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Cayman Islands financial sector contemplates major changes
by Gov. Information Unit
Posted: Aug 3, 2009 18:45 UTC
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GEORGE TOWN, Cayman Islands (GIU) - Advisory committees to attract fund managers and international businesses to the Cayman Islands will have to wait until October to begin their work, and may need to contemplate major changes to achieve success.
Private-sector financial managers suggest global competition for a “bricks-and-mortar” presence of international financial institutions could force Cayman into a fundamental reassessment of its own systems to create an attractive environment.
Chairman of the Cayman Islands Financial Services Association (CIFSA) Anthony Travers warned that increasing international financial regulation would push Cayman in unexpected directions.
“The already difficult question of the attraction of the Cayman Islands to fund managers, investment bankers, brokers and dealers who are the most likely to expand employment opportunities in the Cayman Islands has been rendered infinitely more complex by the prospect of legislative and regulatory initiatives of both the European Union and the United States,” Mr Travers said.
“It is the expressed view of CIFSA that the volumes of both structured finance and funds transaction from which the Cayman Islands have derived significant benefit over the past two decades will be substantially reduced in volume going forward, and this has clear and negative implications for government revenues and those of the private sector.”
Travers was commenting on a proposal made by Leader of Government Business and Minister for Financial Services, McKeeva Bush, at last week’s Chamber of Commerce “legislative luncheon”, in which he told the audience that he hoped to attract a greater physical presence of international
financial institutions.
“We are seeking legislative support to encourage fund managers to physically set up operations in Cayman,” Bush said. “To this end, I will shortly announce a working group to produce a comprehensive strategy for attracting these fund managers here. I also intend setting up a similar group to encourage international businesses to establish a physical presence locally.”
During hearings last summer, Washington policymakers described their mistrust of Cayman’s financial services industry, citing 18,000 company registrations, but only a skeleton physical presence.
US President Barack Obama has expressed similar sentiments, agreeing with international regulators that a more substantial “bricks-and-mortar” establishment would help dispel suspicions regarding Cayman’s offshore industry.
On Wednesday, Bush told Cayman Net News, however, that creating the twin committees would await conclusions of his recently named Immigration Review Team, an eight-member panel to scrutinise existing regulations and recommend changes.
“I can’t say yet” who might comprise the committees or what they might study, Mr Bush said, “because the Immigration Review Team will have a direct impact on that, so I’m waiting to hear from them. They have a wide range of what they need to look at, what they need to do.”
He told the Chamber of Commerce he would “aim to complete” reports on immigration, trade and business licencing and the Companies Registrar “by the end of October.”
“We believe that appropriate amendments will provide the country with a better policy framework, thereby stimulating the economy,” he said.
As financial services restructure in the wake of a global slowdown, Travers said, “the trend is clear – and it is not likely to be positive.
“It necessarily follows that both the public and private sectors in the Cayman Islands will need to derive greater revenue from fewer transactions. This clearly requires that a greater part of the engineering of each transaction must be undertaken in Cayman, but to do so Cayman must make a real efforts to attract a new type of financial professional, specifically one that will undertake ‘bricks-and-mortar’ investment and one who is capable of making real investment decisions and undertaking real financial engineering so that transactions are negotiated, concluded and implemented in Cayman.”
Government must either adjust or reduce revenue expectations, he said.
“Given obligations currently incurred, the Cayman Islands government may not, in fact, have the luxury of that decision. If the wrong decisions are made, the issue of unemployment will also have to be faced – as we are currently experiencing.
“No doubt the committees now formed will be considering this question in consultation with those in the major financial centres involved in these industries who are currently considering relocation,” he said.
“What is clear is that … what may have served Cayman well over the past two decades is unlikely to be relevant in the new financial era. The only real question to be asked here is what is it that is necessary to make Cayman attractive to this new type of financial industry investment,” Travers said.
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