Adaptability, prudence & foresight

The Cayman Islands government continues to review and enhance its funds regime to maintain its competitiveness, says the Hon Tara Rivers, JP, MLA, Minister for Financial Services and Home Affairs.

The Cayman Islands’ financial services industry is built upon a well-rounded offering of products and services, operating within a robust regulatory framework. It is within this business environment that Cayman has become recognised as a world leader in international funds, ably supported by a respected cadre of professionals in industry and the public service.

Such available expertise has allowed many funds to be domiciled in the Cayman Islands. Statistics from our funds regulator, the Cayman Islands Monetary Authority (CIMA), show that over the last three years Cayman’s funds sector has observed steady growth.

Cayman was home to 10,992 mutual funds by December 31, 2018, improving upon the 2017 year-end total of 10,599 mutual funds; and upon the December 31, 2016 figure of 10,586 mutual funds.

Maintaining and further extending this leadership position requires adaptability, prudence and foresight—and as such, Cayman continues to review and enhance our funds regime, in light of commercial opportunities and regulatory developments, to maintain our competitiveness.

External assessment

This cycle of reviewing and enhancing our funds sector benefits from external assessments by global regulatory bodies, such as the Caribbean Financial Action Task Force (CFATF). The CFATF assessed Cayman in December 2017, and its report was published in March this year.

As a member of the CFATF, a regional body modelled after the Financial Action Task Force (FATF), Cayman seeks to uphold the 
FATF’s standards for anti-money laundering and counter-financing of terrorism regimes. As part of our policy to do our part in combating global financial crime, the government will address the recommendations in the CFATF’s report. Indeed, we have already begun to do so.

A number of amendments, for example to our legal framework for dealing with the proceeds of crime and to the regulatory oversight for lawyers, were made prior to the assessment.

Furthermore, Cayman is preparing additional enhancements in line with the report’s recommendations. For example, amendments to the Securities and Investment Business Law will grant CIMA greater regulatory powers and oversight over what are currently known as excluded persons.

Directing Cayman’s CFATF response is a government-established task force, comprising a cross-section of government agencies, to oversee the implementation of the comprehensive action plan. We are therefore confident that the CFATF recommendations will be met within the prescribed timeframe.

Compliance

Regarding global assessments, Cayman recognises that we—like all international financial centres—will be assessed for compliance with financial services regulatory standards. We consider our cooperation with assessments to be an important pillar of our responsibility as an international financial centre.

Our cooperation was central to Cayman’s absence from the EU’s March 2019 update of its list of non-cooperative jurisdictions for tax purposes. This was expected, as we lived up to our December 2017 commitments to implement legislation by the end of 2018 that introduced substance requirements for relevant Cayman entities; removed the restriction on certain types of Cayman companies conducting business locally; and introduced accounting and regulatory requirements for Cayman entities.

It should be noted that the EU did express concerns regarding economic substance requirements for funds, which they refer to as collective investment vehicles (CIVs). Cayman has had discussions with the EU to seek further clarity on their concerns vis-à-vis funds. In its March 2019 decision, the EU acknowledged that more work was needed to define the issue, and these discussions are continuing.

In June this year, Cayman will face an assessment of our economic substance regime by the OECD’s Forum on Harmful Tax Practices (FHTP). We are now preparing for our assessment. FHTP is an aspect of the OECD’s base erosion and profit shifting (BEPS) initiative that altered the scope of its work in November 2018, when the OECD extended the FHTP substantial activities requirement to “no or only nominal tax” jurisdictions, which includes the Cayman Islands.

New tech welcome

The global financial services industry is changing at a rapid pace with the introduction of new technologies and Cayman has welcomed this innovation. We have seen rapid growth in fintech companies establishing themselves on our shores due in part to our excellent infrastructure and local expertise. Many existing companies, including those operating in the funds sector, have also evolved their business models to include digital tools, assets and delivery channels.

Addressing regulatory concerns in this emerging marketplace remains a top priority for our jurisdiction. We continue to engage industry associations to ensure our digital assets regulatory framework remains attractive while meeting evolving global standards. Our objective is to ensure that new technologies such as cryptographic digital assets and decentralised ledgers are used to make financial services more efficient and attractive, while simultaneously upholding a high standard for compliance.

As we look beyond these regulations and assessments and into the future, we see the Cayman Islands standing strong as an international financial centre. As a result, we continue to see the financial services industry contributing to nearly half of government revenue.

According to the government’s 2017 national accounts report published in January 2019, the industry generated just more than $1.3 billion, or 33 percent of Cayman’s $3.9 billion in GDP at basic prices. It should be noted that this number excludes contributions from the accounting and legal industries, as they are grouped together with other services outside the financial services industry. Therefore, the real impact of financial services on our GDP is not 33 percent, but roughly 44 percent.

All the progress evidenced in Cayman would not be possible without continued dialogue with our key stakeholders—including you, as industry. You play a vital role in our collective success.

This dialogue is necessary in every area of financial services, and the funds space is no different. Readers can gain some insight into this dialogue by reading this edition’s roundtable article, which highlights the positive discussions with industry members on the topic of regulation.

Ultimately, the dialogue among stakeholders is essential to navigating the future success of the funds sector. It is central to government’s intention of providing a legislative and regulatory framework that fosters competitive products and services, and I’m pleased to say that we remain on course to retain our reputation as the jurisdiction of choice for funds for years to come.