Cayman. The Future of Finance. by Cayman Finance

THE FUTURE of FINANCE

Cayman.

The Future of Finance.

Cayman | The Future of Finance

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Cayman | The Future of Finance

FOREWORD by Ian Wight

The Cayman Islands is a domicile of choice for many of the world’s leading financial institutions and continues to hold its position as one of the world’s top international financial services centres. Maintaining this status, while adhering to extremely high global standards of regulation and tax transparency, requires an intelligent balancing act. On behalf of Cayman Finance, I am proud to recognise the efforts of the various stakeholders in the private and public sectors who continue to do a stellar job in this regard. Like the Cayman Islands, Cayman Finance continues to push forward with much success in its goal to communicate the integrity of our jurisdiction to the world. In this respect, this publication is an important milestone for our organisation. Through this publication we hope to provide important annual updates on the Cayman Islands, particularly as they relate to the financial services industry; useful information on industry and regulatory developments to existing and potential businesses alike; and a valuable product for

our membership base in terms of both information and significant exposure to the publication’s global readership. The Cayman Islands is recognised as a quality financial services jurisdiction because we are committed to high standards of professionalism and client service. We have also earned a global reputation as a leader on regulatory matters as evidenced by our leadership role in the Caribbean Financial Action Task Force (CFATF) and The Organisation for Economic Co-operation and Development (OECD) Global Tax Forum, among others. I would especially like to acknowledge the efforts of the Cayman Islands Government in this regard and thank them for their continued partnership with, and support of, Cayman Finance. We hope this publication will contribute to promoting not only the services and expertise available to clients, but also a better understanding of how the Cayman Islands operates as a world-class financial services centre. Visit caymanfinance.ky to learn more about Cayman Finance initiatives and upcoming events.

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

CAYMAN THE FUTURE of FINANCE

Cayman | The Future of Finance

CAYMAN THE FUTURE of FINANCE

CAYMAN 22

International Financial Centres

THE FUTURE of FINANCE

CREATING CAYMAN

Cayman.

The Future of Finance.

TABLE OF Contents 3 Foreword from Cayman Finance Chairman Ian Wight 10 Preface from the Minister of Financial Services, Commerce and Environment, Hon. Wayne Panton 11 Welcome from Cayman Finance CEO Gonzalo Jalles 14 Cayman Islands Economy: a Snapshot 16 The 10 Key Ingredients for a Successful International Financial Centre by Gonzalo Jalles 20 Why the Cayman Islands Remains a Jurisdiction of Choice by Paul Byles 22 International Financial Centres: Looking to the Future by Tim Ridley

Regulatory Framework

26 Creating Cayman: How the Cayman Islands Built a Financial Centre by Andrew Morriss 30 The Cayman Islands Financial Services Regulatory Framework by Cindy Scotland

Cayman | The Future of Finance

cayman islands stock exchange

Financial Instrument Disclosures

FATCA AND IGAs

33 The Legislative Process in the Cayman Islands by Shelley White and Joanne Verbiesen 36 Cayman Islands Stock Exchange Update by Nick Small 38 Understanding Exchange of Information for Tax Purposes by Duncan Nicol 41 A Long Commitment to Transparency by Ian Wight 45 The European Alternative Investment Fund Managers Directive and Cayman Funds by Derbhil Oâ&#x20AC;&#x2122;Riordan 48 FATCA and IGAs: What it means for the Cayman Islands Financial Services Industry by Anthony Fantasia and Amanda Kong 54 New 2013 Financial Instrument Disclosures Impacting Hedge Funds by Colin Hanson 58 AT A GLANCE: Banking 60 Banking Still at the Heart of Business by Paul Muspratt

BANKING THE HEART OF BUSINESS

Cayman | The Future of Finance

BRAND CAYMAN

CORPORATE GOVERNANCE

62 Trust in Cayman: Why the Cayman Islands Continues to be the Best Choice for Estate Planning and Fiduciary Services by Nigel Porteous 66 AT A GLANCE: Insurance 68 Cayman Islands - The Ne Plus Ultra Captive Domicile? by Simon Raftopoulos and Samuel Banks 70 Captives and Beyond: How Cayman’s Legislation Caters to the Global Insurance Business by Linda Haddleton 72 AT A GLANCE: Investment Funds 74 Brand Cayman – Leading the Global Hedge Fund Sector by Ben Benson 77 Structured Finance – Why Cayman? by Alasdair Robertson and Nicola Bashforth 80 AT A GLANCE: Company Management and Corporate Services 82 The Cayman Approach to Corporate Governance by Michael Austin 85 The Cost of Compliance by Jonathan Cohen 88 Technology: A Key Business Driver by Richard Munday 90 Real Estate an Important Business Enabler by James Bovell 92 Cayman Finance Overview 94 Cayman Finance Board Members

real estate

97 Cayman Islands Financial Services Industry Associations 99 Member Firms 103 List of Advertisers & Other Useful Resources

Cayman | The Future of Finance

Why is the Cayman Islands the future of finance?

AD A sophisticated legal system. No direct taxation. Responsive government regulators. Political and economic stability. Modern infrastructure and highly qualified professionals in legal, accounting, fund administration, and audit services. Cayman Finance provides a voice for Caymanâ&#x20AC;&#x2122;s financial services industry working to ensure the Cayman Islands gets the recognition, support and promotion needed to continue as one of the worldâ&#x20AC;&#x2122;s leading international financial centres. For more information on Cayman Finance or the Cayman Islands financial services industry, visit our website or connect with us on social media.

www.caymanfinance.ky

Cayman | The Future of Finance

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 Phone: 1 (345) 623 6700 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 Phone: 1 (345) 623 6700 tower.com.ky info@tower.com.ky

Contributing Writers Michael Austin Samuel Banks Nicola Bashforth Ben Benson James Bovell Paul Byles Jonathan Cohen Anthony Fantasia Linda Haddleton Colin Hanson Gonzalo Jalles Amanda Kong Andrew Morriss

Richard Munday Paul Muspratt Duncan Nicol Derbhil Oâ&#x20AC;&#x2122;Riordan Nigel Porteous Simon Raftopoulos Tim Ridley Alaisdair Robertson Cindy Scotland Nick Small Shelley White Ian Wight Joanne Verbiesen

Acknowledgments Cayman Finance would like to thank the following individuals and organizations for their contribution to this publication. Lindsey Turnbull Iris Stoner Alternative Investment Management Association (AIMA) Cayman Islands Bankers Association (CIBA) Cayman Islands Company Managers Association (CICMA) Insurance Managers Association of Cayman (IMAC)

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.

Cayman | The Future of Finance

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Expertise, Professionalism, Innovation. Our core values define who we are and how we work. Expertise means no one knows the offshore legal market like CML. Professionalism means clients and candidates can trust CML to deliver on that promise. Innovation means we never stop improving our working practices to better serve our clients and candidates. To find out more visit www.cmlor.com.

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PREFACE From THE MINISTER OF FINANCIAL SERVICES, COMMERCE AND ENVIRONMENT to strengthening its relationship with Cayman Finance even further in this coming year, as we work in partnership to further the good work already undertaken jointly on behalf of the industry. As a nation, we started 2014 in good shape financially. Cayman is in a strong economic position, for which we have received recognition and support from the United Kingdom and a stable rating from Moody’s. Our regulatory environment has again recently been deemed compliant with international standards and our advocacy of, and commitment to, global transparency and tax-information-exchange matters continues, leading where other jurisdictions follow.

Cayman’s financial services industry is not only an essential element of the global economy as a whole, but it also plays a vital role at home as one of the largest and most important economic drivers, representing over half of the Islands’ economy and over a third of its employment. It therefore gives me great pleasure to welcome you to Cayman Finance’s first annual publication, a first-class publication that will give readers an excellent oversight as to the true depth of service our industry providers have on offer for their clients within this most vital of industries. The Ministry of Financial Services wholeheartedly endorses Cayman Finance’s efforts to promote and protect Cayman’s financial services industry and as such we are delighted to give our words of welcome to readers of this publication. The association is our partner in ensuring that the industry thrives amidst the constant pressures heaped upon us and the misconceptions that still abound as to how we operate and how well we are regulated. Based on the signing of a Memorandum of Understanding with Cayman Finance last year, the Ministry of Financial Services looks forward

In recent months, Cayman has been very engaged in its response to several multilateral initiatives, including the Foreign Account Tax Compliance Act (FATCA) and other automatic exchange-ofinformation initiatives, in particular the United Kingdom FATCA-style intergovernmental agreement. With FATCA, industry’s input regarding which intergovernmental agreement to pursue was a key factor in the Government’s decision to negotiate a Model 1 intergovernmental agreement with the United States. Combining industry feedback with our insights into the direction of global developments, the Ministry of Financial Services secured an early signing with the US in order to provide industry with additional certainty regarding its important role under the terms of the agreement. Government has now set up a working group with industry representation, to assist with developing the implementation framework for both agreements. For the coming year, Government’s agenda contains significant legislative pieces directly relating to the

financial services industry that have been drafted with the input of the industry. We believe this ongoing process will continue to strengthen the industry and thus the jurisdiction as a whole, which can only establish a path for even greater success as we work our way through 2014. As a world-class financial services jurisdiction, we believe that our domestic legislation is key in maintaining our edge over our competitors. Industry and Government have a close working relationship that makes Cayman’s approach to legislative developments and enhancements more dynamic, more structured and, ultimately, more effective for economic growth. In this way, we are able to keep the Cayman Islands at the very forefront of the offshore financial marketplace in terms of innovation, responsiveness to new trends and agility in getting legislation passed in as short a time as possible. Cayman is a highly regarded jurisdiction with a strong reputation among the industry globally for possessing economic strength and stability, an excellent regulatory environment and an unrivaled quality and depth of service providers. It is therefore the common aim of both the Ministry of Financial Services and Cayman Finance that when potential clients are seeking a jurisdiction of innovation, recognition and integrity, the Cayman Islands will be first in their minds. In this way, I believe this publication should go a long way in helping to assist potential clients with the decision-making process. I wish you an interesting and thought-provoking read, and thank you for your interest in the Cayman Islands. Hon. Wayne Panton Minister of Financial Services, Commerce and Environment

Cayman | The Future of Finance

WELCOME By Gonzalo Jalles, CEO, Cayman Finance

As one of the most important financial services centres anywhere in the world, the Cayman Islands plays an integral role in helping to facilitate the movement of funds throughout the globe.

concept that is often overlooked when assessing the value of international financial centres such as ours. The centre of the worldâ&#x20AC;&#x2122;s hedge

fund industry, home to the second largest captive insurance industry globally, and a centre of excellence for banking, trust, fiduciary and corporate services, this jurisdiction

offers investors a breadth of expertise that is on a par with any similar international service provider anywhere in the world and significantly better than competitors

Cayman | The Future of Finance

â&#x20AC;&#x153;

Cayman Finance is the central organisation that represents the financial services industry as a whole, both locally in the Cayman Islands and globally, carrying the torch for the industry and advocating for its promotion and protection.

â&#x20AC;?

within the Americas region, as well as a soundly regulated jurisdiction, which constantly meets or exceeds global standards. Most service providers based in Cayman are global entities, so clients can benefit from a truly global solution to their investment requirements. In addition, we remain at the cutting edge of global initiatives -- in general, streets ahead of onshore jurisdictions when it comes to international standard setting. For example, we were one of the first jurisdictions in the world to negotiate a FATCA Model 1 agreement with the United States, setting ourselves apart from and far above the rest of the pack, and we were the first jurisdiction outside Europe to commit to the pilot automatic multilateral exchange of information. Cayman Finance is the central organisation that represents the financial services industry as a whole, both locally in the Cayman

Islands and globally, carrying the torch for the industry and advocating for its promotion and protection. We fly the flag for the Cayman Islands all over the world, showcasing our services at a variety of events each year, offering networking opportunities for potential investors and updates as to the way forward for our industry. We also offer periodic educational events locally to ensure industry and the public are kept well abreast of any regulatory initiatives likely to impact our jurisdiction with regard to financial services. Thanks to the signing of a Memorandum of Understanding in 2013, Cayman Finance is the Cayman Islands Governmentâ&#x20AC;&#x2122;s official industry representative and as such works in partnership with Government to ensure our common goal of seeing that the needs of our financial services industry are constantly met. Our input is regularly sought by Government

on a variety of issues that face our industry, including on local legal and regulatory changes as well as initiatives from onshore regulators and organisations. We are, therefore, the voice that represents industry, and members know they have solid representation when it comes to key decisions to be made that will directly affect them. Our first publication will be an excellent introduction for existing and also potential clients to appreciate the vast wealth of knowledge, high level of expertise, and wide range of services available here in the Cayman Islands financial services industry. Cayman Finance members come from each sector of the industry and we have sought to include as broad a range of topics as possible in our first edition to ensure you, the reader, can comprehend at a glance the tremendous expertise on hand.

Cayman | The Future of Finance

Cayman Islands

Economy: a snapshot

Financial Services

50-60% of GDP

The Cayman Islands economy has demonstrated a moderate economic recovery after the 2008 global crisis. Real GDP is expected to grow by 1.5% during 2013 which is similar to the 1.6% growth experienced in 2012. This contrasts with a decline of 2.9% in real GDP growth in 2010, followed by a modest recovery of 0.9% in 2011. 1.6%

1.5%

‘12

‘13

0.9%

‘10

‘11

-2.9% Recovering Real GDP Growth in the Cayman Islands* (2010-2013)

*Source: Cayman Islands ESO annual reports. 2013 estimates provided in ESO’s semi annual report for 2013.

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 estimate 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 4 decades ago when the country began to pursue tourism and financial services as a path to economic development.

Cayman | The Future of Finance

Imported Labour

Unemployment Rate

50%

Inflation

1.3%

6.2%

Labour and Employment

Goods and Prices

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 3 years averaging 1.3% per year.

The Cayman Islands economy is labour intensive. Due to its relatively small population and the impressive economic growth over the past 4 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 averaged at 6.2% over the period 2010 to 2012 and is expected to remain at this level for the current year. ‘10

6.2

‘11

6.3

‘12 ‘13

2.1%

6.2 6.1 Steady: Unemployment in the Cayman Islands* (2010-2013)

1.2% 1.3%

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

Inflation in the Cayman Islands* (2010-2013)

Population

• • • •

Banks, Trust, Insurance, company and mutual funds fees Land or property transfers fees • Tourist accommodations taxes Work permits • Business licences Travel and cruise ship taxes

Money Matters

43%

55,000 The country’s population is estimated at around 55,000 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% Non Caymanian

Caymanian

Diversity: Estimated Cayman Islands Population as at 2012*

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.

Cayman | The Future of Finance

10 The

Key Ingredients for a Successful

International Financial Centre By Gonzalo Jalles

for a Successful International Financial Centre By Gonzalo Jalles

â&#x20AC;&#x153;

Investors looking to co-invest with foreigners, or to deploy capital outside their home countries, see the exposure to a different legal and judicial system in which to establish and enforce their rights as added risk. This is the key driver of an IFC: the provision of a legal framework that is acceptable to all parties involved in the transaction.

â&#x20AC;?

Cayman | The Future of Finance

his article discusses some of the key ingredients commonly found in successful international financial centres (IFCs) and how some centres, particularly Cayman, stand on them. In many cases, the loss of one or more of these ingredients helps to explain the failure of some IFCs. The list below is not intended to be comprehensive. 1 – Legal and Judicial Framework While the order in which the “ingredients” are listed here does not imply their relative importance, the legal framework is undoubtedly critical. Investors looking to co-invest with foreigners, or to deploy capital outside their home countries, see the exposure to a different legal and judicial system in which to establish and enforce their rights as added risk. This is the key driver of an IFC: the provision of a legal framework that is acceptable to all parties involved in the transaction. Without doubt, the use of Englishbased common law and statutes, and English-style courts, are the preferred standard in the vast majority of all international transactions, and for that reason most of the successful IFCs are Crown Dependencies or Overseas Territories of the UK. In the case of IFCs in the Americas, Cayman, British Virgin Islands and Bermuda are all Overseas Territories, in my opinion putting them one step ahead of other centres like Panama, Bahamas or Barbados. A sound legal system independent of the UK could be a viable alternative provided that other key “ingredients” are also present in the IFC. 2 – Political Stability Changes in the political landscape can affect the viability of an IFC

at a higher speed than any other ingredient, from extreme cases of property confiscation, independence and therefore change in legal framework, to a different approach to rules that affect some of the key factors needed by the financial industry.

The challenge is that many of these centres have, by definition, relatively small indigenous populations, and no matter how much is invested in education and career-development opportunities, the need to access international talent will continue to exist.

Over the years, changes in the political approach to accessibility to the international labour pool have driven the relative success of the major IFCs in the Americas, with Bahamas being the most highprofile example of how a political change can promote the movement of a whole industry from one jurisdiction to another.

The past has shown how excessively restrictive immigration policies can have a significant negative effect on the prosperity of the financial industry. Experiences like in Bahamas and Bermuda are not to be repeated.

Countries that demonstrate a long history of commitment to the democratic institutions and little social pressure to change the political landscape (such as discussions about independence) are better positioned in this regard. Cayman is without doubt ahead of its key competitors in this area, including other major UK territories in the region. 3 – Access to Human Capital The access to foreign labour by local financial services providers is one of the ways in which local firms can access the required human capital with the necessary skills. However, it is critical to the sustainability of IFCs that the local population is given a “fair” opportunity to train themselves and access the industry. The key issue that these centres continue to deal with on an ongoing basis is the definition of “fair”. While the desire of every politician is, and should be, to ensure that citizens have access to the best jobs available, this must be balanced with the reality that the international clientele that is serviced will necessarily look for the best service providers in the international market place wherever they may be located.

In many cases the political reasons for imposing restrictions on the importation of human capital have to do with the indirect consequences of ongoing population growth, like the rising cost of living and, in particular, the rising cost of residential property. 4 – Availability of Land Many IFCs have geographical restrictions on the way they can manage growth. In some cases these IFCs have seen their architecture radically changed (e.g. Hong Kong), in others the desire to preserve their physical beauty has limited the growth of the industry by forcing companies to outsource significant parts of their operations or by creating policies that limit their ability to provide the level of service locally that is expected by the international market. Without land the social cost of growth is high, and without growth the IFCs find themselves faced with typical fiscal and economic problems. Cayman is uniquely positioned in this regard vs. all the other Overseas Territories, and most of all the IFCs, in the region. 5 – Critical Mass The international standards of regulation have seen an unprecedented growth over the

Cayman | The Future of Finance

last 20 years, and there is nothing indicating that this trend is likely to reverse any time soon. This growing regulatory standard acts as a barrier to entry for new IFCs. Without the critical mass to support the regulatory framework needed to comply with international standards, IFCs will find themselves falling short and unable to offer their products, or imposing taxes, fees and duties that effectively price them out of these markets. Both Cayman and Bermuda have achieved critical mass, while the other centres in the Americas are likely to face a challenge of increasing government costs to cope with the increasing global regulatory pressures. Bermuda is currently struggling with its fiscal position despite its critical mass. Careful management of government expenditure and understanding the volatility inherent in fee-based revenue from the financial industry is critical. 6 – Credit Quality – Fiscal Situation While the IFC usually acts as a conduit of funds between the investors and the destination of the investments, the credit situation, summarised by the credit rating of the IFC itself, can add a layer of risk, and as such the fiscal situation is critical. Cayman is currently running a surplus, and this has been recognised by its retention of its credit rating at the same level it had before the 2008 crisis, while other jurisdictions like Bermuda and Bahamas have seen a deterioration of their credit quality. Furthermore, in many cases during recent history and in particular since the 2008 crisis, governments have responded to a reduction in revenue due to a lower volume of business by increasing prices. While this is neither a sustainable strategy nor

one a private business would pursue in a perfect market, the true global characteristic of the recent crisis has been such that all centres found themselves in a similar situation with similar responses, validating such a counterintuitive measure. Going forward, IFCs need to ensure the cost of running the government remains under control in order to remain competitive. Cayman has maintained its Government cost control assisted by the limitations imposed by the UK Government. It is crucial that this cost-controlled environment becomes embedded in the political system in a way that is continued for the foreseeable future. 7 – Government Revenue Collection System In order to operate as a facilitator of international capital flows, IFCs need a government revenuecollection system that facilitates those flows without taxing them on a variable basis. Regularly these IFCs are wrongly considered “tax free” or “tax havens”; I’m not aware of any such place. All governments need revenue to pay for the services they provide, and these jurisdictions have a government cost base per capita that is comparable and many times greater than that found in traditional economies. Taxes, fees and dues that are paid by the financial industry, directly or indirectly, pay for part of these expenses. It is crucial that the collection system is properly structured to avoid discouraging these important flows. In order to achieve this, most IFCs, including Cayman, have concentrated their taxes on consumption, which is one of the less-distortive taxes and the least damaging to economic growth, while others have chosen to tax labour, discouraging the growth of companies with physical presence

on site such as Bermuda or to have differentiated tax rates for local and international businesses, a practice that has been discouraged by some intergovernmental bodies such as in Barbados. 8 – Accessibility IFCs, as any business, need to be accessible to their customers. Location is the first obvious measure of accessibility, particularly in terms of time zone, which can easily explain the correlation between IFCs in the Caribbean and clients in the Americas. The direct short flights from major hubs in the US that Cayman and Bermuda enjoy are clearly a positive factor. However, accessibility should also include language, the ability to communicate effectively with the end users, and culture. Successful IFCs must have diverse, yet cohesive, societies - an essential part of attracting international businesses. In my experience, Cayman stands one step ahead of the other centres in the region in this regard. 9 – Focus All successful IFCs have a high dependency on the financial services industry; they also have limited natural resources, which has meant a lack of alternatives and thus promoting a focus on developing this industry. Lack of alternatives is not an ingredient in itself, but the focus it promotes is. The financial services industry is a highly competitive global market and IFCs need to remain agile and responsive to customer needs in terms of products, legislation and regulation. The financial services industry represents over half of Cayman’s GDP and Government revenue, ensuring it receives the attention needed for its continued success.

Cayman | The Future of Finance

10 – Appropriate Regulation Remaining agile in today’s world means that the regulator needs to perform a constant balancing act. It is critical for IFCs to remain compliant with international standards. However, they need to avoid getting too focused on duplicating the regulatory initiatives of other regulators without understanding the effect that these proposed changes would have on their customer base, the local financial services industry. Indeed, a common characteristic during successful growth of IFCs is a level of communication between the regulator and its industry that may be considered excessive by other regulators. Finally (and some regulators may feel uncomfortable with this fact), while it is critical to ensure the independence of the regulator in its oversight capacity, it is crucial that they see the industry they regulate as their customers and understand that a vital part of their

role is advancing the overall wealth of the IFC. Historically, the Cayman Islands Monetary Authority, the Cayman regulator, has successfully navigated the changing landscape while maintaining this equilibrium. Conclusion Ingredients don’t make a good dish by themselves but are needed by the cook. Cayman is uniquely positioned to continue delivering an unrivalled offering to its customers by having all the best ingredients without second-class substitutes -- something that, in my opinion, no other IFC in the region can claim. The cook is not one person, but a strong partnership forged between the public and private sectors, which understands the importance of working together to realise the country’s potential and continues to succeed in an increasingly competitive market.

About the Author Prior to joining Cayman Finance, Mr. Jalles spent almost six years as CEO of HSBC in the Cayman Islands. He also worked in HSBC’s London, Bermuda, and Argentina offices as Director of International Development, Managing Director/CEO and Chief Investment Officer, respectively. He served as President of the Cayman Islands Bankers’ Association from 2009 to 2012. He holds a CFA designation and has a bachelor’s degree in economics and a master’s in finance.

Cayman | The Future of Finance

Why the Cayman Islands Remains a

Jurisdiction OF

Choice By Paul Byles

The Cayman Islands is able to maintain a leadership position globally as a financial services centre because of its breadth of services and the value it adds to the global marketplace. Sometimes the negative coverage in the media on offshore centres adds fuel to the argument that these financial services centres may not be around for much longer. But if we look more carefully at the case of the Cayman Islands as one of these centres that continues to thrive, it becomes clear that with certain attributes it is possible not only to remain sustainable for the longer term, but also to do so successfully. As the Cayman Islands experience has demonstrated over the past two

decades, there is much cause for optimism for the world of offshore financial services generally. Whether its adding value to the wealthmanagement objectives of high-networth families or creating corporate efficiencies for multinationals, the Cayman Islands continues to lead the way. One of the key factors in this success story is the contribution that the jurisdiction makes to the world economy. International Banking The offshore bank is one of the more traditional products offered in the Cayman Islands. The major international banks headquartered onshore benefit from having a Cayman Islands branch or subsidiary due to the absence of capital gains tax or taxes on bank

transfers, and no exchange controls. These banking groups can also utilise their Cayman-based branches or subsidiaries to issue international debt as it is easier and cheaper for banks to issue bonds, CDs, TDs, etc. which are then sold to investors. It is also important to remember that these benefits can also have a direct positive influence on consumers based onshore because the capital raised can be utilised to decrease the cost of funding to these banks, thereby enabling the banks to lower the interest charged to its onshore customers. Private banking also has its traditional benefits in that wealth management can be handled by offshore experts to improve

“

Cayman | The Future of Finance

As the Cayman Islands experience has demonstrated over the past two decades, there is much cause for optimism for the world of offshore financial services generally. succession planning while preserving or maximising capital for high-net-worth individuals. And while the issue of legitimate financial privacy is not normally at the fore of the current debates on transparency, most stakeholders, including Government officials, banks and, of course, the clients themselves still recognise that privacy has an important role to play. This privacy value can co-exist alongside the various due-diligence and transparency requirements for the vast majority of clients who are carrying out business legally. Captive Insurance The Cayman Islands offers and manages a captive insurance product to major hospital groups onshore, and to date this has focused largely on the North American market. Many captives are established because owners based onshore have some difficulty securing insurance coverage via commercial insurance companies or they are cannot access such coverage cost effectively. A captive insurance company affords, for example, a major hospital group in the United States the option of setting up its own captive insurance company in the Cayman Islands. Among the benefits of this product is that it offers flexibility to the client in the structuring of the policy and the timing of premium payments. But more directly, this product for years has enabled many US-based medical groups to obtain access to the insurance coverage they need

”

at reasonable rates. The savings to the related hospitals can be passed on to patients and, in some cases, there may even be certain forms of coverage that are now available to these clients that they may not otherwise had access to because the hospital could not afford the related insurance coverage. Hedge Funds The international markets know very well that the Cayman Islands is the global leading hedge funds domicile. What is less known is how these funds use the Cayman Islands to ultimately add value to onshore economies. The Cayman Islands has in fact facilitated hundreds of billions of dollars of investment into the Organisation for Economic Co-operation and Development (OECD)-based economies such as the United States using offshore hedge funds. Cayman funds provide a tax-neutral platform for international investors, enabling them to participate from several countries under a mutual investment purpose. In many cases, the funds invested support various projects based in economies such as the United States. It is therefore somewhat ironic that the debate on the impact of offshore financial centres focuses on the issue of capital outflows when in reality this capital, which often originates outside the US, ends up onshore benefiting the US and other OECDbased economies via increased employment opportunities resulting from the investment. Whether it’s the role of its banking, insurance, trusts or investments services, the Cayman Islands

continues to offer value added to the global economy. This seems set to continue for the foreseeable future while simultaneously addressing effectively an everchanging regulatory landscape. Clients and other users of the services offered in the Cayman Islands can rest assured that this jurisdiction will likely remain a major player in the offshore financial services arena for the foreseeable future, precisely because it continues to add value in spite of regulatory developments. And while no one can foresee the future of the offshore world, it is fair to surmise that the Cayman Islands has effectively demonstrated its sustainability as one of the leading financial services centres.

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

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The number and wealth of global businesses, families and investors will increase over time and the greatest growth will be in the new worlds, not the old world.

INTERNATIONAL FINANCIAL CENTRES:

LOOKING TO THE

FUTURE By Tim Ridley

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Reports of the impending demise of the offshore industry make good press but are exaggerated. There is a legitimate place in the global economy for high-quality, innovative and adaptive international financial centres (IFCs), such as Cayman. But survival is not a slam dunk. Why the Threats? The current international activity is part of the battle to retain control of the world’s capital and thus the ability to tax it. The old guard is fighting hard to maintain the status quo under the cloak of securing financial stability, tax fairness and transparency. Most major jurisdictions publicly support open and competitive global markets between which capital can freely move. Indeed, there is good evidence that IFCs enhance competition in onshore markets and facilitate foreign investment into onshore jurisdictions that might not otherwise be made due to domestic constraints in those jurisdictions. But many jurisdictions that claim to support free-market principles and the unrestricted flow of capital do so only as long as this system works in their favour. Behind the façade of championing open markets, they actually pursue selfinterested financial imperialism and protectionism. For example, with their financial services and products, and in facilitating the global allocation of capital, IFCs pose a major competitive and potentially uncontrolled challenge. Thus, the UK and the US in particular do not want IFCs to thrive too much, but they recognise that for their own financial services industries and multinationals to be competitive they need to use IFCs. Further, they recognise that IFC structures are also often the conduit for valuable

inward investment from foreign investors. This traditional position is now under serious pressure as many politicians see more electoral downsides than upsides in the continued symbiotic relationship between onshore and offshore. Many major European nations with growing and unfunded entitlement programmes and ageing populations fear loss of capital to IFCs and, as a result, reduced tax revenues. And they wrongly see IFCs (as opposed to their own domestic policies) as the cause. So, while voicing their commitment to open markets for (their own) financial services and products, they continue to impose burdensome and anti-competitive regulation on IFCs and to raise barriers to their residents investing in or using IFC financial products or services.

Current Initiatives Various important initiatives are under way or threatened. These initiatives have been significantly energised by broad political support at the highest level in the major economies of the world as a result of the 2008 financial crisis. At the very top are the G8 and the G20 policy masters leapfrogging each other every few months in producing macro statements, followed up by often-overlapping reports. The G20 now seems to be the preferred leader.

Ironically, many of the very same major economies continue to give special ‘tax breaks’ to entice companies and individuals to relocate to or remain in their countries.

The G8 and G20 have been laying out the ‘big picture’ framework for global standards on issues such as corruption, banking, corporate governance, taxation, financial markets and executive pay. The G20 has endorsed the work of the Global Forum (an OECD subset) on tax transparency and exchange of information and urged completion of the peer review of effective implementation and adherence to international standards and preparation of countermeasures against non-compliant countries.

The international standard setters mandated to execute the various initiatives are generally the creatures of, and are funded by, the very same major countries that have no real interest in a level playing field open to IFCs or to anyone else threatening to deprive them of control of the world’s capital. The staff of these standard setters also has every reason to preserve and expand their activities and their taxfree-benefits packages.

Since 1998, the OECD has been pursuing its global tax initiative, which has been chameleon-like in its changes. The programme is now focused on multilateral automatic tax-information exchange and transparency (beneficial ownership disclosure) and their effective implementation. In tandem with this, the OECD is now fast tracking its BEPS (base erosion profit shifting) project at the behest of the G20. This potential recasting of

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the international tax regime should keep bureaucrats happy for decades to come. The Financial Action Task Force is reenergised with its planned onsite inspections and assessments to ensure effective implementation of its anti-money-laundering regime. The IMF continues its programme of regular visits and assessments. Also active are the Financial Stability Board (regulation and oversight of all things financial), Basel III (bank regulation), IOSCO (securities), IAIS (insurance) and the United Nations running its own initiatives on taxation and corruption. In parallel with these global initiatives, there are various unilateral actions by the EU and individual nations, most notably the EU Savings Directive (mark II) and moves against offshore hedge funds (AIFMD); the US-driven FATCAIGA regime and its duplicates now being eagerly adopted by the UK, certain EU countries and doubtless others; and the UK corralling of the Crown Dependencies and the Overseas Territories to sign up to automatic tax-information exchange and beneficial-ownership transparency. This last item is the current â&#x20AC;&#x2DC;elephant in the roomâ&#x20AC;&#x2122;. The current UK position that beneficial ownership of private companies should be fully public, even to the media, seems extreme, unnecessary, uncompetitive and unlikely to be followed in other jurisdictions. The compliance burdens and costs of all these are significant and anticompetitive; and fall on both the private sector and governments in IFCs, and ultimately the clients. Price of Not Engaging IFCs cannot safely ignore these issues and carry on as before. Switzerland has highlighted the dangers of playing the ostrich. This is not a sensible or viable

long-term option for those IFCs that participate in global financial markets, and for whom exclusion would sound an immediate death knell. Perception and reputation are very important, both for IFCs and their major clients. And uncertainty and delay are not good for either. So active engagement is essential. The Future The number and wealth of global businesses, families and investors will increase over time and the greatest growth will be in the new worlds, not the old world. Global competition inevitably includes tax and regulatory competition. No-one has yet created the perfect tax or regulatory regime, so competing regimes (within broad agreed norms) are perfectly proper. Individuals and corporations are still entitled legally to maximise their wealth. Indeed, it is one of the principal purposes and obligations of a corporation to do so.

and jurisdictions and structures are increasingly seen as fungible. The survivors will be those who engage successfully; meet international standards; have an established infrastructure and track record (in all its aspects); offer tax efficiency, professional expertise and support services, a solid and diverse base of business, and the ability quickly to adapt and innovate in the ever-changing global environment; and, finally, add real value to international transactions and capital flows in an efficient and cost-effective way. Cayman meets the tests for being a very competitive survivor. But to realise our full potential and thrive, we must work harder and more effectively at home and abroad in order to be truly welcomed as a legitimate participant in the global economy.

Increased wealth will continue to make proper tax, estate and succession planning for global businesses, families and investors essential and lead to greater demand for tax-advantaged/neutral and agreeable places to live and work with easy access to quality professional services and markets. IFCs offering high standards of sensible regulation, appropriate transparency, cross-border assistance arrangements and good infrastructure while providing quality value-added services have a valuable and vital role to play in this scenario. The barriers to entry as an IFC are ever increasing. The cost of developing the infrastructure and meeting international standards is significant and success cannot be achieved overnight or guaranteed. And there are too many IFCs. Competition is increasingly fierce,

About the Author Timothy Ridley is a Cayman Islands attorney-at-law. He was for many years a senior partner of Maples and Calder, a leading offshore law firm based in the Cayman Islands. He served on the Boards of the Cayman Islands Health Services Authority (2002-2005) and the Cayman Islands Monetary Authority (2002-2008, Chairman 20042008). He is a graduate of Cambridge University and Harvard Law School.

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Creating Cayman: How the Cayman Islands

Built a

Financial Centre By Andrew Morriss

The creation of the Cayman Islands as one of the world’s leading financial centres is a stunning development story that illustrates an economic strategy built on the rule of law, one which offers an important model for other nations. Providing the rule of law for international business benefits not just the Cayman Islands and Caymanians; it is a valuable service for the entire world. Caymanian entities play a key role in facilitating investment and international lending, financing major capital goods like aircraft, reducing insurance costs, and managing cross-border investments. In 1960, the Cayman Islands’ main economic activities were turtle fishing, remittances from Caymanian sailors in the US merchant marine, and thatched rope made by local women for sale to passing fishermen. Plagued by ferocious mosquitoes, the tourism industry struggled. By 1980, Cayman had passed Britain in GDP per capita, an amazing accomplishment; the mosquitoes were under control; and tourists were flocking to Seven Mile Beach and Rum Point. Cayman’s economy has continued to grow and expand. This unparalleled development story is all the more impressive because it was the result of the creation of an innovative and trustworthy legal system rather than the discovery of natural resources.

Beginning with the 1960 Companies Law, adapted from an English model, and continuing with the 1966 Banks and Trust Companies Regulation Law and Trusts Law, Cayman began to build a legal infrastructure that persuaded foreign investors that the jurisdiction offered a stable legal system that could support a variety of financial products. Capturing a considerable portion of the growing Eurodollar banking business in the 1960s, Cayman did not rest on its laurels but aggressively sought new businesses. Seizing on Bermuda’s reluctance to enter the medical malpractice captive insurance business in the 1970s, Cayman developed a regulatory framework that enabled Caymanian captives to serve US hospitals and doctors in the 1970s and 1980s. Similarly, Caymanian financial firms and the government spotted the opportunity to develop a funds law to capture investmentfund business in the 1990s. And as concern over financial crimes and money laundering grew in the 1990s and 2000s, Cayman enhanced its regulatory capacity, ultimately creating the Cayman Islands Monetary Authority (CIMA) as an independent regulator that helps set international standards. Cayman’s success can be attributed to three things. First, Cayman has taken a collaborative approach to

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governance of the financial industry from the earliest days. British officials, Caymanian legislators and the financial professionals on the island worked closely to draft key legislation and regulations, ensuring that the legislation addressed important problems while not crippling the Islands’ competitiveness. This collaborative approach was demonstrated time and time again, as even fiercely competitive Caymanian politicians would pause in the midst of hotly contested legislative battles to pass amendments to financial statutes to enhance Cayman’s position. British officials cooperated as well, providing technical assistance and loaning money to assist with necessary infrastructure such as an undersea telephone cable and enabling the airport to allow jets to land. And financial services professionals, both Caymanian and expatriate, helped develop legislative measures and regulations, and promoted the Islands as a place to do business. Second, Caymanians quickly realised their comparative

advantage lay with providing a stable legal environment. As a result, they retained many links to the United Kingdom, including allowing appeals to the Privy Council from Caymanian courts. Doing this at a time when many other Caribbean countries were becoming independent, Caymanians understood that the fiscal independence resulting from their economic success gave them greater autonomy than becoming independent but remaining dependent economically would have. Moreover, Cayman welcomed lawyers and other professionals from outside, building a professional services sector with close ties to the financial and legal communities in Britain, Canada and the United States. As one Caymanian put it, “The advantage of being an island is that you get to choose your own neighbours. We’ve chosen Miami instead of Jamaica”. Third, Caymanians understood the fragility of their success. Having seen other jurisdictions suffer losses when political instability frightened investors, Cayman worked hard to maintain confidence. As Truman

Bodden, a member of the Legislative Assembly, put it in 1981, “Most Caymanians are homeowners, sir, … and most of them have been to sea. They know how quickly a country can be wrecked, and that if they do anything stupid they’ll lose. We mustn’t kill the goose that lays the golden egg”. Critics of financial centres sometimes claim this sensitivity suggests lax regulation, but Cayman’s experience suggests the opposite. Cayman moved promptly to address any gaps in its regulatory structure, creating first a banking inspectorate, then a broader Financial Services Supervisory Department and finally the fully independent CIMA. In a cross-jurisdiction comparison, “Regulatory Effectiveness in Onshore & Offshore Financial Centers”, Clifford Henson and I found that Cayman and other offshore financial centres often had more regulatory resources per regulated entity than onshore jurisdictions. In addition, we found that the qualifications of key regulators were significantly higher offshore than onshore.

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There is no question that Caymanians today live better lives than their grandparents due to Cayman’s success in financial services. A quick glance around the Islands reveals the many benefits of that success: new schools, a modern hospital and a robust local economy. What is less obvious, and easy to forget, is how much the rest of the world has benefited as well. Captive insurance companies lower the cost of providing medical care in the US, investment funds channel money into economies around the world, and a stable legal system provides business entities for use in countries lacking the rule of law. This article is based on “Creating Cayman as an Offshore Financial Center: Structure and Strategy Since 1960”, by Tony Freyer & Andrew P. Morriss; Arizona State Law Journal (forthcoming 2014).

About the Author Andrew P. Morriss is the D. Paul Jones, Jr. & Charlene A. Jones Chairholder in Law and Professor of Business at the University of Alabama. He holds law and master’s degrees from the University of Texas at Austin and a Ph.D. (Economics) from the Massachusetts Institute of Technology.

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The Cayman Islands Financial Services

Regulatory FRAMEWORK By Cindy Scotland

â&#x20AC;&#x153;

The Cayman Islands and CIMA actively strive to increase international cooperation and collaboration, without compromising the rights to confidentiality of legitimate clients.

â&#x20AC;?

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Introduction The Cayman Islands Monetary Authority (CIMA) is the principal regulator for the financial services industry of the Cayman Islands. CIMA’s mission is to provide appropriate, responsive, cost-effective and efficient supervision, in order to enhance the economic wealth and reputation of the Cayman Islands by fostering a thriving and growing, competitive and internationally recognised financial services industry. Maintenance of a stable currency is also an important aspect of CIMA’s mission. The Regulatory Framework The framework for the authority’s regulation and supervision of financial services, and for its international cooperation, consists of several elements. These include the applicable laws and regulations passed by the Government of the Cayman Islands; the rules and statements of principle and of guidance issued by the authority; the regulatory policies and procedures detailed in the Regulatory Handbook and other manuals; the crossborder agreements undertaken by the authority, and the international standards to which CIMA adheres. The authority has responsibility for registration, licensing and supervision of banks, money-services businesses, cooperative and building societies, trusts, insurance-companies management, corporate services, investment funds and securities services. Home to 221 banking institutions, the Cayman Islands is ranked fourth internationally and sixth in terms of cross-border assets booked. The Cayman Islands is the secondlargest captive insurance 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 30 September 2013, the total number of regulated funds under CIMA’s supervision was 11,343. It comprised 8,239 registered funds; 2,587 master funds; 404 administered funds; and 113 licenced funds.

of tax-related information to other governments.

At 31 December 2013, there were 385 trust-services companies operating in the jurisdiction, maintaining the country as a leading domicile for the provision of these services.

AIFMD The Alternative Investment Fund Managers Directive (AIFMD), which was implemented across Europe on 22 July 2013, has also been the focus of sustained effort on the part of the authority. 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 and pension funds and their managers.

This thriving financial services industry exists as part of a global system and, as such, the Cayman Islands and CIMA actively strive to increase international cooperation and collaboration, without compromising the rights to confidentiality of legitimate clients. Recent legislative and regulatory initiatives in the United States and Europe are of particular relevance to this jurisdiction.

A similar agreement for taxinformation exchange has been signed between the governments of the Cayman Islands and the United Kingdom.

FATCA applies to reporting by US taxpayers about certain foreign financial accounts and offshore assets; and by foreign financial institutions about financial accounts held by US taxpayers, or foreign entities in which US taxpayers hold a substantial ownership interest.

CIMA recently signed memoranda of understanding (MOUs) with counterparts in 27 European countries to permit the continued marketing of Cayman-domiciled funds in Europe until at least 2015. Discussions are ongoing with regulators in other European jurisdictions with a view to executing similar MOUs. These MOUs allow for the exchange of information, cross-border on-site visits and mutual assistance in the enforcement of supervisory laws in the respective countries. In ongoing dialogue with the remaining regulators, CIMA will address other areas of the AIFMD and analyse future opportunities for the Cayman Islands. The authority is working on charting the way forward past 2015 when the passporting rules could come into effect.

In this regard, the Cayman Islands Government has signed a Model 1B inter-governmental agreement with the US. Foreign financial institutions in the Cayman Islands will now be required to report tax information about US account holders directly to the Cayman Islands Tax Information Authority, the only channel in the Cayman Islands for the provision

Conclusion CIMA remains committed to helping the financial services industry of the Cayman Islands continue to be a leading global player. As part of this commitment, we are expanding our use of technology, and a number of initiatives in this regard are currently in development, some at an advanced stage.

FATCA The US Foreign Account Tax Compliance Act (FATCA), aimed at ensuring the reporting of foreign financial assets by US citizens and entities, is naturally significant for a jurisdiction with numerous branches, primarily from the US.

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A director-details portal is being developed to improve corporate governance by requiring all directors appointed to a fund to annually update their personal details along with any specific governance requirements. This is expected to be implemented in the near future.

We continue to work with international standards-setting bodies to ensure compliance with financial services best practice. Another ongoing initiative being undertaken by the authority is a review of corporate-governance standards across all sectors.

The authority is committed to improving mutual-fund registration, administration and reporting, as well as enhancing corporate governance. CIMA is currently evaluating proposals to completely revamp our online presence with the goal of eventually eliminating most paperbased transactions between the funds (including auditors, directors and registered offices) and CIMA. An option to permit online payments with escrow accounting, and even credit cards, is under active development.

Modern infrastructure, telecommunications and political stability; legal- and financial services providers with strong multinational experience and capabilities; a pragmatic, constructive and efficient regulatory body with an outstanding, proven track record; and a sophisticated business environment which consistently maintains strong public and private sector partnerships, allow the Cayman Islands to retain its position as a leading international financial centre and an attractive domicile for business.

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.

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The Legislative

Process

in the Cayman Islands By Shelley White and Joanne Verbiesen The Cayman Islands’ position as a top international financial centre is facilitated not only by its income tax-free status, but also by the Islands’ history of political and economic stability, responsible and practical levels of regulation, and a highly competent workforce of professionals, judiciary and legislators. As an English-speaking

British Overseas Territory, the Cayman Islands maintains a strong connection with the United Kingdom (UK) from which it inherits much of its legislative system and judicial framework. Legislation The Cayman Islands Legislative Assembly is a unicameral legislature

comprising 18 elected members and two ex officio members pursuant to the Cayman Islands Constitution of 2009. The ex officio members are the Deputy Governor (the Member Responsible for the Civil Service) and the Attorney General (the Member Responsible for Legal Affairs). The passing of legislation, similarly to the UK, requires three readings of the draft bill in the Legislative Assembly followed by a majority vote of the legislature. Draft bills can be presented by government motion or private member’s motion. Bills, once passed by the Legislative Assembly, require royal assent before becoming effective. In practice, royal assent is given by the Governor, who also has power under the Constitution to withhold royal assent in certain circumstances.

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In order to ensure the most appropriate and effective legislation, the relevant Cayman Islands private sectors are regularly consulted regarding draft bills before they are laid before the Legislative Assembly. The Cayman Islands financial industry, including the local law and accounting firms, plays an active role in contributing to the terms of draft laws that govern the sector. The Mutual Funds Law, the Exempted Limited Partnership Law and the Trusts Law are all industry-specific legislation that have had significant input from the relevant sectors, including by way of industry consultations and private sector advisory committees. The Cayman Islands government has illustrated its responsiveness to the industry through the passing of legislation intended to provide mechanisms for the creation of alternative corporate structures

such as Segregated Portfolio Companies, STAR Trusts (through the alternative regime for the creation of special trusts), Exempted Limited Partnerships (similar to Delaware LLPs) and Exempted Companies (companies registered in the Cayman Islands for operation in other jurisdictions). An historically important piece of Cayman Islands legislation, the Confidential Relationships (Preservation) Law (CRPL), has been in force since 1976 and was most recently revised in 2009. The CRPL imposes criminal penalties on any individual improperly disclosing confidential information which professionals are obliged to keep confidential, while also providing for the appropriate exceptions, including criminal investigations and disclosure in legal proceedings, where approved by the Grand Court.

Legal Proceedings The Cayman Islands legal system is based on the English commonlaw legal system, which is a well-developed and internationally recognised system of law. Generally, English common-law principles are recognised and applied by the Courts in the Cayman Islands and, as a result, the Cayman Islands jurisdiction has a well-deserved reputation of producing balanced and predictable results, with wide applicability throughout the Commonwealth and in other offshore jurisdictions. Litigants who are unhappy with a decision of the Grand Court can appeal first to the Cayman Islands Court of Appeal (although leave to appeal is required in certain circumstances) and in some cases there is also a final appeal from the Court of Appeal to the UK Judicial Committee of the Privy Council in London.

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The Cayman Islands Court of Appeal was established in 1984 (prior to this, appeals were heard by the Jamaican Court of Appeal) and is comprised of judges who have held high judicial office for many years in the Cayman Islands and elsewhere. The current president of the Court of Appeal, the Rt. Hon. Sir John Chadwick, is very highly qualified; he was a member of the Judicial Committee of the Privy Council and a judge of the Courts of Appeal of Jersey and Guernsey, and is currently a judge of the Court of Appeal of the Dubai International Financial Centre. The Court of Appeal generally holds three sittings per year in the Cayman Islands, with three judges hearing each appeal. The Court of Appeal will also hold special sittings where the urgency of the matter requires. The Judicial Committee of the Privy Council is comprised of members of the Supreme Court of England and Wales. It is the court of final appeal for the UK Overseas Territories and Crown Dependencies, and for those Commonwealth countries that have retained the appeal to Her Majesty in Council. The judicial process in the Cayman Islands has been streamlined considerably by the establishment of the Financial Services Division of the Grand Court (FSD) in 2009. The FSD was created to fulfil an identified need for special procedures and skills in dealing with the more complex civil cases that arise out of the financial sector in the Cayman Islands. The procedures of the FSD, which are set out in part in the Grand Court Rules and in part in a separate FSD Users’ Guide, reflect the need for urgent action to be taken in some cases; for there to be special processes for confidentiality and security of sensitive information; and for proper allocation of judicial resources in this highly specialised area of

work. Each matter that is assigned to the FSD is assigned a specialist judge at the outset who will actively manage the case through to resolution. The FSD is served by six judges, including the Hon. Chief Justice, who all have a high level of practical experience and judicial expertise generally, and especially in relation to financial services matters. The FSD also caters for the global practicalities of financial services litigation, which frequently involves multi-jurisdictional issues and requires the involvement of experts and resources outside of the Cayman Islands. One example of the FSD’s approach to the international nature of this type of work is the use of state-of-the-art video conferencing facilities at its specialist courthouse. Bolstering the high quality of the judicial administration in Cayman is the first-rate legal talent that is abundant in the Islands as a result of both the first-class legal education and training opportunities available to Caymanians (the Cayman Islands has its own law school), and also by the presence of highly trained and experienced practitioners who have relocated to the Cayman Islands from throughout the Commonwealth, having been attracted by the high

standard of living and the excellent quality of legal work on offer. Leading counsel from England with specialist knowledge and experience in financial services also appear regularly in the Grand Court and Court of Appeal, particularly in the more high-value and complex disputes. Legal proceedings and liquidations in respect of 100 million-dollar to multibillion-dollar disputes or estates are common in the Cayman Islands and, as a result, the legal practitioners here frequently deal with novel and cutting-edge legal issues. Conclusion A multitude of factors buttress the Cayman Islands’ dominance in the offshore financial industry. The reactive and proactive nature of the legislature, coupled with the proficient judiciary produces an effective and efficient regime which ensures prognostic results welcomed by investors, investment managers and industry practitioners alike. Capitalising on these strengths as it does, Cayman will continue to evolve through the legislature’s consultative efforts, highly capable judiciary and, especially, the use of the specialised FSD.

About the Author

Shelley White is Senior Counsel with Walkers, specialising in insolvency litigation, trust disputes and general commercial litigation.

Joanne Verbiesen is an Associate with Walkers, specialising in commercial litigation, complex cross-border litigation and trusts disputes.

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Cayman Islands

Stock Exchange Update By Nick Small

Since its launch in 1997, the Cayman Islands Stock Exchange (CSX) has established itself as a gateway to global markets and a leading specialist exchange for sophisticated products including alternative investment funds, securitisations, insurance-linked securities and equities.

and a network of approximately 400 banks and brokers around the world. The technical upgrade responds to growing demand from those looking to use the CSX as an alternative marketplace and opens up the prospect of developing the Exchange as an independent trading hub between Americas and Europe.

The CSX has several international recognitions, including by the United Kingdom’s HM Revenue and Customs, and is an affiliate member of the International Organisation for Securities Commissions (IOSCO). CSX-listing rules are based on IOSCO disclosure standards - widely regarded as international best practice – adapted to the specialist environment in which the CSX operates. The CSX is well used by many leading financial institutions and offers the possibility of a one-stop shop for incorporating and listing funds and companies in the Cayman Islands.

Summary of Products/Key Metrics The CSX has a current listed market value of over US$170 billion, representing the full suite of exchange listed and traded products including debt, investment funds and equity securities.

In 2013, the CSX launched on XETRA®, Deutsche Boerse’s international cash-market platform which is used by 14 exchanges

Investment funds listed include: • Open- and closed-ended funds; • Feeder and master funds; • Single-investment funds;

Debt/credit products recently listed include: • Corporate-debt securities; • Insurance-linked securities; • Asset-backed securities (including CLOs, profitparticipating notes and loanparticipation notes); and • Credit-linked notes.

• Credit funds; and • Private-equity funds. Equity listings include: • Bank and financial institutions; • Mining and technology companies; and • Specialist companies for sophisticated investors. Significant Developments for 2014 To coincide with its recent launch on the XETRA trading platform, the CSX published new listing rules expanding its product offering. The changes cover the following equity-securities issuers: • Specialist companies targeting only sophisticated investors – it is now possible to list quasi-public/private equity deals with a limited number of sophisticated investors and no expectation of a liquid market. The rules are intended to be versatile, complementing existing listing rules for specialist debt securities and will, for example, cover applications to list preference shares;

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â&#x20AC;˘ Mineral companies - with its well-established links to global capital markets and connections to the XETRA network, the CSX offers a pragmatic and cost-effective solution for mineral companies looking to connect with investors, whether through a primary or secondary listing. The CSX has already attracted debt and equity listings from mineral companies with African and American operations. â&#x20AC;˘ Shipping companies - in recognition of the continuing development of the Cayman Islands as home to one of the worldâ&#x20AC;&#x2122;s foremost ports of registry and a growing cluster of maritime service providers, the CSX has introduced rules facilitating listings of shipping companies ranging from singlevessel holding companies to full-scale commercial operators.

New rules for investment funds target retail funds and forestry funds. Building on the potential for connecting via XETRA to internationally based market makers the listing rules now also cover exchange-traded funds. In 2014, the Exchange will also be launching an initiative for quoting unlisted investment funds.

2014, the CSX is working with global partners on developing a new exchange-traded ILS product linked to natural catastrophes â&#x20AC;&#x201C; a development of the so-called hurricane futures traded elsewhere.

In a potentially important step for pan-Caribbean consolidation, the CSX has recently announced recognition of British Virgin Islands-registered investment funds and companies as eligible for listing on the CSX. Following the success of the Cayman Islands as a reinsurance jurisdiction, the CSX continues to develop its market for insurancelinked securities (ILS). In 2013, the CSX announced our 200th reinsurance catastrophe-bond listing and now has listed cat bonds with a value of approximately US$10 billion. Looking ahead in

About the Author Head of Listings at the Cayman Islands Stock Exchange, Nick Small is responsible for new listings and developing listed products. He is a member of the Chartered Institute for Securities & Investment and solicitor in England and Wales (not practising).

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Understanding Exchange of

Information for Tax Purposes By Duncan Nicol

Since the release of the OECDâ&#x20AC;&#x2122;s Harmful Tax Competition, An Emerging Global Issue report in 1998, exchange of information (EOI) has become a critical component of the international framework facilitating the effective administration of domestic tax systems. And today, the pace of development in EOI matters is quickening; in 2013, there arguably

were more significant global developments in EOI than in the past three years combined. To observers of global tax matters, this is no surprise. When the OECD issued its report, it acknowledged that globalisation presents challenges that affect the collection of taxes by countries; and that unilateral and bilateral responses would

be insufficient to address these challenges. With this realisation, the significant utility of EOI was recognised, and the mechanisms for its broad deployment were developed and advanced. Today, EOI on request, and automatic EOI, are the two most commonly used mechanisms globally.

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EOI on Request In the early 2000s, an OECD Working Group – of which Cayman was a member – developed the model tax-information-exchange agreement, or TIEA. Today, EOI on request under a TIEA or a doubletaxation agreement is the basis of the international standard to which all jurisdictions ought to adhere. Countries have TIEAs because the agreements offer a globally recognised and practised standard for tax-information exchange; because their governments believe that tax compliance is a domestic and global problem that must be rectified; and because they recognise that sound business does flow, and will flow, to countries that have strong reputations of integrity. The way TIEAs work is simple: Under the legal terms of a TIEA, where a requesting country demonstrates that its partner jurisdiction has information that is foreseeably relevant to the administration and enforcement of the requesting country’s laws, it can make a request to obtain that information.

The partner jurisdiction then confirms that the request is in accordance with the agreement; gathers the requested information from government agencies and/or a third-party holder of the information, most likely industry, in its country; and submits the information to the requesting country. The development and implementation of bilateral TIEAs were critically necessary simply because individual countries needed to begin thinking of taxation as a global, rather than a domestic, issue. While every country has the sovereign right to determine how it assesses and collects tax revenue, globalisation has required a paradigm shift to also thinking about how the world economy functions, and how an individual country’s actions affect these functions. Furthermore, the tax systems of countries are very different. Much of the concern regarding the ethics of global tax policy is on behalf of developing countries, which have particular issues from both the global and internal

standpoints. Without comment on causation, they are often likely to have weaker tax administrations, poorer governance, more instances of corruption, and ‘harder to tax’ sectors such as small, unidentified domestic enterprises. While these issues can and do exist in developed countries as well, these jurisdictions’ relative economic strength provides a tax cushion that developing countries do not have. TIEAs, then, provide useful shared global standards in the language, mechanisms and processes for EOI, which were adopted country by country as membership in the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes grew to 121 – more than half of the world’s recognised countries – by the end of 2013. According to the Global Forum, by the end of 2013 more than 2,000 EOI agreements – of which 33 have been entered into by the Cayman Islands – have been established that provide for the exchange of information, to the global standard, in tax matters.

2013

Timeline

1st OT to support UK’s G8 Agenda on Tax and Transparency 1st OT to sign UK FATCA

2005

1998

Tax Information Authority Law Implemented EUSD Implentation

2001

OECD Harmful Tax Practices Report

First TIEA with USA

Advance Commitment, International Transparency & EOI Standards Member, Global Forum EOI Working Group

2000

OECD Working Group: Produced Model TIEA

2002

1st OT to Announce Model 1 IGAs for US, UK FATCA

2010

Global Forum Phase 2 Report

Global Form Phase 1 Report

Implemented Internationally Agreed Tax Standards Restructured Global Forum, Sterring Group & PRG Membership

2009

Global Forum Supplementary Report

2011

Mutual Administrative Assistance Convention Extended to Cayman 97 EOI Arrangements

2014

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Automatic EOI Automatic EOI is not new. However, with the OECD’s development of the Common Reporting Standard (CRS), the broader application of AEOI mechanisms of EOI has been strengthened, and indeed has gone global. Put simply, automatic EOI requires information to be automatically collected and transmitted by a source country to a residence country. Characterised by mechanisms such as the US and UK FATCA, as well as the European Union Savings Directive, AEOI presents an opportunity for an effective multilateral approach to EOI as compared with the bilateral TIEAs. AEOI will require – on a global scale, as did TIEAs – appropriate formats, operational processes and a legal framework. This will continue the movement to maximise compliance benefits, reduce costs and provide safeguards for information transmission. And, like TIEAs, AEOI will require global participation in order to work. In the Cayman Islands, Government continues to think both domestically and globally, in the spirit of taxinformation exchange. Successive administrations have supported our active engagement in EOI for well more than a decade. As a result, Cayman has joined other countries in the work of the Global Forum, and since 2009 has been a member of the Steering and Peer Review groups. We also are a member of the newly formed AEOI group, which is examining how to effectively answer the G20’s call for the Global Forum to monitor the implementation of AEOI as the new global standard. Moreover, Cayman was the first UK Overseas Territory to commit to the G5 pilot on AEOI; we’ve signed a Model 1 intergovernmental

agreement with the US on FATCA, and a FATCA-style agreement with the UK; and requested that the UK extend to us the Convention on Mutual Assistance in Tax Matters, a request that became effective on 1 January 2014. Most recently, and quite importantly, the Government has formed a working group, comprising publicand private-sector representatives, to assist with the development of Cayman’s legal framework for implementing AEOI initiatives, including the US and UK FATCA; the CRS; and other AEOI initiatives that may develop, either by individual countries or on a global scale. Specifically, the group’s remit is to assist with the development of draft primary legislation and regulations, as well as to prepare guidance notes, as appropriate, for Cayman’s financial services industry. Because of our long-term engagement, Cayman has experience with AEOI mechanisms. Since 2005, we have been engaged in automatic EOI with all EU member states, which now number 28, for the purposes of the European Union Savings Directive; and at the time of signing onto the G5 pilot, we called on other jurisdictions to commit to it, in order to avoid the risk of multiple competing standards in AEOI implementation. Through our G5 participation, Cayman also has been engaged in the global discussions on the CRS. The G5 pilot, for which more than 40 jurisdictions are now on board, has become the group of early AEOI adopters. Being a country that does not levy direct taxation, however, some may ask what benefit Cayman derives from being engaged to such a degree in global developments. We have no need to ask another country for tax information they may hold on Cayman residents, because our revenue system is consumption-based.

However, like other countries that participate, we believe that global standards offer the most supportive environment for tax compliance. We also recognise that tax evasion is a global problem that must be rectified. Furthermore, businesses that are sound prefer to transact their activities in countries that have strong reputations of integrity. Our participation in globally accepted transparency and taxinformation exchange initiatives speaks volumes of our financial services integrity, and that leads to the confidence and trust that investors continue to have in us. It is clear that, as the 1998 OECD report acknowledges, globalisation has presented huge and new challenges in approaches to tax policy and in the effectiveness of EOI mechanisms to support tax systems. All finance is indeed global, and therefore the response to EOI also must be global, in the true spirit of fairness. The Cayman Islands therefore remains committed to adhering to globally developed, accepted and practised standards of transparency and exchange of information for tax purposes. We will continue to engage in these efforts as part of our global responsibility as an international financial centre, and in support of a stable global economic system that benefits all countries and all peoples.

About the Author Duncan Nicol is the Director of the Department for International Tax Cooperation, and a member of the delegation representing Cayman on the Global Forum on Transparency and Exchange of Information for Tax Purposes’ Steering and Peer Review groups. He also currently represents Cayman as a Peer Review Group vice chair.

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A Long Commitment to

Transparency By Ian Wight

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We believe in facilitating the enforcement of laws by other countries and preventing abuse through a simplification of those rules as opposed to policing global laws or relying on a moral duty to determine the appropriate level of tax to be paid.

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Cayman as a jurisdiction has consistently demonstrated a commitment to transparency and embraced international initiatives like no other international financial centre. One of the key first steps in this ongoing process takes us back to 1986, when Cayman signed the Mutual Legal Assistance Treaty with the US. Since then Cayman has remained proactive, signing taxinformation agreements and passing laws and regulations that ensure the jurisdiction remains compliant and at the forefront of international standards. International Recognition OECD The OECD’s country ratings, based on compliance with FATF recommendations in 2013, provide a good example of the proactive approach taken by the Cayman Islands. In the OECD report, jurisdictions ratings are based on whether they have been subject to Phase 2 reviews or a more

rigorous peer inspection on their effective compliance with the recommendations. For a country to be subject to Phase 2 review, it first has to achieve a certain level of compliance with Phase 1 review, which is focused on the laws and regulations and their alignment with the recommendations.

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The legal framework for combating money laundering (ML) and terrorism financing (FT) is comprehensive.” “The Financial Reporting Authority (FRA), is effective and is a focal point of the AML/CFT regime.”

At the time of the OECD report, only 50 jurisdictions have undergone the more rigorous Phase 2 reviews, Cayman being one of them. Four of these 50 jurisdictions were rated noncompliant, two partially compliant, 26 largely compliant and 18 compliant. Cayman received a largely compliant rating and is therefore one level below the maximum rating, along with countries such as the UK, US, Germany and the Netherlands.

“The preventive system for financial institutions incorporates most of the FATF Recommendations.”

IMF Further evidence of the Cayman Islands’ compliance with global standards is also contained in the most recent IMF/FATF report in regards to AML and CFT in the Cayman Islands, excerpts of which follow:

“There is a high degree of co-operation among competent authorities in the Cayman Islands in operational matters related to AML/CFT.

“Record-keeping, monitoring and reporting requirements are comprehensive.” “There is a strong compliance culture in the Cayman Islands.”

”

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Regulatory cooperation The main regulatory body responsible for oversight of all financial business, the Cayman Islands Monetary Authority, is widely known to be cooperative with its cross-border counterparts and is a full member of the International Organization of Securities Commissions. The Secrecy Myth One of the misperceptions regarding transparency in the Cayman Islands is the myth that the jurisdiction is a so-called ‘secrecy’ jurisdiction. In fact, the Cayman Islands does not provide secrecy of any kind. Similar to any developed country where there is a basic right to privacy, there are no secrecy laws. The beneficial owners of companies are properly identified for all bank accounts. In addition, the courts or the regulators may access this information through

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an expedited and proven process. Finally it should be noted that corporate service providers are required to maintain records of the owners of every corporation, a regulation that has been in place in the Cayman Islands for many years and has been effected retroactively, ensuring there are no legacy issues where the beneficial owners cannot be identified. Both the regulation of corporate service providers and the retroactive due-diligence exercise are examples of how the Cayman Islands is significantly ahead of major jurisdictions like the US and the UK. Proactive Tax Reporting Cayman demonstrated its desire to proactively report tax information several years ago when it fully signed up to the European Union Savings Directive despite not being a European state, therefore proactively reporting all EU residents’ accounts. The US and

many European countries refused to participate. More recently, Cayman was one of the first countries to commit and sign a Model 1 intergovernmental agreement in regards to FATCA, which ensures that no financial institution in Cayman can opt out of signing and therefore all US customers will be properly reported when FATCA is implemented. Cayman also signed UK FATCA, as all overseas territories and crown dependencies of the UK have done but, more notably, was the first country outside Europe to commit to the European pilot on automatic exchange of information (effectively the global version of FATCA), led by the G8 and the OECD. This pro-activeness has granted Cayman a seat at several of the groups and committees involved in the implementation of these initiatives. It

2/3/2014 2:52:30 PM

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also ensures Cayman remains at the forefront of international standards and is slowly gaining its much-earned status as a transparent jurisdiction. The Future Cayman’s financial industry will remain committed to playing a key role in the global financial industry and adhering to globally implemented standards.

countries and preventing abuse through a simplification of those rules as opposed to policing global laws or relying on a moral duty to determine the appropriate level of tax to be paid.

We will continue to support our Government in ensuring we promote a level playing field and do not fall short of globally accepted standards. We believe in sharing information with the appropriate authorities and through the appropriate channels in a way that respects the right of confidentiality without facilitating tax evasion or any other wrongdoing by our customers. We believe in facilitating the enforcement of laws by other

About the Author 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

We respect the right of other countries to determine and enforce their tax systems as we expect other jurisdictions and multilateral bodies to respect our choice.

special expertise in the windup 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 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.

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The European

Alternative Investment Fund Managers DirectivE and Cayman Funds By Derbhil Oâ&#x20AC;&#x2122;Riordan

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Background The Alternative Investment Fund Managers Directive, 2011/ 61/ EU (AIFMD), came into force on 22 July 2013, affecting the management and marketing of Alternative Investment Funds (AIFs) in the European Union (EU). As well as harmonising the rules applicable to management and marketing of AIFs in the EU, the directive aims to provide for an internal market for Alternative Investment Fund Managers (AIFMs) within the EU, and offers a marketing passport to compliant EU AIFMs of EU AIFs. This passport is expected to be extended to non-EU AIFs, and to non-EU AIFMs from 2015, which will be of interest to Cayman AIFMs and AIFs alike.

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sub-investment manager will be a delegate of that AIFM and is likely to be required to update its contract of appointment in order to allow the EU AIFM to comply with certain requirements, including disclosure requirements around remuneration. Marketing means any direct or indirect offering or placement at the initiative of the AIFM or on behalf of the AIFM of units in an AIF it manages or with investors domiciled or with a registered office in the EU. As has been well documented at this stage, the directive’s definition of marketing excludes unsolicited approaches by investors; however, extreme caution should be exercised by Cayman AIFs seeking to rely on this “reverse solicitation” exclusion.

including the transparency rules -continue to be sold to professional investors1 in the EU via the national private-placement rules (NPPRs) of each member state. The transparency rules impose reporting requirements2 in respect of annual reports, disclosure to investors, and reporting to competent authorities, and Cayman AIFs will need to familiarise themselves with these requirements in advance of contemplating sale into the EU. Equally as important, though more difficult to navigate, are the NPPRs. Each EU member state has its own regime under NPPR, imposing additional rules around private placement within its territory. Certain jurisdictions

Any marketing of a Cayman AIF in the EU will still be subject to the national laws in place in each member state, almost all of whom differ in their interpretation of what constitutes reverse solicitation and the rules applicable to same.

The effects of the directive are already felt in Cayman to the extent that AIFMs of Cayman funds (whether EU- or non-EU based) are marketing Cayman funds in the EU or, for EU-based AIFMs, managing Cayman AIFs. Marketing and Managing Cayman Funds Under the Directive An AIFM is a legal person whose regular business is managing one or more AIFs (irrespective of where the AIF is established). Managing means providing at least investmentmanagement services and risk management, therefore advisory or marketing companies are not AIFM. Similarly, a sub-manager of an AIF may not be that AIF’s AIFM. A subinvestment manager of a Cayman AIF marketed, or managed, from Europe, need not be concerned that it will be that AIF’s AIFM. Where that Cayman AIF is managed by a European AIFM, however, the

The exclusion simply means that reverse solicitation is not subject to the directive. Any marketing of a Cayman AIF in the EU will still be subject to the national laws in place in each member state, almost all of whom differ in their interpretation of what constitutes reverse solicitation and the rules applicable to same. Selling Cayman Funds Into the EU and the Impact of Transparency Provisions Although the marketing of Cayman AIFs by way of passport is the most favourable method of accessing EU investors, this passport will only be available to Cayman AIFs from 2015 at the earliest (see below). In the interim (but only until around 2018 – see below), Cayman AIFs may, provided that co-operation agreements between the relevant countries are in place and subject to compliance with certain provisions of the directive -- most significantly

”

may prove too costly or difficult to access and Cayman AIFs and their AIFMs will need to take local advice in each member state it wishes to sell into before contemplating use of the NPPRs for sale to EU investors. Relevant Timelines for Cayman Entities As mentioned, the directive came into effect on 22 July 2013, subject to certain transitional periods for existing EU AIFMs. EU AIFMs, whether managing Cayman or other AIFs, can benefit therefore from a “grandfathering period” and have until 22 July 2014 to apply for authorisation as an AIFM. Most significantly for Cayman AIFs in the immediate term is that the transparency rules came into effect on the same date and Cayman AIFs being marketed in the EU should now have taken steps (or be taking steps) to comply with these provisions.

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EU AIFM Managing Cayman AIF

Non-EU AIFM Managing Cayman AIF

Authorisation of AIFM

Required to be authorised as AIFM between July 2013 and July 2014 (Article 6, Article 34(1)), unless an exemption applies.

Not required if the AIF will not be marketed in the EU. Not required until at least October 2018 if AIF will solely be marketed in the EU under national private-placement rules. Available (but not compulsory) after October 2015 if scope of directive is extended. Compulsory in 2018 if private-placement rules abolished.

Which member state must authorise the AIFM?

Home member state

The AIFMD’s EU member state of reference

Marketing of AIF to professional investors in EU under local private-placement rules subject to the directive’s transparency requirements and private equity-related requirements

Available from July 22 2013 until at least October 2018. Passport for such non-EU AIF may become available (but not compulsory) from October 2015

Available from July 22 2013 until at least October 2018.

EU marketing passport to professional investors

Not available until at least October 2015. Consent of AIFM home member state required.

Not available unless AIFM is authorised as an AIFM. May be available after October 2015. Consent of member state of reference required.

At present the passport is available only to compliant EU AIFMs and their EU AIFs. The directive envisages that in 2015 the European Securities and Markets Authority (ESMA) will issue an advice on the extension of the European passport to EU AIFM marketing non-EU AIF in the EU and to non-EU AIFM managing and/or marketing AIF in the EU. Subject to the provisions of this advice, it is envisaged that certain provisions of the AIFMD will then be “switched on” to allow for EU AIFs to apply for a passport for their Cayman funds, and for non-EU AIFMs, including Cayman AIFMs, to apply for authorisation under the AIFMD, which authorisation will afford them the benefit of the passport for their Cayman, as well as EU, funds. Most significantly for Cayman AIFs and AIFMs of Cayman AIFs in the longer term, the directive envisages that three years after the European passport becomes available to EU and non-EU AIFMS of Cayman AIFs (i.e. 2018

assuming the European passport becomes available to such AIFM in 2015), ESMA will issue a further opinion on the continuation of the NPPR regime in the EU. Subject to the provisions of this advice, it is envisaged that the EU will adopt rules to terminate the NPPRs as a means of access to the EU. Therefore, post-2018, the AIFMD passport will become the sole and mandatory regime applicable in all member states for Cayman AIFs seeking to raise capital in the EU. All other avenues will be closed to Cayman AIFs. Cayman’s Position Post-AIFMD Much has been made of the position of non-EU jurisdictions, including Cayman, in the post-AIFMD era. Although it is fair to say that significant obstacles to marketing in the EU have been imposed by AIFMD, these obstacles are faced equally by all non-EU jurisdictions, including traditional “onshore” jursidictions. Further, after 2015, a more level playing field will open up, allowing Cayman AIFs to have

A professional Investor is an investor which is considered a professional client, in accordance with Annex II of Directive 2004/39/EC (the MiFID Directive). 1

In brief, the reporting requirements relate to the required disclosures to be made to investors on a pre-contractual and ongoing basis, to regulatory reporting, which will be made to a Cayman AIF’s “member state of reference” on a quarterly, semi-annual or annual basis and disclosure requirements around an AIF’s annual report. 2

access to a European passport for the first time. It will be up to Cayman AIFs and their AIFMS to decide, at that stage, whether the costs of compliance are worth the benefit of the passport, putting Cayman AIFs and AIFMs in a very similar position to their EU counterparts.

About the Author Engaging primarily with the investment-fund industry, Derbhil O’Riordan’s expertise lies in establishing, structuring and ongoing operation of Cayman and AIFMD hedge funds and sophisticated UCITS. She also advises on the impact of AIFMD on Cayman funds and has advised on the rules of listing on the Irish Stock Exchange.

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FATCA and IGAs:

What it Means for the Cayman Islands Financial services Industry By Anthony Fantasia and Amanda Kong For those in the financial services industry, the US Foreign Account Tax Compliance Act (FATCA) is most certainly not news. The act, which was conceived in 2010 as part of the Hiring Incentives to Restore Employment Act (HIRE), aims to encourage foreign financial institutions (FFIs) to identify and report US persons holding assets offshore by imposing a punitive 30% withholding tax on US source payments to non-cooperative foreign entities. To say the least, FATCA was met with widespread incredulity by the industry.

Since 2010, the Internal Revenue Services (IRS) and the US Treasury have released several notices and a set of proposed regulations to satisfy the burgeoning anxiety amongst financial institutions surrounding the implication of FATCA on their business, culminating in the release of what were purported to be final regulations on January 17, 2013. Yet, the successful institution of FATCA required the support of the international community. To this end, the IRS collaborated with foreign governments in order to address the legislative hurdles which FATCA faced. The solution to these

hurdles came in the form of the Model I and II intergovernmental agreements (IGAs). FATCA has served as a catalyst for other developments in the area of transparency and exchange of information. Examples include the IGAs as well as a recent initiative announced by the OECD to introduce a Common Reporting Standard (CRS) for automatic exchange of financial account information. The Cayman Islands, having already committed to FATCA, has laid the foundation for and is expected to evolve with, the OECD standard

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and other exchange-of-information initiatives in the future. Intergovernmental Agreements Since its inception, FATCA has progressed to what could only be described as a global taxinformation-reporting phenomenon, exemplified by the issuance of the model IGAs. In addressing the implementation of FATCA through the IGAs and the final regulations, the IRS and US Treasury claimed to have adopted a risk-based approach. Their aim was to address policy considerations and eliminate unnecessary burdens whilst building on existing practices and minimising operational costs associated with collecting and reporting the information which FATCA requires. To this end, the two Model IGAs were developed to facilitate the exchange of information without the need for a tax-informationexchange agreement (TIEA), and provide, in some instances, a mutually beneficial relationship. As bilateral agreements, IGAs remove many of the legal impediments presented by a global informationsharing system and further allow for alignment and coordination with local reporting practices. The Model I IGA places the onus on the local authority of the signing jurisdiction to govern and enforce FATC A as it pertains to the financial institutions therein. In so doing, an FFI will not need to enter into an FFI Agreement with the IRS but will, instead, register with the IRS and then report via their local authority. The Model II, on the other hand, will require FFIs within the signing jurisdiction to still enter into modified FFI Agreements with the IRS and report directly to the IRS. These IGAs were updated on May 9, 2013, most notably to accommodate jurisdictions which do not have a preexisting TIEA or bilateral income tax treaty. The UK became the first country to sign an IGA with the US, entering

into a Model I IGA on September 14, 2012. Since then, 18 additional countries have entered into Model I IGAs with the US whilst three countries have signed Model II IGAs. On November 29, 2013, the Cayman Islands signed a Model 1B IGA in its continued efforts to cooperate with the US on tax matters. Additionally, the 2001 TIEA was replaced by a new TIEA which sets out the legal channels through which tax information may be automatically exchanged. Cayman Islands: Model 1B IGA In keeping with other IGAs, Cayman’s IGA applies to all financial institutions (FIs) as defined in Article 1 of the agreement. As such, all FIs will need to report US reportable accounts annually to the Cayman Islands Tax Information Authority (TIA). However, an FI will not need to review or report accounts as US reportable accounts, below the de minimis thresholds set out in Annex I of the agreement. Further to this, certain FIs may be classified as “Non-Reportable Cayman FIs” under Annex II of the agreement. These FIs, whilst they are not required to report accounts to the TIA, will still need to certify their status as meeting the requirements. In some respects, the IGA alleviates many of the issue about which FIs were concerned. The IGA, as it stands, provides relief from withholding or closing accounts held by recalcitrant accountholders. The agreement further allows FIs to rely upon third-party service providers to fulfill their obligations under FATCA. However, in doing so, an FI does not waive its responsibility as a reporting FI. Yet, for organisations that operate in multiple jurisdictions, the IGA provides an additional layer of complexity to remediation, implementation and reporting under the act, which by itself is already rather multifaceted. To this

point, the Model IGAs leverage the definition of an investment entity used in the final regulations with several modifications, and also add and modify certain categories of deemed compliant status. In addition, the IGAs only provide a framework and it is envisioned that enabling legislation and guidance will need to be developed locally in order to implement FATCA. So, what does this all mean for FIs on a practical level? Based on IRS Notice 2013-43, reporting FIs in Model 1 countries have a deadline of December 22, 2014 to register with the IRS and receive their Global Intermediary Identification Number (GIIN) in order to be included in the first 2014 list. Further, the verification of a GIIN is not required for a Model 1 Reporting FI prior to January 1, 2015 but FIs must register and obtain a GIIN before July 1, 2014 if they meet certain criteria – • They have branches (other than a limited or US branch) in jurisdictions that do not have a Model I IGA; • They are a qualified intermediary, withholding foreign partnership or withholding foreign trust and they are renewing that status; or • They will be the lead FI for member FIs which are not operating in a jurisdiction with a Model 1 IGA. In addition to registration, reporting FIs will need to ensure that all existing US reportable accounts are identified, and relevant up-to-date documentation received. Further to this, FIs will need to establish policies and procedures, as well as revise any pertinent documentation, to accommodate compliance with the IGA and FATCA. These policies and procedures will encompass expanded due diligence; annual reporting; withholding on passthru payments, where applicable;

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and institutionalising waiver requirements, where necessary. As part of this process, an FI’s systems will need to be updated in order to facilitate the necessary procedural changes and additional data requirements. Although reporting FIs can look to the final regulations and the IGAs to start to develop these requirements, local guidance is going to provide the details. To conclude, Cayman’s Model 1B IGA has provided further direction to the local financial services industry in its efforts to prepare and implement the impending changes which FATCA requires. However, enabling legislation and guidance will still need to be enacted by the Cayman Islands Government to bring it into effect and allow for further delineation of how FIs will interface with the TIA. In the meanwhile, FIs should seek to complete the remediation and implementation of their documents, procedures and systems as FATCA is indeed here.

IMS

About the Author

Anthony Fantasia is a Partner with Deloitte in the Cayman Islands and the leader of their Caribbean and Bermuda Cluster’s Tax wPractice. He facilitates clients’ tax reporting, provides tax-advisory services and assist clients in tax-efficient structuring. He also serves as the FATCA service line leader for Deloitte’s Cayman Islands practice.

Amanda Kong is a Manager with Deloitte in the Cayman Islands, working in Financial Advisory. She has gained over seven years’ financial services experience working in the Cayman Islands, the UK, the US and Canada in a wide variety of areas, including FATCA and anti-money laundering.

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New 2013

Financial Instrument Disclosures Impacting Hedge Funds By Colin Hanson

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Back in December 2011, the US and International accounting standard setters (the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), respectively) issued new financial statement disclosures regarding the offsetting of financial assets and financial liabilities. Specifically, these new disclosures are meant to address financial-statement users’ concerns about differences between International Financial Reporting Standards (IFRS) and United States Generally Accepted Accounting Principles (US GAAP) with respect to when an entity can offset a financial asset against a financial liability on the balance sheet. Offsetting is also referred to as netting.

“

financial assets and liabilities on a gross basis (before any offsetting or netting) and also on a net basis. It is hoped that these new disclosures will help financial-statement users reconcile an IFRS balance sheet to a similar entity which prepares their balance sheet under US GAAP. It is important to note that these changes will not impact the accounting under IFRS and US GAAP, but rather only mandates new financial-statement disclosures. The IASB mandated such new disclosures by making an amendment to IFRS 7 referred to as Disclosures— Offsetting Financial Assets and Financial Liabilities. At the same time, the FASB updated US GAAP by issuing Accounting Standard

These changes will not impact the accounting under IFRS and US GAAP, but rather only mandates new financial-statement disclosures.

Historically, owing to differences in accounting standards, many financial institutions have offset more assets with liabilities under US GAAP than under IFRS. Unfortunately, the accountingstandard setters were not able to converge these differences into a new accounting standard. As a result, the standards setters decided to continue to permit more offsetting under US GAAP than can be achieved under IFRS. However, in order to address these offsetting differences, and to assist financialstatement users in understanding these differences, new disclosures were mandated which will require entities reporting under both IFRS and US GAAP to present various

”

Update (ASU) 2011-11 under the same title, which amended the accounting disclosures in US GAAP’s Accounting Standard Codification 210. Hedge funds reporting under IFRS or US GAAP will need to comply with these new disclosures in their financial statements for any financial accounting period which begins on or after January 1, 2013, which effectively captures all 2013 calendar year ends. The IFRS 7 amendment covers all financial instruments, which includes many assets and liabilities used by hedge funds such as cash, receivables, financial investments, derivatives, repurchase agreements, securities lending/borrowing

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arrangements and payables. The US GAAP amendment initially had the same broad scope; however, the FASB decided to subsequently clarify the scope by issuing ASU 2013-01. This ASU narrowed the scope of the disclosures under US GAAP to only include derivatives, repurchase/reverse repurchase agreements, and security lending/ borrowing arrangements. In addition, these new IFRS and US GAAP disclosures are only required when the entity has: (1) offset one or more of these assets with a liability within the balance sheet or (2) if the assets or liabilities are subject to a master-netting or similar agreement (irrespective of whether they in fact have been offset in the balance sheet). It is very important that hedge funds carefully assess the scope of these standards. Many hedge funds do not offset financial assets with financial liabilities on the

balance sheet as the criteria to do so are quite restrictive, especially under IFRS. Therefore, many hedge funds will not be caught by the first part of the scope of the disclosure amendment. However, many hedge funds do have masternetting arrangements in place with their derivative counterparties. Therefore, such hedge funds will be caught by the second part of the scope of the standard and required to provide the new disclosures. Although a careful analysis will need to be made of all agreements to determine whether affected financial assets and liabilities are caught by any master-netting (and equally important similar) agreements, it is expected that most hedge funds will likely only need to make such disclosures for their OTC derivatives and repos. The disclosure amendments will require hedge funds to prepare in

tabular format the following columns for each type of financial asset and liability affected by the amendment: a) The gross amount of the asset/liability (gross amount for a derivative would be the unrealised gain/loss at the balance-sheet date) b) The amount of the asset/ liability which has been offset in accordance with the current offsetting accounting principles c) The net amount of the asset/ liability following any such offset in (b) (this amount should then reconcile to the balance sheet) d) Less the amounts subject to master-netting or similar arrangements which have not been offset in (b) above, including the effects of any collateral e) The remaining net exposure for each type of financial asset and liability covered by the amendment

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As indicated above, because hedge funds commonly do not offset items on their balance sheet, the amounts disclosed in (a) would often match (c) with (b) being nil, and (c) would equal the balance sheet. For example, letâ&#x20AC;&#x2122;s assume the hedge fund has an unrealised gain of $100 with counterparty ABC on a forward contract, and the hedge fund also has an unrealised loss of $120 on another forward contract with the same counterparty, and the hedge fund has not done any offsetting. Therefore, such hedge fund would present $100 in columns (a) and (c) for its forward assets and $120 separately in columns (a) and (c) for its forward liabilities. However, because most hedge funds manage their derivatives through master-netting arrangements, in this example, the hedge fund would need to offset the unrealised gain with the unrealised loss in column (d), and separately for its liabilities, the hedge fund

would offset the unrealised loss with the unrealised gain in column (d) leaving a net $20 unrealised loss, and to the extent any collateral has been posted for the unrealised loss, such collateral would further reduce the unrealised loss, possibly to nil. These disclosures will need to be made for each type of derivative, and any other financial assets/liabilities caught by the amendment. It should be noted that given the complexity of collateral arrangements and the need to assess the offsetting by counterparty, the new standards do allow entities to present the disclosures in (c) through (e) by counterparty instead of by type of financial asset/liability. In summary, hedge funds will need to carefully assess their entire master-netting (and similar) agreements and collateral arrangements in order to ensure that their disclosures are compliant with the new IFRS/US GAAP rules.

About the Author Colin Hanson is an assurance partner with PwC Cayman Islands. Colin specialises in the asset-management and banking business and also leads his firmâ&#x20AC;&#x2122;s US GAAP and IFRS technical groups.

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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 the speciality industry knowledge and expertise to support the needs of other financial services, such as the fund and captive 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 2013, there were 213 licenced banks in

Cayman, seven of which are retail category ‘A’ banks licensed to conduct business with domestic and international clients. There are eight non-retail category ‘A’ banks and 198 category ‘B’ banks, servicing international clients and carry 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, HSBC Bank (Cayman) Limited, RBC Royal Bank (Cayman) Limited and Scotiabank

& Trust (Cayman) Ltd. The retail banks report total assets of US$13.6 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 welldeveloped banking infrastructure and internationally experienced

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STATISTICS

workforce. Since the start of the last financial crisis, Cayman is one of the few jurisdictions in the world that did not have a single bank failure, highlighting the overall strength and resilience of the industry.

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

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 mortgages and commercial loans. Retail banks offer robust electronicdelivery 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$1.52 trillion, as highlighted in Table 3. Forty of the worldâ&#x20AC;&#x2122;s 50 largest banks hold licences in Cayman, 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

Total Loans

of which Resident Loans

Total Deposits

of which Resident Deposits

2010

13.0

6.5

3.48

11.4

7.28

2011

17.5

7.5

3.57

15.9

6.42

2012

13.6

7.6

3.69

11.8

6.25

Table 2: Financial Soundness Indicators for Cayman Retail Banks (in %) 2010

2011

2012

Capital Adequacy Regulatory capital to risk-weighted assets

20.55%

21.5%

20.63%

Asset Quality Non-performing loans to total loans

3.14%

2.7%

3.51%

Liquidity Liquid assets to total assets

36.2%

48.1%

32.2%

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

Liabilities

Jun 2010

1.71

1.73

Jun 2011

1.65

1.69

Jun 2012

1.42

1.47

Jun 2013

1.50

1.52

Statistics sourced from Cayman Islands Monetary Authority (CIMA)

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Although the hedge fund and captive insurance industries have taken most of the limelight of late when it comes to the success of Cayman’s financial services industry, it should not be forgotten that the jurisdiction’s success in banking was instrumental in shaping its financial services success story. Today, the banking industry still remains very much a solid part of the Islands’ phenomenal global success. Banks first opened their doors in the Cayman Islands in 1953 when Barclays Bank established a presence on Grand Cayman. A handful of retail banks joined Barclays over the next two decades or so until the industry began to expand at a rapid rate, born from a need to service the growing residential population as well as complementing the newly developing industries of fund, trust and company administration.

Banking Still at the

Heart of

Business By Paul Muspratt

Today Cayman’s banking industry services the needs of its 57,000 or so residents, its commercial clients, and sophisticated investors and highnet-worth individuals looking for tailored investment solutions to suit their specific and unique requirements. The high number of Cayman’s licenced banks (221 in all – including 40 of the world’s 50 largest banks), underscores the continued success of the banking industry. Seven of the 221 are retail category ‘A’ banks licensed to conduct business with domestic and international clients. Private banking continues to flourish in the Cayman Islands for a number of reasons. As a British Overseas Territory, it has

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the protection of the Crown and operates under Common Law. Regulated by the Cayman Islands Monetary Authority (CIMA), Cayman’s financial services industry has been recognised by the International Monetary Funds (IMF), the Financial Action Task Force (FATF) and the Caribbean Financial Action Task Force ( CFATF) and other high-level international entities as possessing a comprehensive regulatory and

income instruments, electronictraded funds and international mutual funds. Derivatives such as options and futures are also available. When it comes to service, Cayman’s banks have a wealth of experience on board, with international private bankers able to take a holistic approach with regard to their clients’ needs. In addition, they can obtain solutions in multiple

private-banking clients, “For Cayman still features as a leading global offshore financial centre.

”

compliance framework. CIMA has membership in the Offshore Group of Banking Supervisors, the Caribbean Group of Banking Supervisors, and the Association of Supervisors of Banks of the Americas, all of which give the jurisdiction important access to the Basel Committee, which sets out banking principles globally. What Makes Cayman a Top Choice As an offshore jurisdiction, Cayman offers far more investment solutions than onshore counterparts and remains a hub for clients looking for estate-planning and asset-protection services, due in part to Cayman’s trust structures, in particular its STAR trusts which are based upon a unique form of non-charitable purpose trust legislation introduced in 1997, called the Special Trusts (Alternative Regime) Law. Cayman offers clients a number of international investment options, including global equities, fixed-

jurisdictions as most of Cayman’s service providers are global entities. Banking services tailored to the needs of private clients include multiple currency accounts, customised credit solutions (such as loans against investment portfolios) and online banking services. Dedicated relationship managers have a depth of knowledge and expertise in a variety of areas, including investments, trusts, estate planning and general banking, and thereby offer a high-touch service for high-net-worth clients. Cayman Banks Gain Top Awards In comparison to its competitors, this jurisdiction offers an extremely high level of banking services, with banks enjoying global accolades on a regular basis. The Banker’s Bank of the Year awards regularly feature Cayman Islands banks and they have also been recognised in Euromoney’s Global Private Banking Survey for a range of awards.

The Big Picture David Foster, board member of the Cayman Islands Bankers’ Association, gave a broad overview: “For private-banking clients, Cayman still features as a leading global offshore financial centre,” he said. “With its strategic location, business can be conducted with all of the Americas and most of Europe during a normal working day”. In addition, Mr. Foster said Cayman’s modern infrastructure compares favourably with those of many other jurisdictions within the region. “As a leading global offshore financial centre, the fact that it is also home to many of the world’s biggest accountancy, law and taxation firms, means that the local infrastructure is well placed to handle the related demands,” he explained. “Undoubtedly, the political and economic stability and robust regulatory environment in Cayman play a big part - no wealthy family will want to be associated with a jurisdiction that can’t demonstrate it is keeping up with the changing landscape around anti-money laundering and tax transparency.”

About the Author Paul Muspratt is Co-Managing Director of Caledonian Bank Ltd., a financial services firm based in the Cayman Islands and specialising in banking, custody and trade execution. Paul is responsible for strategic business development and client relationships.

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Trust in Cayman:

Why the Cayman Islands Continues to be the Best Choice for Estate Planning and Fiduciary Services By Nigel Porteous For many years, the Cayman Islands has been the jurisdiction of choice for the establishment of trust arrangements, whether for privateestate structuring purposes or for financial products. Its laws are perhaps the most commonly used in the international marketplace, and the very fact that it is the choice that underlies financialinvestment vehicles holding billions of dollars in assets located all over

the world, firmly demonstrates the faith placed in it by leading experts and sophisticated investors. Notwithstanding the pressures and changes of the modern world, this remains firmly the case. The trusts law of the Cayman Islands is founded on ancient principles of English common law, with the benefit of many of the statutory modifications made in

England and some that are unique to the Cayman Islands. The first Cayman statutory modifications were introduced in 1967, based for the most part (in common with most similar offshore jurisdictions) on that introduced in England in 1925. Later legislative modifications have been skilfully made to ensure that Cayman Islands law meets the needs of the modern client while not attempting to be so

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innovative that aspects of it might be viewed by foreign courts as having dubious effect or validity. The historic principle underlying trusts law reform in the Cayman Islands has been to limit modifications to those that do not offend the principles of traditional trusts law and that will be respected by the courts and authorities of most jurisdictions internationally -an approach clearly not adopted by all offshore trust centres. The result is a body of statutory provisions and case law that is the envy of the world, and often copied by other jurisdictions. Caymanâ&#x20AC;&#x2122;s legislation is backed by an internationally regarded judiciary, whose decisions have established significant case law

followed in many common-law jurisdictions. The Cayman Islands also has a great abundance of highcalibre professionals, including law and accountancy firms, to ensure (even in the event of litigation) that there is no shortage of professional assistance when needed. In addition, most leading banks and financial institutions that conduct trusts business have a Cayman Islands trust company or licensee available for clients to ensure that the all-important nexus between the governing law of the trust arrangements and the location of the trustee is preserved. Cayman Islands institutional trustees are regulated by the Cayman Islands Monetary Authority, and there are strict licensing and management

requirements imposed on corporate trustees ensuring that internationally recognised industry standards are maintained. Among the statutory modifications introduced in the Islands, there is no legislation that might be interpreted as inappropriately protecting insolvent persons from creditors, and the Islands have preserved the common international standard limitation of six years in relation to acts regarded as â&#x20AC;&#x2DC;fraudulent dispositionsâ&#x20AC;&#x2122; (the expression not implying any criminal intent). However, there is innovative legislation carefully crafted to enable clients to set up trust arrangements that may be firmly insulated from the claims of persons under foreign laws imposing forced heirship and other property

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rights, and also from the claims of capricious and impecunious beneficiaries or others. The Cayman Islands was the first jurisdiction to introduce legislation to allow the establishment of noncharitable purpose trusts under a regime commonly known as the ‘STAR regime’ (legislation that has been watched jealously, and often copied, by many other trust jurisdictions). A unique element of STAR is the ability to mix trusts for non-charitable purposes, charitable purposes and for persons within the same structure, arguably providing, for example, the most innovative foundation for the establishment of philanthropic structures of any jurisdiction. Cayman also uniquely has an ‘exempted trust’ regime, under which trusts can be registered (evidenced by an official Government certificate) and offered an undertaking that no taxes will be charged on them from within the Islands for 50 years even if the Islands were ever to

Global Experience

introduce direct taxes affecting trusts - the Cayman Islands currently has no direct taxes. Both the STAR and exempted-trust regimes can also be used to restrict rights to information, and to place enforcement rights in a third party (in the case of exempted trusts, in the Registrar of Trusts). These are only a few aspects of the advantages of setting up trust arrangements in the Cayman Islands. Many of the world’s most wealthy individuals have done so, especially those with philanthropy in mind, placing their faith in the laws and well-regulated fiduciary marketplace in the Islands. A crucial aspect of planning for the internationally mobile wealthy client is finding a jurisdiction that is not only well-regulated, with sound but innovative legislation to assist with modern planning, but also carries an impeccable reputation among governments and regulators around the world. The Cayman Islands is just such a jurisdiction.

Global Expertise

About the Author Nigel Porteous, a Partner with Maples and Calder, has been the Chairman of the Society of Trust and Estate Practitioners – Cayman Islands Branch since 2012, and has been a member since its establishment in 1991. Other positions include former Secretary of the City of London branch, followed by member of the Council of the Cayman Islands branch in 2005. Nigel is the appointed representative to the Caribbean and Latin American Regional Committee.

Integrity & Dependability

Non-executive Independent Directors based in the Cayman Islands and Ireland Cayman Islands Phone: + 1 345 769 3400 Email: atooker@arcdirectors.com or djuric@arcdirectors.com

Ireland Phone: + 353 1 659 9478 Email: roneill@arcdirectors.com

arcdirectors.com

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I WISH THAT SOMEWHERE EXISTED AN ISLAND FOR THOSEADWHO ARE WISE AND OF GOOD WILL Albert Einstein

For nearly 40 years, Cayman has been open for business, becoming the domicile of choice for global captive insurance. We attribute this to good practice. We believe that by maintaining a transparent business culture, we cultivate a strong business culture. To find out how Cayman can meet your captive insurance needs visit www.caymancaptive.ky

Cayman Islands. Clearly Better Business.

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AT A GLANCE

INSURANCE Overview: In 1976, Harvard Medical School selected Cayman as a domicile in which to place its captive, giving Cayman instant creditability and paving the way for the development of the jurisdiction as a leading domicile of choice for captives in general, and healthcare captives in particular. This growth continued through the 1980s, positively impacting the broader markets of tourism and real estate, as well as the financial services industry. Cayman is now a captive-market leader.

he implementation of the Insurance Law (2010) and accompanying regulations has modernised the Cayman offering, ensuring that different areas of insurance - domestic, captive, insurance-linked securities and reinsurance - are all regulated based on the uniqueness of their structures and on their own individual risk profiles, increasing transparency and streamlining processes, and thereby offering broader appeal to clients. The implementation of Portfolio Insurance Company legislation, which allows segregated portfolio

companies (SPCs) to incorporate a single cell as a portfolio insurance company, has opened the door for the development of new alternative risk-management structures to domicile in the Cayman Islands. This structure is modern and forward-thinking, taking into account the need for increased corporate governance and greater tax certainty, and can easily transition to a stand-alone captive, which works well for incubation purposes. There are over 5,000 captives globally and Cayman remains the

second-largest domicile in the sector, in particular via its niche in the healthcare space. Through Caymanâ&#x20AC;&#x2122;s progression to modernise legislation, and to feed the healthy regulator-toindustry relationship, a constructive business environment has been formed, thus increasing the ability of captive and reinsurance business to find its way to this jurisdiction. As at the end of 2013, there were 759 captive insurance licences and two reinsurance licences under the supervision of CIMAâ&#x20AC;&#x2122;s Insurance Supervision Division. Pure captives

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and SPCs represent the two main categories, with 406 and 148 companies, respectively. The fundamentals of the insurance sector remain sound and the industry in general has been relatively resilient in a very challenging market environment. 2012 was a year of tremendous growth for the Cayman Islands, with 53 licences granted. To put this in perspective, in 2012 Cayman received the highest number of captive applications since the hard market of 2004. 2013 continued to show steady growth for the Cayman Islands with a combined total of 39 licences granted during the year and an increase of 3% in the total number of licensees to 761. As at the end of 2013, total premiums reported were at US$12.6 billion and total assets reported were at US$69.2 billion. The Cayman Islands is the leading jurisdiction for healthcare captives, representing 34% of all captives. As at the end of 2013, Medical Malpractice Liability continued to be the largest primary line of business with 257 companies, and workersâ&#x20AC;&#x2122; compensation the second largest with 162 companies.

STATISTICS Total Companies by Category updated as at 31 December 2013

0.26% 5.12% 5.26%

Reinsurance Companies Commercial Insurer Special Purpose Vehicle

16.56%

Group Captive

19.45%

Segregated Portfolio Company

Total Companies by Risk Location updated as at 31 December 2013

0.26% 0.79% Europe 1.84% Caribbean & Latin America 3.15% Worldwide 3.68% Pacific Rim

53.35% Pure Captive

Africa, Asia & Middle East

90.28%

North America

With regard to international insurance, Caymanâ&#x20AC;&#x2122;s industry is composed mainly of companies insuring risks in North America (90%). The next most important geographical source is the Caribbean and Latin American region.

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

Statistics sourced from Cayman Islands Monetary Authority (CIMA)

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“

The Cayman Islands continues to innovate, streamline and enhance efficiencies in the captive business.

”

CAYMAN ISLANDS -

THE NE PLUS ULTRA CAPTIVE DOMICILE? By Simon Raftopoulos and Samuel Banks

eing in first place certainly has its advantages. First place means you have won the race, reached the pinnacle, accomplished the objective. But, despite being one of the top financial centres in the world, the Cayman Islands is ranked as only the second-largest captive insurance domicile. Perhaps, then, it is because of this second place ranking that the Cayman Islands continues to innovate, streamline and enhance efficiencies in the captive business. With a robust and sound regulatory environment, the Cayman Islands provides an ideal platform on which to conduct business within the captive insurance industry.

Pillars of this platform include: Legislative Innovations The new Insurance Law, 2010 of the Cayman Islands enhanced the application of a risk-based approach to the regulation of different types of captives. This common sense and practical method allows factors such as the amount and degree of third party risk to be taken into consideration by the regulator when setting capital requirements for captive insurers. As a further innovation in the Cayman Islands’ insurance industry, in March 2013, the Insurance (Amendment) Law was enacted which provided for Segregated Portfolio Companies (SPCs) to incorporate their individual cells for the first time as Portfolio Insurance

Companies (PICs). Because each PIC has a separate legal identity and a separate board of directors, the new legislation will make it possible for PICs in a SPC to transact business in their own right and even contract among themselves. A PIC will continue to be regulated by the Cayman Islands Monetary Authority (CIMA) but will not need its own insurance licence for so long as it remains a PIC. 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. The PIC legislation is anticipated to be brought into force once necessary amendments have been made to the Insurance Regulations.

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Regulatory Streamlines The European Union’s Solvency II Directive was introduced in an effort to manage the risk of insolvency by insurers by providing for mandated minimum levels of required capital. Solvency II has been criticised by think tanks such as the World Pensions Council, which argued that by adopting the Solvency II recommendations, European legislators actually forced insurance companies and their regulators to rely more on assessments of credit risk by private rating agencies. Thus, part of the public regulatory authority was abdicated in favour of private rating agencies. Additionally, the calibration of the standard formula for assessing equity risk has been criticised as unreliable. The Cayman Islands has currently opted not to adopt Solvency II equivalency. Instead, it has maintained a ‘wait and see’ approach and is carefully assessing beforehand the implications for Cayman licensed insurers. FATCA – Taming the 800-Pound Gorilla The spectre of the US Foreign Account Tax Compliance Act (FATCA) has been looming over the international financial community for a number of years now. Although FATCA is actually US domestic legislation implementing a new tax information regime, the legislation will have a decidedly extra-territorial effect on foreign financial institutions, potentially including captive insurers. However, in order to limit FATCA’s adverse impacts and provide certainty, the Cayman Islands government recently concluded negotiations on a Model 1 intergovernmental agreement (IGA), and a new tax information exchange agreement (TIEA) to supplant the current one signed in November 2001. This IGA will eliminate the burden for each foreign entity to comply with FATCA or face a 30% withholding

tax on US source payments. Under the terms of the IGA, certain Cayman Islands financial entities will report the required tax information directly to the Cayman Islands Tax Information Authority, which will then automatically exchange this information with the US Internal Revenue Service. Tax Transparency In addition, the Cayman Islands have executed TIEAs with 31 different sovereign nations. To demonstrate its continuing commitment to tax transparency, the Cayman Islands government formally asked the United Kingdom to extend its membership in the Organisation for Economic CoOperation and Development’s (OECD). The Islands’ transparency was acknowledged by the OECD’s latest Global Forum Peer Review report in April 2013. Cayman was hailed for a “robust and transparent” legal and regulatory regime. Its financial industry was lauded as having a “clear and efficient system” for releasing

information, with a “wellorganised, well-resourced and adequately staffed” process for exchanging information. UK Prime Minister David Cameron recently acknowledged the Cayman Islands’ progress in moving beyond its ‘tax haven’ reputation saying: “I do not think it is fair any longer to refer to any of the overseas territories or crown dependencies as tax havens. They have taken action to make sure that they have fair and open tax systems.” Conclusion The Cayman Islands appears well placed to continue its growth in the captive insurance space. The jurisdiction has become quite adept at learning what clients want and has demonstrated its willingness to adopt innovative legislation designed to meet those needs. Taken together with a robust yet flexible approach to regulating its captive insurance industry, combined with high levels of transparency, the Cayman Islands is unlikely to remain in second place very long.

About the Author

Simon Raftopoulos is a partner at Appleby and a member of the Insurance and Corporate Finance teams. He represents clients on large insurance transactions as well as private equity and fund finance, joint ventures, mergers, acquisitions, leveraged buyouts, initial and secondary public offerings, structured finance, asset securitisations and private placements of equity and debt securities.

Samuel Banks is an associate at Appleby and a member of the Insurance and Corporate Finance teams. His practice includes banking, corporate finance, insurance, asset finance, and mergers and acquisitions. Samuel is actively engaged in all aspects of Insurance Law and has advised on some of the largest insurance transactions in the jurisdiction

Cayman | The Future of Finance

Captives and Beyond:

How Cayman’s Legislation Caters to the Global Insurance Business By Linda Haddleton The Cayman Islands, widely known and recognised as a well-established captive domicile, has been home for decades to a number of insurancelicensed entities other than captive insurers. The simplicity, openness and integrity of the insurance legislation, dating from 1979, have allowed Cayman to welcome innovation in the field of risk transfer. To facilitate additional growth and accommodate new innovative business models in this market, Cayman introduced a new insurance law in 2010. When the Cayman Insurance Law was updated, two important goals were achieved: (1) the measure of regulation applied to each class of licensee was made more transparent and in line with each licensee’s particular risk profile; and (2) Cayman’s legacy of

innovation was continued, paving the way for enterprising licensees. A brief introduction to the noncaptive classes demonstrates the diversity of Cayman’s client base and its attractiveness to the global (re)insurance industries and capital markets. The Class C Insurer’s licence caters to insurance-linked securities (ILS). Home to the very first catastrophe bonds, Cayman remains a leader in this sector of the reinsurance market, facilitating both large catastrophe bond transactions and more recently, smaller transformer transactions in ‘cell companies’. These inventive uses bring the benefits of ILS to a wider audience, with opportunities for individual investors to influence structure design so as to fit their preferred risk/return profile.

The Class D Insurer’s licence caters to the larger, open-market reinsurance company. Greenlight Reinsurance, Ltd., was the first company of this kind to be based in Cayman and the first Class D licensed reinsurer. Established in 2004, with full underwriting operations established in 2006, Greenlight Reinsurance has an innovative business model for the reinsurance sector, accepting asset and liability risk to produce the best book-value growth for its shareholders. Bart Hedges, CEO of Greenlight Reinsurance, explains: “When considering a domicile for our business, there were some core issues for us to consider, some of which are standard requirements such as stability of the jurisdiction,

Cayman | The Future of Finance

legal environment, proximity to our main market (North America), robust regulation and sustainability in terms of our ability to attract and keep talent. Clearly, the Cayman Islands scored well in all of these categories. However, given our business model, we had one further requirement for the domicile: a reputation for innovation in financial markets. Our business model was groundbreaking for our industry and we needed a domicile that had a reputation for being ahead of others in terms of market developments, taking the time to understand the model itself and being supportive of our goals”. Further proof that the Cayman regulator supports innovation can be seen in the efforts of other companies and regulators to replicate this business model in recent times. The introduction of dedicated (re)insurance regulations, including the new licence types, is a great step in the right direction for the financial sector in Cayman. It solidifies what is already a robust and pragmatic regulatory environment. Not only will this support further development of the reinsurance sector in Cayman, it also supports Cayman’s position as an innovator in the risk-transfer industry. The Class B Insurer’s licence caters to captive insurance companies, with sub-categories segregating risk profile by the amount of third-party business conducted by the licensee. Of particular interest, in terms of innovation, are the proposed creation of the Portfolio Insurance Company (PIC) and the Class B(iv) licence. The PIC amendment to the Insurance Law will allow a Segregated Portfolio Company (SPC or cell company) to establish a subsidiary of a Segregated Portfolio (SP or cell) as a separate legal entity -- a PIC -- with the SPC, SP(s) and PIC(s) all sharing a single Class B licence. This ingenious adaptation of Cayman SPC legislation overcomes certain limitations of

the original, not least in providing the ability for PICs to contract with each other within an SPC structure, including pooling, quota sharing and reinsurance contracts. In an effort to further support the incubation of open-market reinsurers, the new Insurance Law includes new categories of Class B licences. The Class B(iii) licence is applicable for an insurer writing non-domestic insurance business, where 50% or less of the net written premiums will originate from the insurer’s related business and annual net earned premiums are less than US$20 million. The proposed Class B(iv) licence applies to similar insurers where net earned premiums are equal to or greater than US$20 million. Cayman’s insurance laws and regulations, decades of experience and deep expertise in risk transfer, combined with Cayman’s prominent position in the hedge fund and banking industries make Cayman clearly better for business for those bringing innovative risk-transfer and financial products to market.

About the Author Linda Haddleton is Managing Director of Kane (Cayman) Limited. She has been involved in the formation and management of a broad range of Cayman-based insurance and reinsurance entities for over 25 years, and instrumental in numerous industry initiatives to maintain and enhance Cayman’s leading position as an insurance and reinsurance domicile.

Cayman | The Future of Finance

AT A GLANCE

INVESTMENT

FUNDS

Overview: The growth of the offshore sector in Cayman coincided with a liberalisation of international finance, and the removal of currency controls and international trade barriers. This resulted in a growing demand for the core services Cayman’s offshore financial experts provided and saw hedge funds become a more prominent investment vehicle and Cayman become their incorporation jurisdiction of choice. The Cayman Islands laid the foundation for this 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 OECDbased 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 in economies such as the US. 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 various 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 owing to the very high calibre of professionals servicing its 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 2007, growing to 11,379 (registered and master funds) as at the end of 2013, Cayman continues to be the domicile of choice for global investment managers. The fund landscape will continue to develop throughout 2014, with further implementation of fundspecific initiatives such as the

Cayman | The Future of Finance

STATISTICS Mutual Funds

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

Mutual Fund Administrators AIFMD, as well as recent plans by the regulator to enhance the corporategovernance framework in the jurisdiction. In addition, impact will be felt from the Commodities Futures Trading Commission’s recent removal of exemptions used by hedge funds; the proposed introduction of capitalgains taxes in such jurisdictions as Greece, Hungary, Mexico, Ukraine, Argentina and Poland; and changes to the Markets in Financial Instruments Directive. Produced with kind assistance from the Alternative Investment Management Association

Full

Restricted

Exempted

Total

2006

153

2007

152

2008

102

155

2009

141

2010

134

2011

129

2012

124

2013

121

Statistics sourced from Cayman Islands Monetary Authority (CIMA)

Cayman | The Future of Finance

Brand Cayman â&#x20AC;&#x201C; Leading the Global Hedge Fund Sector By Ben Benson

Cayman | The Future of Finance

ith three specks of land in the western Caribbean dominating the offshore hedge fund space for decades, and despite ever-competitive rival jurisdictions, Cayman remains in undisputed top spot due to a unique set of conditions. In addition to Cayman’s tax neutrality, the flexible corporate environment, which contains no unnecessary impediments to getting business done, has supported industry growth. Cayman’s welldeveloped and widely understood structures that can be established quickly and easily have stood the test of time and operate within statutory regimes that are investment-focused and highly responsive to changes in the global marketplace. As an Overseas Territory of the United Kingdom, the Cayman Islands also enjoys a strong and secure relationship with the UK, with an English common law system providing the certainty that investors and other participants require. Cayman’s fund structures provide an efficient platform for international investments to be pooled in funds without an additional layer of taxation beyond that imposed by the investors’ home jurisdiction and the jurisdictions where trading profits are made. In addition to attracting investors from all around the world, this benefit is also particularly welcomed by the taxexempt investors of the US, such as university endowments and pension funds. As such, the Cayman Islands resides right at the heart of the process of capital deployment back into the US securities market, which results in significant investment into the US from overseas through Cayman Islands hedge funds. Over 11,000 funds currently sit on the register of the Cayman Islands Monetary Authority (CIMA), approximately twice the number in Ireland and far ahead of the rest of the competition offshore. Clearly the

Cayman | The Future of Finance

predominantly institutional clientele that domiciles funds in Cayman welcomes the appropriately balanced regulatory framework and robust anti-money-laundering regime, as do the mainly institutional investors in the Cayman fund sector, which had a net asset value of US$1.73 trillion in 2010, according to the most recent Statistical Digest from CIMA.

being at the centre of a vast array of fund structures and transactions, those professionals have rapidly become the most experienced in the offshore market with a sophisticated and nuanced understanding of the investment-funds business. Investors and those looking to do business in the Cayman Islands can therefore be assured that the jurisdiction’s

modelled on the Delaware limitedliability company. As legislative enhancements in the Cayman Islands continue to mirror the requirements of international fund managers and investors, while operating at the leading edge of international standards for transparency and information

“The Cayman Islands resides right at the heart of the process of capital deployment back into the US securities market.” The Cayman Islands was the first offshore jurisdiction to introduce specific legislation for hedge funds, with the Mutual Funds Law in 1993 – long before the hedge fund industry really came into its own as global assets began to build toward the end of that decade. While Cayman has certainly made its ‘first mover advantage’ count, the jurisdiction has never rested on its laurels and the Cayman product has been continually refined over the years. One of the most notable characteristics of the Cayman Islands financial services industry is the collaborative relationship between government and the private sector, meaning that legislative changes reflect the desires of the industry and the needs of the ultimate clients. An integral part of the financial services industry is the presence of highly skilled professionals, with the fund administrators, lawyers, auditors, company directors, and banking and trust personnel of an equivalent standard to that which you will find in any leading onshore financial centre. As the pre-eminent offshore jurisdiction, Cayman has been able to attract the best talent;

infrastructure will meet their needs, however complex they might be. Just as with all jurisdictions with major investments in financial services, the Cayman Islands was required to demonstrate its flexibility and responsiveness in the face of the market turmoil which has challenged the industry since the global financial crisis. Indeed, Cayman’s investmentfunds model proved to be remarkably robust and practical when faced with the worst conditions seen by the industry for generations. The government also continues to take every necessary step to ensure compliance with the global initiatives for transparency and the exchange of tax information. Among more recent developments, CIMA has reviewed and issued guidance on minimum standards of corporate governance, which has been broadly welcomed by the local industry; a revised Exempted Limited Partnership Law will shortly be introduced; and, in response to keen interest from US managers, a new law will provide for the formation of an exempted limited-liability company (a new vehicle to Cayman’s offering)

exchange, Cayman funds supported by experienced local service providers can expect to remain at the forefront of the hedge fund sector for many years to come.

About the Author Ben Benson is a partner in Walkers’ Global Investment Funds Group in the Cayman Islands. He specialises in hedge funds, private equity and general corporate law matters. Ben advises leading hedge fund managers in all aspects of fund formation, restructuring, management and distressed situations.

Cayman | The Future of Finance

Structured Finance –

Why Cayman? By Alasdair Robertson and Nicola Bashforth

Cayman SPVs The Cayman Islands is one of the leading jurisdictions in which to establish special purpose vehicles (SPVs) used for securitisation and other structured-finance transactions. A structured-finance transaction involves the transfer of underlying assets to the SPV. The SPV funds that acquisition by issuing securities, typically debt securities called ‘Notes’. The ongoing revenue from the assets repay principal and interest to the holders of Notes (Noteholders) over the life of the deal.

Form of Entities Structured-finance transactions can be completed through a variety of legal entities: companies, segregated portfolio companies, partnerships and trusts, although the vast majority are in the form of companies. Local legislation relating to these entities generally operates with the promotion of Cayman’s finance industry and ease of doing international business in mind. Local government bodies such as the Registrar of Companies operate online registration systems, which means SPVs can be established in less than 24 hours.

Industry-Focused Legislation Cayman legislators take a proactive approach to facilitate structuredfinance transactions and encourage the use of a Cayman SPV. In recent years, statutory provisions have been introduced to make the SPV structure more robust and enshrine typical characteristics of the SPV. An excellent example of this relates to one of the key principles underlying structured-finance transactions, namely the bankruptcy remoteness of the SPV. Parties to the transaction and Noteholders agree contractually not to petition

Cayman | The Future of Finance

for the winding up of the SPV until the Notes are repaid. The s.95(2) Companies Law 2009 Revision introduced an express statutory enforcement of this normal contractual agreement and provides that the Cayman Islands court shall dismiss a winding-up petition if the “petitioner is contractually bound not to present a petition against the company”. This important provision removed any doubt regarding the enforceability of non-petition provisions overriding general creditor statutory rights, and was welcomed by the global structured-finance community. Another example is the Companies Law 2010 Revision, which introduced new rules relating to the ability of entities (including foreign entities) to merge with Cayman companies. Prior to 2010, the process was more complex and time consuming. Since 2010, the merger provisions have been used in many structured-finance transactions to effect the merger into a Cayman SPV of an onshore vehicle that initially held the underlying assets for the deal. Upon merger, the assets of the merging entity become the assets of the Cayman SPV as surviving company, by operation of law, eliminating the need to transfer each underlying asset into the name of the SPV required by normal sale and purchase.

Tax Environment There are no forms of relevant direct taxation in Cayman for SPVs. Stamp duty may be relevant and is typically nominal. Cayman is also a Model 1 IGA country for the purposes of the US Foreign Account Tax Compliance Act (FATCA). Model 1 IGA simplifies some of the reporting and compliance burdens that financial institutions (FIs) in non-Model 1 countries face. Local legislation is expected to be passed early 2014 to bring the provisions of the Model 1 IGA into force. This simplified FATCA tax-reporting regime on an FI should attract those seeking to do business using Cayman SPVs over Model 2 or nonIGA countries.

rating agencies are familiar with the different legal entity types, the bankruptcy remote structures and local law opinions relating to the SPV and the transaction. Sophisticated Professionals Law firms, fiduciary service providers and accounting firms in Cayman have been serving the global structured-finance industry since the market inception. There is great depth of experience available. The major financial institutions across the US, Asia and Europe that arrange and underwrite structuredfinance deals, asset managers, originators and the onshore law firms are familiar with the international law firms operating within Cayman.

Rating Agency Acceptance Rating agencies have long recognised Cayman as a predominant jurisdiction for rateddebt capital-market transactions. S&P have their own criteria applicable to Cayman SPVs. The

About the Author

About the Author Alasdair Robertson is Global Head of the Finance group of Maples and Calder and is based in the Cayman Islands. Alasdair’s practice focuses on structured finance, structuredinvestment funds, derivatives, funds finance and corporate finance. He also advises on financial regulatory issues. Alasdair is Chairman and a director of the firm’s affiliate, MaplesFS, a leading specialised fiduciary and fund services provider.

Nicola Bashforth is Counsel in the Cayman Islands office of Maples and Calder. She 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.

Cayman | The Future of Finance

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Cayman | The Future of Finance

AT A GLANCE

COMPANY MANAGEMENT AND CORPORATE SERVICES

Overview: The Cayman Islands offers a reliable legal and tax-neutral business environment and a world-class legal system, creating the perfect environment for the incorporation of an offshore company. As well as offering an alternative tax regime without any direct tax on personal or corporate income, capital gains or inheritance, the jurisdiction is politically stable, conveniently located geographically and forms a strategic base to access global markets.

he wealth of knowledge and expertise among the company management professionals in the Cayman Islands has grown tremendously from the early 1970s when the first company management firm was established. Responding to the growth in the global need for the offshore corporate product, suitably qualified professionals identified company management as an area of business demanding specialisation. In 2013 there were 95,530 companies registered in the Cayman Islands and almost 9,500 new companies were incorporated in that year. Due to the significant growth of the hedge funds industry

in Cayman and the institutional nature of that sector, the corporate product in the Cayman Islands has quickly evolved over the years. In fact, many of the new company managers licensed in recent years specialise in fiduciary services for hedge funds through the provision of independent director services. All company management firms are regulated by CIMA and, as at the end of 2013, there were a total of 110 firms licensed under the Companies Management Law, 17 of these being restricted corporateservice licences. Whether the service provided includes full management or just the incorporation and provision of a registered office, the

company manager will be expected to operate with equal skill and care. The Cayman Islands Company Managers Association (CICMA) actively encourages the education of young professionals in the business and seeks to involve its membership in various initiatives and discussions on the future of Caymanâ&#x20AC;&#x2122;s financial services industry in general and company management in particular, an increasingly important role in the changing global environment. Cayman has embraced, and is fully compliant with, all international standards relating to the global fight against money laundering and terrorist financing. Corporate-

Cayman | The Future of Finance

STATISTICS

governance issues are at the forefront in every licenced company manager in Cayman, particularly those providing independent directors for the funds sector. Balancing rights and responsibilities among different participants in the company (shareholders, beneficial owners, directors, managers, creditors, auditors, regulators and other stakeholders) is a skill learnt over years of experience.

New companies registered by type | 2013 Foreign

Produced with kind assistance from the Cayman Islands Company Managers Association (CICMA)

(6,755)

7% Non-Resident (7,200)

Although the business of company management is rooted in offshore industry history, it continues to reach into the future with the constantly expanding nature of corporate entities in Cayman. The segregated portfolio company is becoming more widely used and the standard exempted company can now include limited duration companies and those transferred from other jurisdictions. The recent establishment of the special economic zone (Cayman Enterprise City) with its financial incentives is designed to attract existing and new companies in such fields as science, technology and education, and local company managers are ready to play their part in this growth area. Current global initiatives will make further demands for substance in relation to the operation of corporate entities and, as a direct result of this, the work of the Cayman Islands-licenced company manager will inevitably increase.

(3,505)

Resident

Exempt (78,070)

82%

Summary of Companies Registered Annually 2010 through 2013 New Companies Registered Exempt

Non-Res 230

Resident 434

Foreign 391

Total

2010

7,104

8,157

2011

7,980

18%

156

-29%

485

443

13%

9,064

15%

2012

7,940

12%

-70%

506

17%

456

17%

8,971

10%

2013

8,380

-69%

430

-11%

575

30%

9,433

v Active Companies on Register at Year End Exempt

Non-Res 9,651

Resident

Foreign

5,829

2,732

Total

2010

72,994

91,206

2011

74,782

9,060

-6%

6,193

2,929

92,964

2012

75,754

8,206

-9%

6,476

3,176

93,612

2013

78,070

7,200

-12%

6,755

3,505

10%

95,530

Statistics sourced from Cayman Islands Registry

Cayman | The Future of Finance

The Cayman Approach to

Corporate

Governance By Michael Austin

Cayman | The Future of Finance

Corporate governance refers to the systems and processes used for directing and controlling the management of an organisation. Good corporate governance is the pre-requisite for operational success and survival in today’s competitive marketplace. Corporate governance encompasses the relationships between an organisation’s internal and external stakeholders. Internal stakeholders include the board of directors, managers and employees. External stakeholders are the shareholders, investors, auditors and regulators. In a nutshell, corporate governance provides controls over an organisation’s relationships, strategies, objectives, accountability, transparency and compliance. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors, and to satisfy themselves that an appropriate governance structure is in place. Major corporate failures in 2001 and 2002 led to corporate governance practices coming under increasing scrutiny internationally. Highprofile accounting frauds and financial scandals in the US -- for example, Enron Corporation, Tyco International and WorldCom -- led to the passing of the Sarbanes-Oxley Act in 2002, which introduced numerous regulatory and accounting reforms, with the object of restoring public confidence in corporate governance. In response to the perception that stricter financial governance laws were needed, laws -- similar in nature to the US Sarbanes-Oxley Act -- have been enacted in Japan, Germany, France, Italy, Australia, Israel, India, South Africa and Turkey. More recently, the financial crisis of 2007 and 2008, also known as the ‘Global Financial Crisis’, has been attributed to several causes, with varying weight placed on each; however, and of note, the US

Financial Crisis Inquiry Commission concluded that the financial crisis was avoidable and was caused, amongst other factors, by “dramatic failures of corporate governance and risk management at many systemically important financial institutions”. From a Cayman perspective, corporate-governance principles have been receiving intense attention both from thve private sector and the regulator. Best practice has become a hot topic for discussion, particularly with reference to the global hedge fund industry, which represents a major segment of the Cayman economy. Early in 2013, the Cayman Islands Monetary Authority (CIMA) launched a corporate-governance consultation process open for comments from all sectors (banking, insurance, fiduciary and mutual funds). This was aimed at bolstering plans to introduce corporategovernance guidelines to which all financial services entities must comply. The move largely arose as a result of international regulatory organisations (including the Basel Committee for Banking Supervision, the Technical Committee of the International Organization of Securities Commissions, the International Association of Insurance Supervisors, the Organisation for Economic Cooperation and Development, and the Financial Stability Board) calling for the adoption of more robust corporate governance standards. Although CIMA intends to extend its Statement of Guidance on Corporate Governance to all financial services entities in the Cayman Islands, the consultation process resulted in the publication by CIMA in December 2013 of a sector specific ‘Statement of Guidance on Corporate Governance for Regulated Mutual Funds.’ In a perfect world, the system of corporate governance would be ingrained in a business community and, as a result, arguably based on principles, as opposed to rules. The

Cadbury Report, published in the UK in 1992 and titled ‘Financial Aspects of Corporate Governance’, took the view that corporate governance was not a matter for legislation. In contrast, corporate governance in the US is regulated essentially through the law. The Cayman Islands have traditionally favoured the principlesbased approach, thus eliminating the need for detailed regulation and the associated costs. This approach is similar to that of the UK. It is thus notable that CIMA has refrained from implementing rules or a code setting out compulsory standards. CIMA has said that stringent rules were not appropriate as the Cayman Islands is a sophisticated financial services jurisdiction with suitably qualified participants and service providers. CIMA has said a study it has conducted found “an appropriate awareness of corporate-governance expectations and a suitable application of these standards in day-to-day operations”. The more deep-rooted the system of corporate governance in a business community, the less a need for detailed regulation to ensure compliance with goodgovernance practices. The CIMA approach thus combines high standards of corporate governance with relatively low associated costs. So where do we stand today? The Cayman Islands attracted global attention as a result of the Weavering Macro Fixed Income Fund Limited (In Liquidation) vs. Stefan Peterson and Hans Ekstrom case in August 2011, as a result of which the Grand Court imposed a US$111 million fine on the two non-resident directors, and handed down an extended statement of the duties and responsibilities of fund directors. Although regarded as a salutary wake-up call for directors of their responsibilities, it has been argued that the Weavering case makes it clear that the jurisdiction takes the issue of corporate governance very seriously.

Cayman | The Future of Finance

From a corporate-governance standpoint, there is an increasing awareness of the importance and value of an independent board comprising experienced, credible and talented directors, and importantly, with an in-depth understanding of the company’s business. Independent directors are becoming important catalysts in good corporate governance. The existence in Cayman of a pool of professionally qualified individuals facilitates good board selection. There is no question that there is a huge striving towards high levels of good corporate governance internationally, and likewise within the Cayman Islands. Corporategovernance processes will differ from company to company but the fundamental principles will always apply, that is to say, attention to the manner in which the Board of Directors effectively discharges its responsibilities when fulfilling its

fiduciary duties (loyalty, honesty and good faith) and its duties of care, skill and diligence. The Board must determine purpose, adopt an effective governance culture, and ensure strict compliance with applicable rules and regulations. What advantages accrue? Strong corporate-governance principles lead to operating effectiveness and promote the growth, performance and reputation of an entity. Corporate governance places risk oversight and risk management as critical responsibilities of the board, thus mitigating pitfalls. Sound corporate governance mandates diligent oversight of a company’s strategy, and the right strategy lays the foundation for how a company allocates resources, structures operations, and measures success. When well executed, the right strategy creates significant shareholder value.

About the Author Michael Austin, a resident of the Cayman Islands, is a Chartered Accountant. He was admitted as a Fellow of The Institute of Chartered Accountants in England and Wales in 1974. He is an Associate Member of The Chartered Institute of Taxation, a Member of the Society of Trust and Estate Practitioners, a Member of the Cayman Islands Society of Professional Accountants, a Member of the Cayman Islands Institute of Directors, and a Notary Public of the Cayman Islands.

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The

Cayman | The Future of Finance

cost of

compliance By Jonathan Cohen

n recent years, an avalanche of regulation has significantly increased the costs of compliance within the hedge fund industry, with looming change and uncertainty ever present. It is widely known that hedge fund assets, originating from institutional investors, have grown significantly since the financial crisis. The compelling and persistent theme is the continued force and momentum with which the global hedge fund industry is becoming increasingly institutionalised. This trend brings due-diligence, risk-management and transparencymanagement processes of funds and their managers to the forefront, with the obvious result being an increase in hedge fund compliance costs. In October 2013, KPMG, the Alternative Investment Management Association and the Managed Funds Association partnered to undertake a comprehensive survey titled The Cost of Compliance, which represents one of the largest global surveys of hedge fund

managers. The survey included the views of 200 hedge fund managers representing more than US$910 billion in assets under management (AUM). It also included in-depth interviews with managers from North America, Europe and Asia. Total industry costs, related solely to compliance, are estimated to be in excess of US$3 billion and hedge fund managers are convinced the costs and resources associated with regulatory compliance will increase over the next five years. Additionally, fund managers are often subject to a mix of regulations, each of which will incur different costs and require various resources depending on the scope, geographic location and customers that the fund and manager serve. In terms of ranking the cost of compliance across different regulatory regimes, it is quite apparent that certain regulations are exacting a higher toll than others. The Alternative Investment Fund Managers Directive (AIFMD) and the Foreign Account Tax Compliance Act (FATCA) have ranked highest in terms of cost, time and need for external support;

this is due to their complex nature and global reach. Securities and Exchange Commission (SEC) registration and reporting ranked as a close runner up. Key Survey Findings Include: < The use of outsourcing and third-party vendor support will increase significantly as managers seek to focus on their core business. <

On average, the industry is spending more than 7 percent of their total operating costs on compliance technology, headcount or strategy. Smallerfund managers are spending US$700,000 on compliance on average, medium-fund managers are spending approximately US$6 million, and large-fund managers are spending more than US$14 million. Additionally, survey participants responded that cost is not limited to capital investment with many regulations carrying high resource cost in terms of time or management attention.

Cayman | The Future of Finance

cost of certain “The regulations are exacting a higher toll than others. ”

North American firms report spending more as a percentage of their AUM than those in other regions. In part, this likely reflects the already-in-process compliance requirements in the US, which include Form PF reporting and SEC registration, versus the expected compliance requirements of AIFMD.

Overwhelmingly, managers are absorbing the cost of compliance rather than passing it on to their funds.

As a result of the increased cost of compliance and capital investments, new players are facing significant barriers to entry with larger players facing constraints on growth.

The large pool of managers say they have not considered moving their fund domicile, management company or centre of main economic activity in response to the regulatory change.

The lack of a consistent regulatory approach across all markets is creating uncertainty and complexity for many managers and, as a result, is limiting investments.

Product and fund selection may reduce somewhat as a result of regulation; however, this gap may be filled by firms developing regulated products. Market participants are eager to work with regulators to reduce complexity and enhance investor protection.

Fund managers overwhelmingly support the aims and goals of much of the recent regulation and are dedicated to increasing transparency. Managers appear to be focusing on creating a culture of compliance. As one UK manager noted, “We want to be robust in our compliance so we need to always strive to ensure we have an ethical culture that emphasises the importance of doing things the right way. That’s how you deliver longer-term value”.

The industry has limited financial resources to dedicate to compliance and smaller managers are already meeting significant barriers to entry as a result of the rising cost of regulation. On the other hand, managers who are adapting and leveraging their compliance capabilities, are ultimately creating a competitive advantage. In this new paradigm for the hedge fund industry, managers that can demonstrate vigorous institutionaltype operations in complying with headline regulations will not only survive, but also be well placed to become the large players of the future. The Cayman Islands, as the premier hedge fund jurisdiction of choice, has remained nimble in adapting to the evolving global regulatory landscape. This has been due to ongoing and productive collaboration between the public and private sector. Cayman has modernised its legislation and has signed 33 TIEAs and 27 MOUs with respective AIFMD countries, as well as Model 1 IGAs with the United Kingdom and most recently the United States.

Cayman | The Future of Finance

Niko Whittaker, Director of Business Development with KPMG in the Cayman Islands, stated, “As a jurisdiction, we have to be cognizant of the regulatory landscape we’re in, in addition to the increasing competitiveness of the offshore environment. We have to remain cost competitive without compromising our regulatory product”. Cayman service providers are squarely focused on AIFMD and FATCA and are looking to seize opportunities in this area. From an AIFMD perspective, large Cayman administrators are supporting their clients by providing managementcompany services in Ireland and Luxembourg and, in addition, providing independent-depository services. On the FATCA side, and with the deadline looming, local administrators have geared up by

adding FATCA-related products, such as ongoing reporting, or even offering FATCA Responsible Officer services. The cost of compliance continues to plague the hedge fund industry, creating advantages for the large players and barriers to entry for small ones. Similarly, from a jurisdictional perspective, increased regulatory costs will act as a barrier to entry for smaller offshore centers; however, Cayman is a forerunner in this ever-evolving, regulatory environment. Service providers have continued to adapt by not only offering a range of complementary services, but also demonstrating the expertise needed to provide timely solutions. Ultimately, Cayman may have a competitive advantage, given the significant progress in complying with these regimes.

About the Author Jonathan Cohen is an Audit Director with KPMG in the Cayman Islands. With over 10 years of experience in serving financial services clients, his portfolio includes some of the largest hedge fund groups in the world, private-equity funds and structured products. Jonathan is a member of the Institute of Chartered Accountants in Australia and of the Cayman Islands Society of Professional Accountants.

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The Cayman Islands Aircraft Registry is the registry of choice for many owners and management companies with corporate aircraft as it maintains a reputation of providing a safe, stable and credible flag for registration of an aircraft. Standards are rigid but this has led to the register being highly respected and recognised throughout the aviation industry internationally. Unit 2 Cayman Grand Harbour, PO Box 10277 Grand Cayman KY1-1003, Cayman Islands Email: civil.aviation@caacayman.com | www.caacayman.com

Cayman | The Future of Finance

Technology:

A Key Business Driver By Richard Munday

Cayman’s mature information and communications technology infrastructure has been an important draw for businesses to domicile in this jurisdiction, as highly prized as its high regulatory standards and tax-neutral status. There is a thriving ecosystem of information and communications technology in Cayman, all delivering a variety of ICT services to businesses that promise security, privacy and service-level guarantees. In particular, the island depends upon a first-class, dependable and secure fibre optic network, which has been vital to the success of the Cayman Islands.

In recent months, the telecoms industry has pledged to augment the already extensive fibre footprint in Cayman with new fibre installations around the island. By providing world-class services to the Cayman Islands, telecommunications improve along with entertainment services, while economic growth will also be fostered, which means that ultimately everyone in the community benefits. Telecoms companies are evolving to provide specific services requested by the financial services industry, which not only include fast and reliable Internet access, but also predictable access to the world’s markets. Financial services industry

customers have sophisticated requirements, including demands for predictable performance for their trading applications. While private dedicated circuits are the standard method by which connectivity is offered by telecoms providers for their customers to the global markets, new products such as Predictable IP for traders give financial services industry customers the perfect trade between private circuits and the Internet. Along with telecoms providers, data centre and hosting providers need to be agile, as Taron Jackman, partner with Deloitte, explains: “There is no standard company in Cayman – there are clients who

Cayman | The Future of Finance

need dedicated server rooms for a complete production site, through to clients who simply need a recovery seat. The aim is to provide flexible infrastructure tailored to each specific organisation”.

of this sector within the Cayman Islands when its five business parks are developed, with one, the Cayman Internet & Technology Park, concentrating on attracting companies within the sector.

Cayman Enterprise City (CEC) is a Special Economic Zone created by the Cayman Government and is one such example of a thriving sector of industry, the success of which has been largely dependent on a fast and reliable telecommunications network. It enables international businesses to move more quickly and cost-effectively to establish a physical presence in the Cayman Islands and benefit from substantial operational cost savings, provided by unique concessions granted by the Cayman Islands Government. CEC has benefitted extensively from the high level of telecommunications service offered in the Cayman Islands. It is anticipated that, in turn, CEC will help to facilitate further growth

A first-class, dependable and secure telecommunications network is vital to the success of the Cayman Islands international business segment. As the demand for capacity and data speeds increases, companies will be assured to know that there are facilities in place that can meet all of Cayman’s international bandwidth requirements, for the foreseeable future. Through business-friendly legislation aimed at fostering the offshore market and complete redundancy of ICT infrastructure, the Cayman Islands is well positioned to exceed the needs of international business today and in the future.

About the Author In Richard Munday’s role as Vice President of International Business Development at Keytech, he can be found dealing with contract disputes, network design, regulatory fillings, financial modeling or a myriad of other challenges. What fulfills his life at work is solving unusual problems through collaborating with his internal and external colleagues.

Cayman | The Future of Finance

“The Cayman Islands offers a unique blend of excellent infrastructure, firstclass amenities, beautiful yearround sunny weather and scenic, sparkling turquoise water and white sand.”

rom the perspective of real estate, the Cayman Islands is an ideal location in which to establish a business presence, as well as reside and enjoy the wonderful weather, white sand beaches, sophisticated infrastructure, friendly ambiance and top-class amenities on offer – the perfect blend of a firstworld jurisdiction with an exotic Caribbean location.

Real Estate

an Important Business Enabler By James Bovell

The Cayman Islands is particularly geared to embracing new business to our shores when it comes to property ownership, and it does so in a variety of ways. One important strength that we possess as a jurisdiction that sets us apart from our competitors is the fact that we have no restrictions on property ownership. This is unlike Bermuda, for example, which has

a two-tiered property-ownership system that makes it incredibly difficult to own property if you are non-Bermudian. Homes available to non-Bermudians typically start at around BD$3.5 million, which makes it prohibitively expensive for new residents to purchase property. In contrast, we in the Cayman Islands realise the value of offering

Cayman | The Future of Finance

unrestricted property ownership for new residents to enable them to own both residential and commercial property on island without hindrance, a clear attraction that sets us apart from the rest. Another considerable benefit of owning property in Cayman is the fact that, unlike places such as the United States, we have no ongoing property-tax requirements. The Cayman Islands government charges a one-off stamp duty (currently charged at 7.5% of the purchase price of the property) at the time of purchase and this is the only tax that is paid with regard to property purchase, thereby offering a significant saving over other jurisdictions which impose annual property taxation. Unlike Bermuda, the Cayman Islands government does not require the purchaser to obtain a licence to purchase property from a local and pay a hefty fee in the process (8% of the purchase price for a house and 6% for a condominium, rising to 12.5% for a house and 8% for a condominium in October 2014). In the same vein, a would-be purchaser must first obtain an Alien Landholding Licence from the BVI government before being able to purchase property in the British Virgin Islands and fees are required upon application and also on approval. Such licences can take as long as eight months to be approved, or even longer. No such restrictions occur in Cayman, providing a flexible environment for businesses looking to locate to this jurisdiction as well as new residents seeking accommodation. Purchasing property in Cayman is a straightforward process, especially if you employ the services of a wellestablished real estate agent who is able to work with clients to ensure their real estate needs are met in an efficient and effective manner.

Further benefits to owning property in Cayman include the fact that a title to real estate can be held in one or more names of individuals or in a corporation and when a title is granted it is guaranteed by the Cayman Islands government. This means property ownership is properly protected. Additionally, there are no imposed requirements to develop land (excluding subdivisions which have covenants) within a stipulated time period. Consequently, parcels can be held indefinitely with little or no expense, for future use or speculation. In contrast, if you are purchasing land in the BVI you will be required to enter into a commitment with the BVI government to develop the land within a three-year period. Once you have decided to purchase property in the Cayman Islands the breadth of choice is extremely appealing. Affordable one- and two-bedroom apartments are available across the island, with attractive family homes also plentiful. Waterfront homes and condominiums can be found along the highly prized Seven Mile Beach location, with oceanfront homes commanding a premium price. Heading up to West Bay, to the northwest of Grand Cayman, there are also several canal front communities with a variety of property sizes and styles available, ranging from mid-priced condos all the way to multi-milliondollar state-of-the-art individual residences. George Town is the most populous of the five districts of Grand Cayman and the Sister Islands of Cayman Brac and Little Cayman and is central to the financial services industry, followed (in terms of volume of residents) by West Bay. New road infrastructure now means that the “commute” from West Bay into the George Town business district is smooth and takes just a matter of minutes. Residents of both George Town and West Bay

are also within a short commute to Camana Bay, a delightful new town that continues to grow in amenities and stature among the residential and business communities, a central point for residents to shop, relax and dine. The rental pool is also wide and varied and new residents can choose from affordable condos in the heart of George Town all the way to large family homes in the surrounding areas. The Cayman Islands offers a unique blend of excellent infrastructure (first-world communications networks, roads, schools, utilities, etc.), first-class amenities (restaurants, entertainment, shops and so on), beautiful year-round sunny weather and scenic, sparkling turquoise water and white sand. Purchasing a part of this location is straightforward and accessible, making the islands a jurisdiction of choice for expatriates the world over.

About the Author James Bovell, Broker/Owner of RE/MAX Cayman Islands is a top 10 RE/MAX International, award-winning agent who specialises in high-value residential properties. With over 20 years of finding his clients dream homes, James and his team work on building relationships and go “beyond results” ensuring a personal, private and professional service.

Cayman | The Future of Finance

Cayman Finance

Overview “

Speaking at the 2013 Offshore Alert Conference, Miami

Although dialogue now will be focused through Cayman Finance, wider consultation processes will continue to include all industry participants,” the Minister said. “Government will continue to welcome all viewpoints, but it is important for industry to speak with one voice. As such, I would encourage broad participation through Cayman Finance, as active engagement by all firms in the industry will strengthen and encourage the advancement of our position as a leading international financial centre. Hon. Wayne Panton Minister of Financial Services, Commerce and Environment 18 November 2013

”

Cayman | The Future of Finance

Cayman Finance, originally known as the Cayman Islands Financial Services Association, was formulated in 2003 to create a broader organisation to represent the country’s financial services industry. Its mission is to protect and uphold the industry both locally and internationally, to fight the biased perceptions and ill-conceived news that display little understanding of Cayman’s role in 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 Cayman’s financial services through legislative and regulatory enactment and encouraging the sustainable growth of the industry through innovation, education and integration. 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

Meeting Her Excellency, Mrs. Helen Kilpatrick, Governor of the Cayman Islands

Educating at Chamber of Commerce Careers, Education and Training Expo 2013

Ministry of Financial Services. The Government recognises the value of Cayman Finance as the industry’s main consultative body, as recently evidenced by the Memorandum of Understanding (MOU) signed in November 2013.

needs and requirements of the industry at the forefront of business.

The MOU is an indication by the Government and the growing number of members of Cayman Finance of the urgent need of a more unified front to promote and safeguard our industry in the international arena. This was a significant step for Cayman’s financial services industry because it formalised our relationship with the Government, creating a single path for Cayman’s public and private sectors to follow, meaning the industry is led by a single cohesive voice that puts the

The Cayman Islands holds a strong position in terms of our local private and public sector partnerships, as well as internationally, as a jurisdiction increasingly recognised as a leading international financial centre. Cayman Finance, working in close consultation with all of the major financial associations on-island and through a multitude of consultations with the Government, continues to lead the way in ensuring our country’s business reputation is persistently protected and represented. Led by an active Board of Directors, chaired by Ian Wight, Cayman Finance also employs a full-time Chief Executive Officer, Gonzalo Jalles.

Gonzalo Jalles, CEO, Cayman Finance Prior to joining Cayman Finance, Mr. Jalles spent almost six years as CEO of HSBC in the Cayman Islands. He also worked in HSBC’s London, Bermuda and Argentina offices as Director of International Development, Managing Director/ CEO and Chief Investment Officer, respectively. He served as President of the Cayman Islands Bankers’ Association from 2009 to 2012. Before joining HSBC, he worked at Santander Investments, developing the firm’s asset-management business and creating the second largest asset manager in Argentina. He has a bachelor’s degree in economics and a master’s degree in finance. He also holds a Chartered Financial Analyst designation.

Cayman Finance PO Box 11048, George Town | Grand Cayman, KY1-1007 | Cayman Islands Phone: 1 (345) 623 6700 | caymanfinance.ky | enquiries@caymanfinance.ky

Cayman | The Future of Finance

cayman finance

board 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.

Members

Ian Wight â&#x20AC;&#x201C; Chairman 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 windup 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.

Cayman | The Future of Finance

cayman finance BOARD MEMBERS

Peter Cockhill Peter Cockhill is the Managing Partner of the Cayman legal practice and co-head of Ogier’s global Investment Funds team. He is a director of Cayman Finance, and is a director of the global board of Hedge Funds Care. His principal areas of practice are investment funds, private equity, corporate and commercial, and restructuring and insolvency.

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.

Mark Lewis

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

Mark Lewis is Senior Investment Funds Partner at Walkers. He has in excess of 25 years of postqualification 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.

Kevin Lloyd

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.

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.

Cayman | The Future of Finance

cayman finance BOARD MEMBERS

Conor O’Dea

David Roberts – Treasurer

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.

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.

asset management clients. Among his areas of focus are audit and advisory services, including structuring and servicing complex global and offshore funds. Mr. Scott received a B.S. in accounting from the University of Tampa. He is a member of the American Institute of Certified Public Accountants and is currently registered and licensed as a CPA in the state of Florida. He is currently a board member of the Cayman Islands Stock Exchange and also a member of the Cayman Islands National Advisory Council. He is a past president of CISPA.

Dan Scott Dan Scott is the Regional Managing Partner and assetmanagement sector leader for the Bahamas, Bermuda and Cayman Islands Sub-Area of Ernst & Young’s Financial Services Office. He is also a member of the Ernst & Young Global Hedge Fund Steering Committee, which provides strategic direction to the global practice. Mr. Scott has been with Ernst & Young for more than 25 years and has extensive assetmanagement experience. He serves several multinational

Henry Smith 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.

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 Canadian-qualified 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 Financial Advisory Services in the Deloitte Caribbean & Bermuda Cluster, as well as a member of the America’s Financial Advisory Services board.

Cayman | The Future of Finance

Cayman Islands Financial Services Industry Associations Alternative Investment Management Association – Cayman Islands Chapter AIMA Cayman, the local chapter of the London based Alternative Investment Management Association, is an active association with over 40 members, consisting of administrators, attorneys, auditors, bankers and directors, all of which are significant stakeholders of the Cayman’s investment fund industry. AIMA Cayman works in conjunction with AIMA Global by providing input on the many issues facing hedge funds and their service providers from an offshore perspective through consultation; hosting forums; developing new industry initiatives and white papers and working with the Cayman Islands Government and the Cayman Islands Monetary Authority on laws, regulations and policies affecting the hedge funds industry. In Cayman, the association organises educational and networking events for the benefit of members and fundraising activities that give back to our community. AIMA Cayman is committed to working with stakeholders to proactively create a stronger global and local hedge fund industry.

Cayman Islands Compliance Association CICA has been in existence since October 2000 as a non-profit organisation, representing compliance officers, money laundering reporting officers and risk managers of financial service providers that are subject to the Cayman Islands anti-money laundering and regulatory regimes.

Chairman: Rohan Small, Partner, Ernst & Young Ltd. cayman.aima.org

President: Paul Harris, Chairman, International Management Services Ltd. cida2008.com

Cayman Islands Bankers’ Association CIBA was formed in 1979 and is one of the oldest associations in the Cayman Islands. Its membership comprises the majority of registered banks and trust companies in the Cayman Islands and is open to all licensed banks and trust companies.

Cayman Islands Fund Administrators Association CIFAA was established in January 1995 and is represented by a membership of companies providing fund administrator services to many of the over 8,000 funds domiciled in the Cayman Islands. The association was established primarily to provide a channel of communication between the fund administration industry in Cayman and the Cayman authorities (government and regulator) as well as a forum to discuss issues relating to the Fund administration industry in the Cayman Islands..

President: Mike McWatt, Deputy Managing Director & Executive Vice President, Butterfield Bank (Cayman) Limited cibankers.org Cayman Islands Company Managers Association CICMA was formed as a non-profit association in 1996. The association encourages strict adherence to all laws and regulations prescribed for company managers, and promotes and maintains a high standard of ethics, conduct, skill and efficiency among its members. It also encourages the exchange among members of information on all matters affecting the profession. President: Paul Harris, Chairman, International Management Services Ltd. cicma.net

President: Martin Livingston, Partner, Maples and Calder cica.ky Cayman Islands Directors Association 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 governance of the highest standard, thereby further strengthening the integrity of the Cayman Islands financial-services sector. CIDA is organised and run exclusively by individuals who hold office as directors of one or more Cayman Islands-registered companies.

Chairman: Dan Allard, Executive Director, UBS Fund Services (Cayman) Ltd. cifaa.org.ky Cayman Islands Insurance Association CIIA was formed in 2004 to bring together the various associations representing the insurance industry in the Cayman Islands. The association’s purpose was to create a single body to respond to and advise the public on insurance issues and to have a single voice in discussions with the Cayman Islands Monetary Authority, which regulates the insurance industry. President: Derry Graham, General Manager, British Caymanian Insurance Company ciia.ky

Cayman Islands Law Society The Law Society is the professional association representing the entire private sector legal profession of the Cayman Islands. Membership is open to persons admitted as Cayman Islands attorneys-at-law. Currently with over 400 members, the Society’s main role is to represent the interests of the profession, its members and member firms, and to make representation on matters of concern to them. President: Alasdair Robertson, Partner, Maples and Calder caymanlawsociety.org Cayman Islands Society of Professional Accountants CISPA is a not-for-profit organisation that regulates and promotes the accounting profession in the Cayman Islands. Chief Executive Officer: Sheree Ebanks cispa.ky Caymanian Bar Association The CBA was established in the Cayman Islands in 1988 as a non-profit company with a mandate to serve the legal profession generally and, specifically, to protect, promote and enhance the interests of Caymanian attorneys within it, including promoting their training and advancement. President: Dale Crowley, Partner, Maples and Calder caymanbar.org.ky CFA Society Cayman Islands The CFA Society Cayman Islands is the local 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 that has become recognised as the leading investment designation in the world and facilitates the open exchange of information and opinions. President: Simon E. N. Cawdery, Director, Helix Advisory Services Ltd. cfasociety.org/caymanislands

Cayman | The Future of Finance

Cayman Islands Financial Services Industry Associations Hedge Fund Association The HFA is an international non-profit industry trade and non-partisan lobbying organisation devoted to advancing transparency, development and trust in alternative investments, and is made up of hedge funds, funds of hedge funds, family offices, high-networth individuals, financial advisors and service providers. Cayman Chapter Co-Directors: Christina Bodden, Maples and Calder, and Colin Nicholson, KPMG thehfa.org Insurance Managers Association of Cayman IMAC is a non-profit organisation run for and by Cayman’s captive-insurance industry, including insurance managers, Cayman captiveinsurance companies and service providers. The association is the unified representative of the captive industry, acting as a liaison with the Cayman Islands Government, the Cayman Islands Monetary Authority and the private sector to ensure its members’ interests are represented. Chairman: Robert Leadbetter, Vice President, USA Risk Group (Cayman) Ltd imac.ky

Society of Trust and Estate Practitioners Cayman Islands STEP is the leading worldwide professional body 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 Restructuring and Insolvency Specialists Association Established in 2012, RISA, the Cayman chapter of INSOL International has swiftly grown to over 200 members. Focused on delivering educational and networking events, RISA’s mandate is to investigate and share best practices amongst industry practitioners in the fields of insolvency, restructuring and litigation. Chairman: Michael Pearson, Fund Fiduciary Partners risa.ky

Cayman | The Future of Finance

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

Caledonian Global Financial Services caledonian.com 1 345 949 0050

Cayman Management Ltd. caymanmanagement.com 1 345 949 4018

Charles Adams Ritchie & Duckworth card.com.ky 1 345 949 4544

Codan Trust Company (Cayman) Limited conyersdill.com/pages/codan 1 345 949 1040

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Cayman | The Future of Finance

Cayman Finance Member FIRMS

Conyers Dill & Pearman (Cayman) Limited conyersdill.com Reversed out 1 345 945 3901

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

Dillon Eustace CMYK dilloneustace.ie 1 345 949 0022

DMS Offshore Investment Services RGB dmsoffshore.com 1 345 949 2777

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

IFINA (Cayman) Ltd. ifina.com +44 (0) 1926 815 815

Cayman | The Future of Finance

Cayman Finance Member FIRMS

IMS

International Management Services Ltd. ims.ky 1 345 949 9244

KPMG kpmg.com/ky 1 345 949 4800

Maples maplesandcalder.com 1 345 949 8066

Morval Bank & Trust Cayman Ltd. morval.ch/en/morval-bank-trust-cayman-ltd 1 345 949 9808

Ogier ogier.com 1 345 949 9876

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

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Cayman Finance Member FIRMS

Summit Management Limited sml.ky 1 345 945 7676 Travers Thorp Alberga traversthorpalberga.com 1 345 949 0699

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

Cayman | The Future of Finance

List of Advertisers & OTHER USEFUL RESOURCES

List of Advertisers

Appleby 37

ARC Directors 64

Butterfield 25

Caledonian 13

Cayman Finance

Cayman Islands Ministry of Financial Services 52

Cayman Management 32

Civil Aviation Authority of the Cayman Islands 87

CML

DART 57 Deloitte

EY 51

GreenlightRE 87

International Management Services 50

Insurance Managers Association of Cayman 65

Logic 84

Maples 19

Ogier 79

PwC 104

Rawlinson & Hunter 43 Re/Max 89 RiskPass 44

Walkers 29

Other Useful Resources Cayman Finance caymanfinance.ky Cayman Islands Chamber of Commerce caymanchamber.ky Cayman Islands Economic and Statistics Office (ESO) eso.ky Cayman Islands Ministry of Financial Services caymanfinance.gov.ky Cayman Islands Monetary Authority (CIMA) cimoney.com.ky Cayman Islands Stock Exchange (CSX) csx.com.ky Department of Commerce and Investment investcayman.gov.ky

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Financial Services: Cayman Islands, your location of choice

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Letâ&#x20AC;&#x2122;s talk... Frazer Lindsay Territory Senior Partner Tel + (345) 914 8606 Frazer.Lindsay@ky.pwc.com

David Walker Advisory Leader Tel + (345) 914 8710 David.Walker@ky.pwc.com

Graeme Sunley Territory Assurance Leader Tel + (345) 914 8642 Graeme.Sunley@ky.pwc.com

Richard Irvine Tax Leader Tel + (441) 299 7136 Richard.e.Irvine@bm.pwc.com