technologies have been. Multiple examples have already been identified and as applications are proliferating at astonishing rates, trust models and secure software development lifecycle capabilities are struggling to keep pace.

The Mobile Device Attack Surface The attack surface – the way by which the system could be successfully attacked – on mobile devices may seem small from a traditional network security perspective but is very deep – in terms of both services (e.g., applications, messaging, push and web services), and attack vectors targeting the user. Those vectors include exploiting Bluetooth, WiFi and mobile operating system vulnerabilities, browser based attacks, social engineering attacks, phishing attacks targeting small screens, mobile malware, removable storage attacks, email attacks etc. In addition, backups and device synchronisation present additional threats to the data stored on the mobile devices.

Unfortunately, traditional anti-virus and anti-spyware programs have not tended to address the needs of mobile devices. Further, mobilebased anti-virus solutions, which are primarily based on file patterns, can often be ineffective when malware – short for “malicious software” – is “packed” or custom designed. To address this, specific configuration baselines need to be developed in order to harden the mobile platform and prevent infection or compromise. In addition, traditional end-point security and network based prevention/detection mechanisms do not address the security requirements of mobile devices. A thorough assessment and a sandboxed environment needs to be implemented on the device in order to prevent infection and propagation of malware through mobile devices. From an overall organisational perspective, existing policies and procedures may fall short in addressing the security gaps raised through the use of mobile devices in the corporate environment. Mobile

From viruses and worms to rootnets, trojans, bots and more, malware has become the cybercriminal’s weapon of choice for subverting digital devices. One thing to remember is that no device is immune: malware can infect anything that accepts electronic information, including such unconventional targets as cash registers, cameras and even cars. Mobile devices, especially, have seen a boom in malware infections as their popularity has grown. This increase may represent a significant vulnerability in environments where employees use smartphones, tablets, laptops and other mobile devices for both personal and business purposes. Highly standardised, rich, native application programming interfaces (APIs) make malware writing easier and distribution more scalable than on traditional computers. For instance, it is very easy for malware to access browser history, location data, SMS and email data,

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address book contacts etc. on mobile devices. There are millions of devices running each of the major mobile Operating Systems, making them attractive targets for malware attacks, and the clear trend shows the number of those devices increasing every year.

increasing regulatory interest in the risks posed to organisations by cybercrime – increasingly regulatory agencies are working to embed provisions addressing these risks in the rules and guidelines with which organisations are required to comply.

So what are the attackers after? The most common source of value for the attackers are personal and financial information stored on the devices. Also one of the most popular ways for attackers to monetise SMS scams are sending SMS messages or make calls to premium rate numbers – attackers hire premium rate/short numbers and have the infected devices send SMS messages to these numbers without the user’s knowledge. This allows for faster monetisation of mobile malware when compared to most PC malware attacks. While repackaging malware as part of ‘legitimate’ mobile apps is the favoured malware distribution mechanism, some malware, apart from carrying out their primary activity, also attempt to connect to a remote server and download additional malware.

An incident response plan should consider the life-cycle of a typical response and investigation, and might encompass: • documented disaster recovery, business continuity and failover plans should an incident occur; • up to date and comprehensive mapping of the enterprise’s information systems and data repositories, and a robust understanding of what devices are connecting to those systems – including devices which are not the property of the enterprise, such as BYOD; • a risk-based assessment of the company’s data assets – to what data might an intruder be seeking access and how would a compromise of this data affect the company’s ongoing organisation? For example, high risk data might encompass customer credentials and payment information such as credit card details, but other examples include intellectual property, market sensitive information or personal information which might assist in identity theft or other frauds, and which may have significant value in the illicit “market” for stolen information; • planning and provision for incident-specific penetration testing to be implemented rapidly if required after any compromise. Such planning and provision should include measures to address any business disruption that may be incurred; • documentation, regularly updated, identifying data such as security event logs, server

Cyber Security Incident Response, Discovery and Forensics It is an unfortunate fact of life for all enterprises that incidents will happen, and that the organisation will be required to take quick and decisive action to mitigate the effects of any compromise and to protect its data, infrastructure and interests. In order to respond rapidly, it is necessary not only to have adequate MDM and MAM policies and tools, but also to have an Incident Response Plan that addresses key risk areas in the organisation’s operations and infrastructure. Such a plan should be part of the standard procedures of the organisation, and should be reviewed and updated regularly to address the continual change in technology usage by the firm and its employees. It also needs to address

logs, perimeter/access logs that may need to be collected to identify the nature of any compromise or intrusion; • documentation identifying which access credentials for key infrastructure and data repositories that may need to be changed immediately following any incident; and • an up to date data collection and investigation plan addressing not just core information systems and data repositories but also mobile devices, including those used by employees under BYOD policies and cloud-based systems. Proper and comprehensive collection of data needed to investigate an incident (and to pursue subsequent legal remedies) can be a major challenge for the enterprise, and consideration should be given as to what the internal IT function is capable of delivering, and where external assistance will be required. Forensic collection of data may require a qualified external forensics team both to collect the data in the timeframe required for rapid incident response, and to perform the collection to the required forensic standard – i.e. reducing the risk of spoliation and loss of information that is potentially critical for investigations or subsequent litigation. Collection of data from employee BYOD devices in particular can be challenging, and careful consideration by internal or external counsel may be required as to how this may be affected, should an incident occur. It can also be a major logistical challenge – in extreme cases collection may be required from hundreds or even thousands of smart-phones and tablets, both company issued and employee owned in organisations that permit BYOD. Relevant information may not just include traditional communications such

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as email, but SMS data, VOIP and instant messaging, social media data and OS and application related data. What should and indeed can be collected varies widely depending on the type of device, and the OS and version in use, and any MDM tools used by the organisation. Summary and Future Outlook As with any aspect of cyber security, enabling mobility is a balance of technology, risk and return on investment – all of which need to be driven by and aligned with business needs. Technology holds an enormous potential to improve the user experience and employee productivity while introducing new cyber security concerns. The threat is predicted to be increasing and organisations need to ensure the appropriate controls and incident response plans are in place. Looking ahead it’s worth mentioning an emerging trend – wearable technology. Whether it’s smart fitness bands like the Nike+ Fuelband that track activity, calories burned and sleep quality; smartwatches like the Pebble that bring smartphone capabilities to your wrist; or smart pet trackers like the Whistle that monitor your pets’ behaviour, the number and breadth of wearable devices we own continues to increase. Although wearables can offer enterprises a competitive advantage, companies should give careful consideration to the business problem they’re solving, the users and environment involved and privacy and security concerns. In order to drive adoption, it’s important for organisations to get their employees excited by demonstrating how wearable technology will benefit them and explaining what’s being done to protect their information. It’s also important to test out whether the company has enough bandwidth and the right network infrastructure in place to support the wearable technology trend.

About the Author

Alexandra Simonova is a Manager in the Deloitte Cayman Islands practice. She has over four years of experience in IT management prior to joining Deloitte and over five years of performing IT Consulting and Cyber Risk services for Deloitte’s clients. This includes work in the financial services, private and public sector. Alexandra also presents at client facing Cyber Risk workshops in Cayman, the Caribbean and Bermuda.

Nick Kedney is a Director for Deloitte Forensic in the Cayman Islands, and runs the Discovery and Analytic & Forensic Technology practice for Deloitte in the Caribbean and Bermuda. He has over 18 years experience of forensic and fraud investigation, asset recovery and multi-jurisdiction litigation support.

AIMA AND HEDGE FUNDS

A LONG AND

DISTINGUISHED HISTORY By Jack Inglis

hen I visited Cayman in April 2015 to launch the latest edition of AIMA’s Fund Directors’ Guide – arguably the definitive guide to hedge fund directors’ roles and responsibilities – I was struck by the level of interest in this area, as reflected by the large turnout that our event at The Ritz-Carlton, Grand Cayman generated. So many

changes have come on stream since the global financial crisis that there is considerable demand for information and guidance from current or prospective hedge fund directors, investment managers and fund promoters in Cayman and around the world.

reforms since the financial crisis, such as the Alternative Investment Fund Managers Directive (AIFMD) and the Foreign Account Tax Compliance Act (FATCA), which have brought significant changes to the role and responsibilities of fund directors and boards.

The Guide, last published in 2008, takes account of regulatory and tax

New sections have been added covering, among other topics,

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AIMA Staff and Offices

Cayman. Moving finance forward.

the general approach to fund governance, monitoring of trading practices and business continuity planning. Practical, legal and tax considerations when selecting and appointing fund directors are considered. The basic tasks that fund directors should carry out are explained, while issues relating to the way in which fund directors manage their relationships with the fund’s service providers are also discussed. Guidance is provided on several important issues, including, for example, the review of annual audited accounts and issues relating to directors’ and officers’ liability insurance. In addition, the Guide assesses the impact of taxation on the fund, its service providers and its directors. The Guide can be downloaded by AIMA members from the AIMA website. The decision to launch the guide in Cayman, of course, was no accident. We have many member firms in Cayman, and there has been an AIMA ‘National Group’ or chapter in the jurisdiction for almost a decade. In terms of offshore hedge funds, Cayman remains an absolutely key domicile

for the global industry, which we represent. AIMA has been in existence for only slightly longer than Cayman’s fund industry. This year marks the 25th anniversary of our association. Founded in Europe back in 1990 by a small group of managers realising the need for mutual representation, AIMA has grown into a truly global organisation, with the majority of its 1,500 corporate member firms now based outside Europe’s borders. The global nature of investing, trading and regulation means our relevance today is as high as it has ever been. By the same token, the first funds legislation in Cayman, passed in 1994, helped to lay the groundwork for the jurisdiction’s status today as a leading fund domicile and international financial centre.

Today, we have a total of 35 staff; 25 in the London head office and a further 10 in our representative offices around the world. Much of this additional resource has been added since the global financial crisis. The world changed in 2008/2009, and with it, AIMA changed too. Following the crisis, we built new structures and brought in new people to address the challenges posed by the crisis and the regulatory reforms that followed.

The Government and Regulatory Affairs department that we established after the crisis comprises former law firm partners and regulators. It provides members of AIMA with guidance notes and updates on complex initiatives, detailing how developments may affect their business and the Indeed the growth of AIMA in terms advocacy positions that we are of membership and staff reflects the adopting. With our public affairs growth of the global hedge fund work on the ground in the main industry. In 1990, we had only a part- financial and political centres, we time secretary and in 1994, we were are able to engage in extensive still operating out of shared office advocacy in the best interests of space in Paris. As recently as 2005, the industry. by which time our head office had relocated to London, we still had only Our communications team eight staff members. coordinates our engagement with the media globally and works

Industry size and AIMA membership 1600

3,000,000

2,000,000

1000 800

1,500,000

600

1,000,000

400 500,000

200 0

Year Number of AIMA Members Industry size (AUM $m)

Industry size (AUM $M)

2,500,000

1200

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Number of AIMA Members

1400

Cayman. Moving finance forward.

closely with the industry to demonstrate the value of hedge funds to investors, financial markets and the ‘real’ economy. At the very top of the organisation, we have had seven Chairs, some serving for five years, and only three Chief Executive Officers in our 25 years. I myself took over as CEO in February 2014. From small European beginnings, an impressive international network encompassing Asia-Pacific, EMEA and the Americas has been constructed. Our members now come from over 50 different countries. The US has the dominant market share in the industry and represents over 50% of the aggregate AUM of our global membership; our Americas presence is further augmented by the existence of our National Groups in Canada and Cayman as well as our activities in Brazil. In

Asia-Pacific, we have National Groups operating in Hong Kong, Singapore, Japan and Australia, all now combining under a single regionally focused operation. Our members are the backbone of the association and comprise both the largest and smallest firms around the world. Over 800 of our member contacts (roughly 10% of the total membership), representing about 370 firms, contribute to our more than 70 committees and working groups around the world. These groups tackle advocacy, help us draft our regulatory submissions, drive our sound practices work and support the development of other vital industry tools. Our focus on education and sound practices has resulted in a substantial body of work for investors and practitioners alike. The first AIMA due diligence questionnaire was issued in 1997,

and has gone on to become the industry-standard DDQ, covering the selection of hedge fund managers, clearing members, prime brokers, CTAs/managed futures funds, fund of hedge funds managers and administrators. Our first sound practice guide was published in 2002, and our library of guides cover hedge fund management, valuation and asset pricing, administration, governance, business continuity, due diligence for managers and service providers and fund of hedge funds managers, not to mention our Fund Directors’ Guide. In terms of our events, our initial Regulatory Forum was held in 2000, our 10th anniversary year, and our first Annual Conference was held in 2010, our 20th anniversary year. Today, the AIMA Annual Conference and AIMA Global Policy & Regulatory

Notable dates in our history:

‘90

‘92

‘99

‘01

Launched the first member publication, the EMFA Newsletter, the forerunner to the AIMA Journal. Regulation and tax soon became key interests.

Launched our first National Group in Hong Kong.

Launched National Groups in Australia and Japan.

The forerunner to AIMA, the European Managed Futures Association (EMFA), was formed. By the end of that year, our members managed around US$29bn in assets, versus a total industry size of US$39bn globally. As EMFA’s name suggested, managed futures funds were then the core activity of the association’s membership, although hedge funds and currency funds were

included.

‘97

In the year of the Asian financial crisis we became the Alternative Investment Management Association (AIMA), recognising the broadened industry. AIMA Journal replaced the EMFA Newsletter.

‘00

AIMA had over 250 corporate members.

‘02

AIMA co-launched the CAIA qualification with the Center for International Securities and Derivatives Markets (CISDM). Regulation as a focus was firmly staying and our website included a regulation and tax section for the first time.

Cayman. Moving finance forward.

Forum (the successor to the Regulatory Forum), open to all AIMA members, are our flagship fixtures and attract hundreds of delegates and leading speakers from the industry and the policymaker community globally. We organise many additional events in Cayman and other jurisdictions, which provide helpful intelligence to delegates and networking opportunities. In 2014, we held over 180 events worldwide, with a total attendance of well over 10,000. AIMA regards the global hedge fund industry as a valuable contributor to the global economy. We provide a global forum for members to establish a common adherence to industry sound practice. Our goal remains to maintain a fair and functioning environment allowing alternative asset managers to contribute to

‘03

growth through capital markets activities. AIMA stands for investor protection, global consistency of regulation, market efficiency and integrity and the mitigation of systemic risk by maintaining diversity of business models within the financial sector. AIMA works this through advocacy, awareness and education among policymakers, investors, regulators, the media and the wider public. Above all, AIMA remains a “people organisation”. Crucial to everything AIMA does are its members, its network and its staff. The voluntary work provided by all who contribute in committees and working groups, who sponsor and host our events and facilitate our product offering is a priceless feature of the AIMA toolbox. Without our members, in Cayman, the US, Europe, Asia and elsewhere throughout the world, there would be no AIMA.

About the Author Jack Inglis became the chief Executive Officer of AIMA in February 2014. He has been involved with hedge funds for 25 years and has held leadership positions in prime brokerage at both Morgan Stanley, where he served for 16 years, and Barclays, where he was prior to joining AIMA. From 2007 to 2010 he was CEO at the convertible bond specialist, Ferox Capital Management. He began his career in 1983, and has extensive experience across origination, distribution and trading across the capital markets. He holds a Master of Arts in Economics from Cambridge University.

‘04

‘06

‘10

‘15

Launched a National Group in Singapore.

Launched a National Group in the Cayman Islands.

The industry recovered, growing to US$1.5 trillion in AUM. Our membership grew again to over 1,200 firms.

25th anniversary: Currently over 1,500 corporate members, 8,500+ individuals, in over 50 countries. AIMA’s manager members collectively manage more than US$1.5 trillion in assets.

Launched National Groups in Canada and South Africa.

‘05

At the time of our 15th anniversary, we had 870 corporate members (over 3,000 individual contacts) in 46 countries. Our Council grew to 19 members. Our manager members’ AUM reached US$1 trillion trillion. Membership had become more global and fully reflective of industry interests.

‘07/‘08

The global financial crisis shook everyone in the financial sector and as the hedge fund industry declined in size, so did AIMA. Our corporate membership fell from 1,300 in 2007 to 1,170 in 2009.

‘12

Opened an office in New York.

Cayman. Moving finance forward.

Q+A

element in our success as a premier international financial centre.

WITH CAYMAN FINANCE CEO, JUDE SCOTT

There will always be jurisdictions that try to challenge the Cayman Islands’ leading position, however, the strengths that make the Cayman Islands the premier International Financial Center are not easily replicated. Our high quality and experienced service providers operate in a legal and regulatory framework with just the right balance, with a government committed to the financial services industry, and an innovative approach to developing products and services that benefit the global economy.

Q I Jude – You’re the new man at the helm of Cayman Finance. What are your priorities for your first term in office? A I Firstly, I want to say what an honour it has been to appointed in this position. I see my role as one of facilitating the continued development and growth of the Cayman Islands financial services industry and I will look to continue the good work of my predecessors in this role. I will ensure we continue to meet the needs of our clients and I’m committed to seeing that our industry business partners experience only excellence in all their dealings with the Cayman Islands For Cayman Finance as an organisation, I do think it is important for us to remain accessible to our key stakeholders, while at the same time promoting the advancements being made within Cayman – both at a government and private sector level. This is how we have remained at the forefront of the global financial services industry over the years. Q I How would you describe the condition of the Cayman Islands financial services industry right now? What is our state of health? A I The industry is strong and firmly in growth mode, with the global economy in a major acquisition cycle. Many of our institutions are expanding and developing new products and as clients look to take advantage of the most buoyant market conditions in some years, Cayman’s reputation for being able to respond quickly with legislation to meet perceived client needs is an important distinguishing

Q I What are the growth opportunities for the financial services industry in Cayman? A I Insurance is an area where we are seeing some exciting developments and not just in terms of our traditional captive base, which continues to thrive, as evidenced by the recent record attendance at the IMAC annual conference. We are also seeing some interesting convergence between insurance and the investment fund sector, with funds starting reinsurance companies and insurance companies managing funds and CLOs. The global private equity industry continues to grow fast and Cayman’s service providers, which have a part to play across the full life cycle of these funds, are well placed to support this growth, particularly the greater use of Cayman corporate structures in the global M&A boom that has been taking place. Q I Where is the business coming from? Which are the key regions in the world using Cayman financial services and what sectors are in vogue? A I Given our proximity to North America I don’t expect it is any great surprise that the majority of our clients come from that region,

but the investors in Cayman structures come from every corner of the world, which is the essence of our tax neutrality. Most of the world’s most successful and most prominent asset managers, financial institutions and sovereign wealth funds are clients of the Cayman Islands in some form or another. Asia remains an important source of both traditional business from centres like Hong Kong and Japan and new frontier emerging markets such as Myanmar and Mongolia. Latin America is a key market with growth potential, particularly with the need for substantial infrastructure investment in the region, which IFCs like Cayman can play an important role in financing. Africa has also created a significant degree of interest on the emerging markets side for the private equity industry and we are certainly focused on where we can assist clients looking to explore opportunities in that region. Q I What should a mature and successful IFC like Cayman be doing to ensure it remains at the forefront of the global industry and not lose ground to rival jurisdictions? A I I have said on many occasions that to remain at the cutting edge of this industry and to continue to be relevant to our clients, we must do everything we can to better understand their needs and requirements, particularly in this global environment of cost and regulatory creep. One example in practice was our recent successful New York roadshow, where Cayman Finance and the Ministry for Financial Services co-hosted a breakfast briefing seminar to over 160 key business contacts and partners. We spent a week meeting with leading firms and institutions in New York, collecting valuable input and insights on how we can improve as a jurisdiction, as we aim to continue to provide the products and services our clients need to be successful.

Cayman. Moving finance forward.

Q I The UK in particular believes it has an obligation to stamp out tax avoidance taking place in its overseas territories. How does Cayman’s record stand up? Cayman’s record stand up? A I I think Cayman’s record on transparency has been extremely strong over the years and I am going back to the start of the previous decade when we were one of the few jurisdictions to introduce retrospective due diligence on all clients for Anti Money Laundering, as well as signing up to the EU Savings Directive. More recently, with the various pieces of international regulation introduced since the financial crisis, Cayman has been swift to update its own procedures and our government has shown it will take whatever steps are necessary to be a willing and cooperative partner in the international exchange of tax information. Tax avoidance has certainly garnered more attention in the international media where IFCs are concerned and this is a difficult issue because while not necessarily being illegal, it has come to prominence with most major governments around the world running huge deficits. Our service providers have done an excellent job in advising clients on compliance with the various international tax initiatives, like FATCA, from a Cayman perspective and it is of course important for us to have clients who are taking proper tax advice to enable them to adhere to all the applicable tax rules in their home jurisdictions and other jurisdictions in which they operate. As such, where tax advice is needed, it is important for our clients to use the tax experts in their home jurisdictions to advise them on what can often be highly subjective and technical judgements relating to the tax laws and rules of the particular countries.

Q I Where are the gaps in our global network of tax information exchange agreements that need to be filled? A I Our network of Tax Information Exchange Agreements has continued to expand with 35 agreements in place, covering most of the world’s economically important nations, including Australia, China, France, Germany and Japan, as well as the UK and US’s FATCA frameworks which replaced the original TIEAs. While we can clearly be seen as an early adopter in the exchange of tax information, it has been well documented that we do not intend to implement a public register of beneficial ownership information without such a system being universally applied, because we believe it would be detrimental to the interests of our clients while not providing any tangible improvements over the robust validated service providerbased beneficial ownership system we already have in place. We are committed to the continuing enhancement of our world class regulatory and cross-border cooperation framework and will do so with balance to ensure implemented changes are pragmatic and effective. Q I What is more of a concern for Cayman Finance: a lack of understanding internationally about Cayman’s role in the international financial system, or a lack of appreciation at home for the benefits this industry brings? A I I’m pleased we have been able to make progress on both, particularly within Cayman through a very successful education programme about the value of financial services to our economy. There is clearly more work to do as our recent

efforts have highlighted among young people in particular, a lack of awareness about the opportunities that the financial services industry has to offer. I’m delighted that we will be partnering with the Ministries of Education and of Financial Services in an initiative to enhance the pathways for Caymanian high school graduates to access career opportunities in the financial services industry. In terms of the international picture, while our regulatory and corporate governance standards in many cases exceed the international norms, we will continue to cooperate fully with the discussion and development of international initiatives and continue to focus on the strengths and qualities that have made the Cayman Islands a market leading IFC. The quality and experience of our professional service providers, the right legislative and regulatory balance, underpinned by a robust legal system, with an innovative approach that sees client feedback turned swiftly into legislative changes and new products, just like the Exempted Limited Liability Company, which will come on stream later this year. We know the market is eagerly anticipating this legislation which will create a multitude of options at the fund level for holding investments, among other uses. We have been able to take this innovative approach to business over the years, working closely alongside the public sector, as a result of having a government that is committed to the financial services industry and an industry committed to delivering excellence in service to our clients.

Cayman. Moving finance forward.

CAYMAN FINANCE

OVERVIEW

Cayman Finance, originally known as the Cayman Islands Financial Services Association, was established in 2003, with the vision of a broader organisation representing the countryâ&#x20AC;&#x2122;s financial services industry. Charged with protecting and upholding the reputation of the industry, both at home and overseas, as well as contributing to the debate about the role of International Financial Centres, Cayman Finance corrects misinformed perceptions that fail to appreciate how IFCs operate and contribute to the global economy.

Through cooperation and engagement with domestic and international political leaders, regulators, organisations and media, Cayman Finance plays a pivotal role in the defence of our jurisdiction by promoting the integrity and transparency of Caymanâ&#x20AC;&#x2122;s financial services through legislative and regulatory enactment and

encouraging the sustainable growth of the industry through innovation, education and balance. Cayman Finance is funded primarily through the membership of firms within the Cayman Islands financial services sector and currently represents over 57% of the professional accountants and 56% of the lawyers in Cayman. It also receives support from the Cayman Islands government as part of a working partnership with the Ministry of Financial Services, based on the 2013 Memorandum of Understanding (MOU), indicating the desire for a more unified approach to promote and safeguard our industry in the international arena. With input from all major financial associations in Cayman

Cayman. Moving finance forward.

and consultations with the government, the financial industry speaks with a single cohesive voice ensuring the jurisdiction remains at the forefront of international business. In December 2014, Cayman Finance was delighted to announce the appointment of our new Cayman Finance CEO, Jude Scott, who has served the financial services industry in Cayman for over 25 years. Mr Scott spent much of his career as an Audit Partner at Ernst & Young, where he specialised in auditing investment funds, banks and insurance companies. After retiring from the firm in 2008, he took the role of Global Chief Executive Officer of Maples and Calder, playing an active part in the strategic growth and development of the firm. Welcoming his appointment, Chairman Ian Wight commented that Cayman Finance was fortunate to have such a wellrespected member of the community take up this vital role and help guide its strategic development over the coming years. Elsewhere, the past 12 months has been marked by a number of positive developments, including the Cayman Islands being named as the Best Hedge Fund Services Jurisdiction by Hedgeweek magazine in its 2015 Global Awards. It was a particularly welcome recognition as it was the first time Hedgeweek had included this award category and demonstrates Cayman is a preferred place for doing business.

3 1 I Jude Scott, Cayman Finance CEO, speaking at GAIMOps Cayman 2 I Cayman Finance exhibition booth at Cayman Captives annual IMAC conference 3 I Cayman Financeâ&#x20AC;&#x2122;s new office location 4 I Cayman Finance CEO, Jude Scott, talking with students at the Chamber of Commerce Career Expo 5 I Cayman Finance CEO, Jude Scott, presenting iPad Air to prize winner Kendra Rankin 6 I Mark Lewis, Cayman Finance Board member, accepting the award for Cayman at the Hedgeweek Global Awards in London

Domestically we have built on the message of the positive contribution of our industry to the economy, with informative seminars for the public about the National Risk Assessment exercises that are currently underway. Looking to develop young talent and investing in our next generation of financial services professionals in Cayman, weâ&#x20AC;&#x2122;ve teamed up with

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Cayman. Moving finance forward.

7 I Cayman Finance New York Breakfast Briefing. (L to R) ): Andre Ebanks, Senior Legislative Policy Advisor; Hon Wayne Panton, Minister for Financial Services, Commerce and Environment; Jackie Doak, COO Dart Enterprises; Jude Scott, Cayman Finance CEO; Councillor Roy McTaggart; Dax Basdeo, Chief Officer of Ministry for Financial Services, Commerce and Environment. 8 I Jude Scott, Cayman Finance CEO, speaking at the Cayman Finance New York Breakfast Briefing

One of the international highlights was our second annual New York Breakfast Briefing. This event brought together over 160 attendees, including 100 key business contacts and partners from leading New York firms and institutions, along with Cayman Islands government officials and Cayman Islands financial services industry representatives. We obtained some extremely valuable feedback on how we can improve as a jurisdiction and through greater understanding of our clients we can accelerate changes in our legal and regulatory framework.

9 I Cayman Finance New York Breakfast Briefing, The Harvard Club, Harvard Hall

10 I Press Conference to launch the Cayman Finance Student Education & Work Experience Pilot Programme. (L to R) Jude Scott, Cayman Finance CEO; Hon Tara Rivers, Minister of Education, Employment and Gender Affairs; Hon Wayne Panton, Minister of Financial Services, Commerce and Environment.

government to create a pathway for high performing students towards a career in the financial sector. The Cayman Finance Student Education & Work Experience Pilot Programme, which has been established with the Ministry of Education, Employment and Gender Affairs and the Ministry of Financial Services, Commerce and Environment, will support 50 dual enrolment Year 12 students, through a combination of in-class workshops, one-on-one coaching and a summer work experience placement. This new initiative will create early engagement and access to the Cayman Islands financial services industry for relevant students, helping to build a core of globally competitive young professionals.

Cayman Finance PO Box 11048, George Town Grand Cayman, KY1-1007 Cayman Islands 1 (345) 623 6725 caymanfinance.ky enquiries@caymanfinance.ky

Cayman. Moving finance forward.

CAYMAN FINANCE

BOARD MEMBERS

Our Board of Directors is comprised of the following dedicated, experienced and well-respected members of the Cayman Islands financial services industry. Their broad range of skills and experience provides our association with the strong and capable leadership our industry needs to continue to prosper in the ever-changing landscape of global finance.

Ian Wight â&#x20AC;&#x201C; Chairman

Stuart Dack

Ian Wight served as Managing Partner of Deloitte in the Cayman Islands for over 20 years with overall responsibility for the operations of the firm. He has extensive experience in insolvency matters and a special expertise in the wind-up of financial institutions, investment-fund companies and SPV companies. He has been an associate member of the Institute of Chartered Accountants in England and Wales since 1974, and a Fellow since 1981. He has been a member of the Cayman Islands Society of Professional Accountants (CISPA) since 1979. Mr. Wight retired from Deloitte in 2012, and now works as a consultant, and has a consultancy arrangement with Deloitte. Most recently, he was appointed by the Governor as a member of the Commission for Standards in Public Life.

Stuart Dack is the Chief Executive Officer of Cayman National Corporation. He has over 40 years of experience in the banking and financial services industry. He gained 22 years of valuable knowledge with Midland Bank Group where he held a number of managerial roles at branch, area, and regional levels. He joined Cayman National as Internal Auditor in 1992. He has filled the role of Vice President of Cayman National Corporation in 1998, and in 2004 was appointed to President and Chief Executive. Stuart entered the banking industry in 1971, and obtained the ACIB qualification with distinction and in 2001, he was awarded an MBA with Merit from Southampton University. Stuart is on the Board of Directors for Cayman National Corporation Ltd., Cayman National Bank Ltd., Cayman National Fund Services Ltd., Cayman National Trust Co. Ltd., Cayman National Bank and Trust Company (Isle of Man) Limited, and Cayman National (Dubai) Ltd.

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CAYMAN FINANCE BOARD MEMBERS Peter was admitted as an English solicitor (currently non-practising) in 1996, and granted higher rights of audience in 2002. He was admitted as a Cayman Islands attorney in 2008. Peter is a member of the Chancery Bar Association, Insolvency Lawyers’ Association, INSOL and the Commercial Fraud Lawyers’ Association.

Tania Dons

Mark Lewis

Tania Dons is a Partner in the general commercial and investment funds teams of Conyers Dill & Pearman, with over 10 years of experience practising as an attorney in the Cayman Islands. She works extensively with hedge fund managers and their onshore counsel on all aspects of the establishment, maintenance, restructuring and financing of offshore investment funds. Tania’s practice also covers a broad range of general corporate, finance and insurance related work. Tania is recognised in the 2014 edition of Chambers Global (corporate and finance) and IFLR1000. She is formerly a lecturer in law at the University of Otago in New Zealand and is regularly published in leading legal and investment fund publications.

Mark Lewis is Senior Investment Funds Partner at Walkers. He has in excess of 25 years of post-qualification experience, the last 14 of which have been with Walkers in the Cayman Islands, specialising in all aspects of mainstream corporate work, particularly hedge funds. Mr. Lewis is founding board member of the Cayman Islands branch of Hedge Funds Care, and was elected Chairman of the Executive Committee of the Alternative Investment Management Association (AIMA) Cayman in September 2008. He is also a member of the Cayman Islands Monetary Authority’s E-Reporting Working Group.

Peter Hayden Peter Hayden is the Managing Partner of the Cayman Islands office of Mourant Ozannes. Prior to joining Mourant Ozannes in 2008, he worked in London as a partner at Matthew Arnold & Baldwin and before that at Allen & Overy. Peter has extensive experience of financial services litigation and insolvency matters. He has worked in-house at UBS and Barclays.

Bryan Hunter Bryan Hunter is the Managing Partner of Appleby’s Cayman office, and the Corporate and Commercial practice group head in Cayman. He has extensive experience in the structuring and formation of hedge funds, funds of funds and private equity funds. He regularly advises on various operational and regulatory issues in relation to these funds. His practice also includes general corporate matters, corporate finance, and merger and acquisition transactions. Mr. Hunter is a notary public in the Cayman Islands. He has served as a board member of the Civil Aviation Authority, the Caymanian Bar Association (of which he is a past President) and the Chamber of Commerce, and has served as a member of the Financial Services Council. Mr. Hunter has contributed to various legal publications, including Legal Week and Cayman Financial Review.

Frazer Lindsay Frazer Lindsay is the Territory Senior Partner for the Cayman Islands firm of PricewaterhouseCoopers (PwC). He joined the firm in 1992 and was admitted to the PwC partnership in July 2000. Mr. Lindsay is a member of the Institute of Chartered Accountants in Scotland. He has 25 years of audit experience, 22 of which in offshore jurisdictions. His base includes bank and trust companies, offshore hedge funds, financing companies and special purpose vehicles. These clients generally report under international or US accounting standards. Mr. Lindsay is a former Lead Partner for the banking industry of PwC, a past President of CISPA and is also a past Chairman of the Public Practices Committee of this society.

Cayman. Moving finance forward.

CAYMAN FINANCE BOARD MEMBERS

Kevin Lloyd

Conor O’Dea

Kevin Lloyd is Managing Partner at KPMG in the Cayman Islands, joining the office of the firm in 1991. He became a partner in 1997, and was appointed Regional Head of Audit in 2004, and then Managing Partner in 2012. He has led the audit practice through significant growth and regulatory change, driving industry specialisation, collaboration, leadership and engagement. Mr. Lloyd’s responsibility as Partner in charge of People, Performance and Culture was critical in ensuring that KPMG recruits, develops and retains high performers who are passionate about delivering real value to its clients. His client base focuses on entities in the insurance and banking sectors and he served as Lead Insurance Partner for many years.

Conor O’Dea is Senior Executive Vice President, International Banking for the Butterfield Group with oversight of all of Butterfield’s banking operations internationally. He has a strong background in audit, having worked with a large international accounting firm prior to joining Butterfield as their Financial Controller in 1989. Mr. O’Dea is a past president of the Cayman Islands Chamber of Commerce, and the Cayman Islands Bankers’ Association. He also served on the Cayman Islands Government National Advisory Council from 2002-2005.

Nick Rogers Nick Rogers joined Ogier as a partner in 2010. He advises on a wide range of corporate matters with a focus on hedge fund and private equity fund formation, joint ventures, acquisitions and venture capital financing transactions. His principal areas of practice are investment funds, corporate and commercial business and trust law group and listing services.

Don Seymour

David Roberts – Treasurer David Roberts is the Managing Director of Cayman Management Ltd., the longest established pure management office in the Cayman Islands. He represents the Cayman Islands Managers Association on the Cayman Finance board.

Don Seymour is the Founder of DMS Offshore Investment Services and is recognized by the Financial Times as one of the most influential men in the global hedge fund industry. He was directly responsible for the creation of the Investment Services Division of the Cayman Islands Monetary Authority (CIMA), where he is credited with the development and implementation of its market-friendly and responsive regulatory framework for regulating hedge funds that propelled the Cayman Islands to become the leading hedge fund jurisdiction in the world. After his tenure as Heads of Investment Services, he served as a member of the board of directors of CIMA. A Notary Public, he holds a Bachelor of Business Administration degree in Accounting from the University of Texas at Austin and a Certified Public Accountant certificate from Illinois.

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CAYMAN FINANCE BOARD MEMBERS Financial Advisory Services in the Deloitte Caribbean & Bermuda Cluster, as well as a member of the America’s Financial Advisory Services board.

Rohan Small

Henry Smith

Rohan Small is a partner in the Bahamas, Bermuda, British Virgin Islands and Cayman Islands (BBC) region of Ernst & Young’s Financial Services Organization.

Henry Smith is Global Managing Partner of Maples and Calder worldwide. He has extensive experience in all aspects of offshore finance transactions, focusing on private equity funds, hedge funds and structured finance transactions. Mr. Smith is also a director and global council member of AIMA. He joined Maples and Calder in 1994, and was elected as a partner in 1999. He previously worked for a major international law firm in London, New York and Tokyo. Mr. Smith is named as a leading private funds lawyer in The International Who’s Who of Private Funds Lawyers, the PLC Which Lawyer? Yearbook, the Chambers Global and The Legal 500.

He has more than 20 years of audit experience in the financial services sector serving numerous large hedge funds, private equity funds, special purpose vehicles and banks. He is currently the IFRS leader for the BBC. Rohan received Bachelor Degrees in accounting and computer science from the University of Texas located in Austin. He is licensed as a CPA in the State of Illinois, a member of the American Institute of Certified Public Accountants (AICPA) and a member of the New York State Society of CPAs. Rohan has served on various government, statutory and service organization boards and committees. Rohan is a past Chairman of the Cayman Islands’ Chapter of the Alternative Investment Management Association (AIMA), past president of the Cayman Islands Society of Professional Accountants (CISPA) and the first chairman of its Licensing Committee.

Stuart Sybersma Stuart Sybersma is Deloitte’s Office Managing Partner and has over 25 years’ experience in public accounting, the last 18 of which have been based in the Cayman Islands where he has been a partner since 2000. He specialises in insolvency, forensic accounting and dispute consulting. He is a Canadianqualified Chartered Accountant, as well as a Chartered Insolvency and Restructuring Professional and Certified Fraud Examiner. He is a member of CISPA and founding board member of the Cayman Islands chapter of AIMA. In addition to his local responsibilities, Mr. Sybersma is the lead partner for

William Walmsley William Walmsley is a Partner of Rawlinson & Hunter and has responsibility for the firm’s trust and corporate services department. He has over 25 years of experience and specialises in private client services including international trust structures, private trust companies and purpose trusts. William is a director of The R&H Trust Co. Ltd. and The Harbour Trust Co. Ltd., duly licensed Cayman Islands trust companies owned by Rawlinson & Hunter in the Cayman Islands. He advises on the establishment and ongoing administration of Cayman Islands trusts and companies including acting as a director of a number of private trust companies, other regulated entities and other client companies. He is a Fellow of the Institute of Chartered Accountants in Ireland, a member of the Society of Trust and Estate Practitioners (STEP), Vice Chairman of the Cayman Islands branch of STEP and a member of the Cayman Islands Society of Professional Accountants.

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Cayman. Moving finance forward.

CAYMAN ISLANDS

FINANCIAL SERVICES INDUSTRY ASSOCIATIONS Alternative Investment Management Association (AIMA)

President: Mark I. McIntyre, Managing Director

AIMA Cayman works in conjunction with the

Islands for CIBC FirstCaribbean International

global body by providing input on the many

Bank (Cayman) Limited

issues facing hedge funds and their service

cibankers.org

& Country Head, Cayman Islands & British Virgin

providers from an offshore perspective through

Cayman Islands Directors Association (CIDA) The purpose of CIDA is to promote and safeguard the interests of directors of Cayman Islands-registered companies and to define a code of conduct and best practice for its members which will ensure corporate

consultation; hosting forums; developing

governance of the highest standard, thereby

consolidating local industry opinion. In Cayman,

Cayman Islands Company Management Association (CICMA)

the association organises educational and

CICMA was formed as a non-profit

Cayman Islands financial-services sector. CIDA

networking events for the benefit of members

association in 1996. The association encourages

is organised and run exclusively by individuals

and fundraising activities that give back to our

strict adherence to all laws and regulations

who hold office as directors of one or more

community. AIMA Cayman is committed to

prescribed for company managers, and

Cayman Islands-registered companies.

working with stakeholders to proactively create

promotes and maintains a high standard of

a stronger hedge fund industry.

ethics, conduct, skill and efficiency among its

new industry initiatives and white papers; and

members. It also encourages the exchange Chairman: Alan Milgate, Director, Rawlinson

among members of information on all matters

& Hunter

affecting the profession.

cayman.aima.org President: Paul Harris, Chairman, International Management Services Ltd. Cayman Islands Bankers Association (CIBA)

cicma.net

CIBA was formed in 1979 and is one of the

Islands banks and trust companies and is open to all relevant licensed institutions. Currently, our Association comprises 61 ordinary members (institutions maintaining their own staffed offices in the islands) and over 103 associate members (institutions registered in Cayman with no physical residence and managed by class A banks). Associate Membership (non-voting) is also available to businesses that provide ancillary services to our ordinary membership.

President: Cassandra Powell, Director, The Harbour Trust Co Ltd cida.ky

Cayman Islands Fund Administrators Association (CIFAA) CIFAA was established in January 1995, and is represented by a membership of companies providing fund administrator services to many of

islandsâ&#x20AC;&#x2122; oldest associations. Our membership comprises the majority of registered Cayman

further strengthening the integrity of the

The Cayman Islands Compliance Association (CICA)

the over 8,000 funds domiciled in the Cayman Islands. The association was established primarily

CICA has been in existence since October

to provide a channel of communication between

2000 as a non-profit organisation, representing

the fund administration industry in Cayman

compliance officers, money laundering reporting

and the Cayman authorities (government and

officers and risk managers of financial service

regulator) as well as a forum to discuss issues

providers that are subject to the Cayman Islands

relating to the Fund administration industry in

anti-money laundering and regulatory regimes.

the Cayman Islands.

President: Sandra Edun-Watler, Head of

Chairman: Dan Allard, Executive Director, UBS

Compliance (Caribbean), Walkers

Fund Services (Cayman) Ltd.

cica.ky

cifaa.org.ky

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Cayman. Moving finance forward.

CAYMAN ISLANDS FINANCIAL SERVICES INDUSTRY ASSOCIATIONS Cayman Islands Insurance Association (CIIA)

Caymanian Bar Association (CBA)

Insurance Managers of Cayman (IMAC)

CBA was established in the Cayman Islands

IMAC is a non-profit organisation run for

CIIA was formed in 2004 to bring together the

in 1988 as a non-profit company limited by

and by Cayman’s captive-insurance industry,

various associations representing the insurance

guarantee after senior Caymanian attorneys

including insurance managers, Cayman

industry in the Cayman Islands. The association’s

perceived the need for an organisation to

captive-insurance companies and service

purpose was to create a single body to respond

address issues of particular relevance to

providers. The association is the unified

to and advise the public on insurance issues

Caymanian attorneys and effectively to

representative of the captive industry, acting as

and to have a single voice in discussions with

represent the views of Caymanian attorneys

a liaison with the Cayman Islands government,

the Cayman Islands Monetary Authority, which

who were, and are, a minority in the profession

the Cayman Islands Monetary Authority and

regulates the insurance industry.

in the Cayman Islands. To that end, all

the private sector to ensure its members’

Caymanians (as defined in the Immigration

interests are represented.

President: Derry Graham, General Manager, British Caymanian Insurance Company ciia.ky

Cayman Islands Law Society The Cayman Islands Law Society (“Law Society”) is the professional association that represents the entire private sector legal profession of the Cayman Islands. Membership is open to

Law (2013 Revision) of the Cayman Islands) who are admitted to practise as an attorney

Chairman: Kieran O’Mahony, Senior Vice

in the Cayman Islands and possess a current

President & Client Services Leader, Marsh

practising certificate are eligible to be members

Captive Solutions Marsh Management Services

of the CBA.

Cayman Ltd. imac.ky

President: Abraham Thoppil (President/ Council), Partner, Maples and Calder caymanbar.org.ky

STEP is the leading worldwide professional body

persons who are admitted as Cayman Islands attorneys-at-law. The Law Society currently

CFA Society | Cayman Islands

has over 400 members.

The CFA Society Cayman Islands is the local

The main role of the Law Society is to represent the interests of the profession, its members and member firms and to make representation on matters of concern to them. Additionally, it provides advice to the Cayman Islands government and Monetary Authority on legislation and other matters that may affect the Cayman Islands. President: Alasdair Robertson, Partner, Maples caymanlawsociety.org

Cayman Islands Society of Professional Accountants (CISPA) CISPA is a not-for-profit organisation that regulates and promotes the accounting profession in the Cayman Islands.

Society of Trust and Estate Practitioners Cayman Islands (STEP)

chapter of the CFA Institute, a global, non-profit member organisation of financial analysts, portfolio managers and other investment professionals. It promotes ethical and professional standards within the investment industry, encourages professional development through the CFA Program – a qualification

for practitioners in the fields of trusts, estates and related issues. The society helps to improve public understanding of the issues families face in this area and promotes education and high professional standards among its members. Branch Chairman: Nigel Porteous, Partner, Maples and Calder step.org

that has become recognised as the leading investment designation in the world and facilitates the open exchange of information

Restructuring and Insolvency Specialists Association (RISA)

and opinions.

Established in 2012, RISA, the Cayman chapter of INSOL International has swiftly grown to

President: Monique Frederick

over 200 members. Focused on delivering

cfasociety.org/caymanislands

educational and networking events, RISA’s mandate is to investigate and share best

Hedge Fund Association (HFA) The HFA is an international non-profit

practices amongst industry practitioners in the fields of insolvency, restructuring and litigation.

industry trade and non-partisan lobbying

Chairman: Hugh Dickson, Partner, Grant

Chief Executive Officer: Sheree Ebanks

organisation devoted to advancing transparency,

Thornton

cispa.ky

development and trust in alternative

risa.ky

investments, and is made up of hedge funds, funds of hedge funds, family offices, highnet-worth individuals, financial advisors and service providers. Cayman Chapter Co-Directors: Christina Bodden, Partner, Maples and Calder and Colin Nicholson, Partner, KPMG thehfa.org

Cayman. Moving finance forward.

CAYMAN FINANCE MEMBER FIRMS Aon Risk Solutions (Cayman) Ltd. aon.com/caymanislands 1 345 945 1266 Appleby (Cayman) Ltd. applebyglobal.com 1 345 949 4900 BDO bdo.ky 1 345 943 8800 Butterfield Bank (Cayman) Limited ky.butterfieldgroup.com 1 345 949 7055 Cayman Management Ltd. caymanmanagement.com 1 345 949 4018 Cayman National caymannational.com 1 345 949 4655 Collas Crill & CARD collascrill.com 1 345 949 4544 Codan Trust Company (Cayman) Limited conyersdill.com/pages/codan 1 345 949 1040 Conyers Dill & Pearman (Cayman) Limited conyersdill.com 1 345 945 3901

Reversed out

Deloitte deloitte.com/ky 1 345 949 7500 B/W

Dillon Eustace dilloneustace.ie 1 345 949 0022

CMYK

RGB

DMS Offshore Investment Services dmsoffshore.com 1 345 949 2777

107

108

Cayman. Moving finance forward.

CAYMAN FINANCE MEMBER FIRMS

EY ey.com/ky 1 345 949 8444 Fidelity Bank (Cayman) Limited fidelitygroup.com 1 345 949 7822 Greenlight Reinsurance, Ltd. greenlightre.ky 1 345 943 4573 Harney Westwood & Riegels harneys.com 1 345 949 8599 Highwater highwater.ky 1 345 640 2279 HF Fund Services hffunds.com 1 345 949 9900

IMS

International Management Services Ltd. fundirectors.com 1 345 949 4244 KPMG kpmg.com/ky 1 345 949 4800 Maples and Calder maplesandcalder.com 1 345 949 8066 Morval Bank & Trust Cayman Ltd. morval.ch/en/morval-bank-trust-cayman-ltd 1 345 949 9808 Mourant Ozannes mourantozannes.com 1 345 949 4123 Ogier ogier.com 1 345 949 9876

Cayman. Moving finance forward.

CAYMAN FINANCE MEMBER FIRMS

PwC Cayman pwc.com/ky 1 345 949 7000

Queensgate Bank & Trust Company Ltd. queensgate.com.ky 1 345 945 2187 Rawlinson & Hunter rawlinson-hunter.com 1 345 949 7576 Summit Management Limited sml.ky 1 345 945 7676 Walkers walkersglobal.com 1 345 949 0100 Wilmington Trust (Cayman), Ltd. wilmingtontrust.com 1 345 946 4091 19 Degrees North Fund Services Ltd. 19northfs.com 1 345 749 1919 Audit services provided pro bono by

PKF (Cayman) Ltd. pkfcayman.com 1 345 945 5889

Associate Members BravaComm bravacomm.com 1 345 928 6161 SteppingStones Recruitment steppingstonescayman.com 1 345 946 7837 IFINA (Cayman) Ltd. ifina.com +44 (0) 1926 815 815 Silver Wheaton silverwheaton.com 1 345 945 3584

109

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Cayman. Moving finance forward.

OTHER USEFUL RESOURCES

Cayman Islands Chamber of Commerce

Cayman Islands Ministry of

Cayman Islands Stock Exchange (CSX)

The Cayman Islands Chamber of Commerce is

Financial Services

CSX is a stock exchange based in Grand

the country’s largest not-for-profit organisation

The Ministry of Financial Services creates

Cayman, Cayman Islands. It started operations

established to support, promote and protect

an environment in which financial services

in July 1997, and is fully owned by the Cayman

the interests of its more than 700 member

can flourish, to the benefit of all stakeholders.

Islands government. The CSX was recognized

businesses across all industry sectors. Visit the

Its departments include the Department

by the London Stock Exchange as an approved

Chamber’s business directory for up-to-date

for Financial Services Policy and Legislation;

organisation in July 1999. The CSX was

information on airlines, hotels, condominiums,

Department for International Tax Cooperation;

originally set up to provide a listing facility for

restaurants, attractions, tours, real estate,

and General Registry. The Ministry also oversees

the specialist products of the Cayman Islands –

investment opportunities and financial

six government authorities: the Cayman Islands

mutual funds and specialist debt securities. The

services in Grand Cayman, Cayman Brac and

Monetary Authority, Cayman Islands Stock

CSX’s capabilities now extend to sophisticated

Little Cayman.

Exchange, Maritime Authority of the Cayman

vehicles and structures including the listing

caymanchamber.ky

Islands, Cayman Islands Development Bank, the

of derivative warrants, depositary receipts,

Auditors Oversight Authority and the Special

Eurobonds, preferred shares and international

Cayman Islands Economic and

Economic Zone Authority.

equity.

Statistics Office (ESO)

caymanfinance.gov.ky

csx.com.ky

produces the Cayman Islands’ official

Cayman Islands Monetary Authority

Department of Commerce and Investments

national economic reports and socio-

(CIMA)

The Department of Commerce and Investment

economics statistics which are released to

CIMA began operations on 1 January 1997. It

is the central point for the coordination of

the public through www.eso.ky. Among the

was established as a body corporate under the

resources and information for investors,

statistics are the National Accounts (Gross

Monetary Authority Law, which was brought

entrepreneurs and developers seeking

Domestic Product), Balance of Payments,

into force on that date. CIMA protects and

business opportunities in the Cayman Islands.

Consumer Price Index, Labour Force Surveys,

enhances the reputation of the Cayman Islands

Our vision is to contribute to Cayman’s

Household Budget Survey and the Population

as an international financial centre by fully

economic development by encouraging

and Housing Census.

utilising a team of highly skilled professionals

investment and entrepreneurial ventures that

eso.ky

and current technology, to carry out

generate income, employment, innovation,

appropriate, effective and efficient supervision

linkages and domestic competitiveness.

and regulation in accordance with relevant

The department's mission is “to lead in

international standards and by maintaining

promoting and facilitating appropriate long-

a stable currency, including the prudent

term foreign and local investment in the

management of the currency reserve.

Cayman Islands.”

cimoney.com.ky

investcayman.gov.ky

The Economics and Statistics Office (ESO)

Cayman. Moving finance forward.

LIST OF ADVERTISERS

Butterfield Cayman Finance

9 22 & 77

Cayman Islands Bankers Association

Cayman Islands Ministry of Financial Services

Cayman Management

Century 21

CIBC FirstCaribbean Civil Aviation Authority of the Cayman Islands DART Deloitte

5 69 26/27 7

Harneys

Health City Cayman Islands

Insurance Managers Association of Cayman

International Management Services

KPMG

Maples

PwC

Back cover

Rawlinson & Hunter

Solomon Harris

Walkers

Inside front cover

111

www.pwc.com/ky

Peace of mind: A name you know A team you can trust Accountable -

A team with an established presence in the Cayman Islands for over 45 years

Focused - Trained and highly experienced in Financial Services in 157 countries to the 195,000 Connected - Globally people across our network

PwC is a leading provider of quality assurance, tax and advisory services to the Financial Services Industry. We have a dedicated practice that is part of our global network of specialists. We use our knowledge to help our clients to not just implement new standards and requirements, but to prepare for the future. Whatever your challenge is, we can help you find the peace of mind you are looking for.

Talk to us... Graeme Sunley, Assurance Leader Graeme.Sunley@ky.pwc.com Tel + (345) 914 8642

Frazer Lindsay, Territory Senior Partner Frazer.Lindsay@ky.pwc.com Tel + (345) 914 8606

ÂŠ 2015 PricewaterhouseCoopers , a Cayman Islands partnership. All rights reserved. PwC refers to the Cayman Islands member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.