Archive for the ‘G20’ Category

“Rumors of our demise are greatly exaggerated”

Tuesday, April 6th, 2010

Whilst the taxpaying public and corporations in many G20 jurisdictions are battling the effects of the increased taxation, in fact international capital is starting to flow once again, hedge fund returns are up ticking. Now it is useful to take a hard statistical look at how Cayman’s financial services industry has fared through the crisis

One of the easiest figures to get a handle on is the number zero – the total number of banks and financial institutions that failed in the Cayman Islands during this latest financial crisis. Perhaps Gordon Brown and Alasdair Darling are simply badly briefed, but there is no statistical basis for the suggestion that instability exists within the Cayman Islands regulatory regime and their criticisms of it are ill founded.  No doubt, without the power to print money like their UK and US counterparts the Cayman regulatory authorities are simply not in a position to bail out private enterprise, and therefore require a more risk-adverse and prudent set of operating guidelines to be practiced by the Cayman banking sector.  If we allow the facts to get in the way of the negative PR for just a moment, we find the strength of the Cayman banking industry well evidenced by deposits and interbank bookings, now tracking at $1.795 trillion which is slightly behind the peak of $1.9 trillion recorded in September 2007, but still a healthy overall figure considering the global climate in which this sector has been operating and considering that there have been zero depositor losses.

Registered investment funds fell from 9,870 as at December 2008 to 9,523 at the end of 2009, but are still well ahead of the 8,751 funds in 2007.  A new growth trend is evidenced – January 2010 figures show 147 new fund authorisations and only 58 terminations. This compares quite favorably to the 106 authorisations and 39 terminations seen in January 2008 and is on target with the natural attrition trends experienced in the healthier market periods of years past.

These Cayman Islands fund statistics are surprisingly being used by some, who doubtless believe their own PR, to suggest major outflows of fund business are occurring from Cayman. In fact the drop is around 4% and after the worst financial crisis in a century this seems more like a sign of a strong fundamental belief in the jurisdiction. And where did the 4% go? There is no evidence they went anywhere other than into liquidation as a result of poor investment return and certainly not to Dublin where if we make a like-for-like comparison, we find that Irish domiciled funds fell from 5,025 to 4,627 over the same period, which is more than double the Cayman decrease. It must be also pointed out that the Irish, to boost their numbers, include sub-funds in their calculations, whereas in Cayman sub-funds are not included.  More interestingly, Irish fund listings fell from 1,605 to 1,270 during this same period, which is a loss of greater than 20 per cent and is consistent with the general malaise affecting the Irish economy.

In the insurance division, the story is brighter yet with the Cayman Islands Monetary Authority (CIMA) reporting the 2009 number of total insurance companies (including both domestic and international insurers) at 815, which is up 10 from year ending 2008 and 22 over the 2007 total of 793.  Captives specifically have experienced gains over this period, rising to 780 at the end of 2009 from 765 in 2007.  The assets held in the captive insurance industry have risen from $36.8 billion in 2008 to $44.7 at the end of 2009, an 18 percent increase.  By contrast, the largest jurisdiction for the captive insurance industry, Bermuda, reports 1,140 captives holding $84 billion in assets, which is down from their 2007 report of 1,149 captives holding $88.8 billion in assets.  Cayman, the second largest domicile for captives, continues to obviously gain ground against its major competitor.

Overall, these numbers are strong and prove the resilience of Cayman’s financial services industry and suggest that Cayman structures are essential to the global flow of capital – a key to economic recovery everywhere. The question that has not yet been asked, given the strength of the capital flows through Cayman, is the extent to which the protectionist elements of both the HIRE Act 2010 in the US and the European Funds Directive will have the unintended consequence of drying up the flow of funds from Cayman to the US and Europe at a time when the funding requirements of both are increasing, not decreasing.  The more logical consequence of the most recent iteration of the European Funds Directive is that rather than Cayman hedge funds wishing to move to the EU, fund managers who wish to continue to run a hedge fund proper must move out of the EU.

The recession has not completely leapfrogged the Cayman Islands as transactional volumes have decreased, as no doubt have assets under management (we await the latest CIMA figures).  The business community as a whole has had to downsize accordingly.  Streamlining into leaner operations is to be expected as part of a normal business cycle and so too Government must downsize the public sector expenditure   But, in what has hopefully been the most trying financial period our generation will have to face, the Cayman product has shown extraordinary fortitude, exhibiting both strong demand and staying power.

Anthony Travers

Cayman Finance.

Posted in Banking, Fiction vs. Fact, G20, Hedge Funds, other investment vehicles | 3 Comments »

Tightening the noose

Friday, October 23rd, 2009

Last month French bank BNP Paribas announced to the world that it will stop operating in countries that are on the ‘gray list’ published by the OECD.  This decision, the first of its kind by any major bank, puts Panama and the Bahamas directly at risk of losing business and increases pressure on all gray-listed countries to conform to the OECD mandate.

While this type of gamesmanship will not affect the Cayman Islands today, due to our OECD White List status, it does raise concerns for smaller nations such as ours that the playing field will continue to be modified by G20 nations until they achieve their ultimate goal: the “one size fits all “global tax rate .The G20 nations intend to use every opportunity to raise taxes from any source in order to deal with increasing national debts.

With all of the recent focus on Cayman’s debt, which stands at a realistic 25% of GDP, it may surprise some people to discover that UK debt, according to their own statistics office, at the end of March 2009 was equivalent to 55.5% of GDP and unofficially, if unfunded public sector pension liability is included, may amount to three times that figure. Similarly France’s public debt rose to 73.9% of GDP in the second quarter of 2009, and estimates for the US put their figure at close to 90% of GDP for 2009 and is expected to top 100% in the near future.  Little wonder then why these large economies are seeking to exercise their combined might to force smaller nations like Panama, the Bahamas, Barbados, and even the Cayman Islands to change their policies on taxation.

The belief shared by the G20 nations is that low tax regimes are ‘unfair’ and rob their governments of desperately needed tax revenue.  What this theory fails to consider is what drives the economic growth of these large economies.  The answer is not tax dollars, but investment dollars.  And without tax neutral jurisdictions, like Cayman, it would be more difficult, not less difficult, for onshore jurisdictions to attract international pools of investment capital that find their way into these economies.

So the question is:  Will the G20 nations recognize the negative impact to their economies by excluding their own financial markets from accessing offshore financial centres? By attempting to put the squeeze on offshore centres they may unwittingly be tightening the noose around the neck of their own economies.

Posted in Agreements and Treaties, Corporate, Fiction vs. Fact, G20, OECD, Tax Issues, USA | 2 Comments »

Keeping friends close…

Friday, October 23rd, 2009

CIFSA was pleased to hear that the Cayman Islands Government (CIG) was able to obtain a seat on the 14 nation Steering Group responsible for assisting in the restructuring of policy for the OECD Global Forum on Transparency and Exchange of Information. The Global Forum is the final decision making body for OECD on these matters.

The Steering Group will receive detailed methodology and terms of reference from a Peer Review Group that is currently setting up a ‘robust, transparent and accelerated process’ that will evaluate how countries implement tax information exchange agreements.

CIFSA has been encouraging the CIG to develop closer ties with overseas governments and international bodies such as the OECD, which were going to introduce new legislation and regulations affecting our industry.  And, as they have thus far done in other areas, the CIG responded in a timely and effective manner.  In some ways we are seeing a return of the public/private sector partnership that first made Cayman great.

It is vital for Cayman to have a seat at the table to ensure decisions are based on factual evidence and not political expedience.  The OECD’s willingness to invite OFC’s into this process offers new hope that the process will be open and fair to all parties.  This is yet another opportunity to communicate to foreign governments our jurisdiction’s record with respect to regulation and compliance, and to dispel myths about our financial services industry.

Needless to say CIFSA will continue to closely monitor the OECD process as well as legislative initiatives around the globe that could impact our jurisdiction.

Posted in G20, OECD | 1 Comment »

Rumours of Cayman’s demise greatly exaggerated

Sunday, October 4th, 2009

I had occasion to respond to an article published 14 September by the Guardian in the UK, titled Britain may be forced to bail out offshore tax havens.    In particular, the very first paragraph caught my attention.  It read: “Britain could be forced to bail out one or more of its offshore tax havens at huge cost, according to early drafts of a Treasury report, because the economic crisis has wrecked their finances.”  This was certainly news to me.

The article went on to speak directly about Cayman’s finances although it was clear the writer did no direct research into the facts surrounding the matter.  He certainly was not aware that the Cayman Government has several banks willing to lend them  £278 million pounds due to our recently confirmed triple A credit rating.  And in describing the size of that borrowing as ‘huge’ and possibly leading to ‘economic failure’ the writer somehow overlooked the fact that our short term funding issue is hardly on a par with the financial misadventures of the UK or US.  Indeed the borrowing Cayman is seeking is equivalent to less than half a day’s current overspend by HM government.

The full text of my response can be found here http://www.guardian.co.uk/business/2009/sep/16/tax-havens-cayman-guernsey

Not coincidentally CIFSA and the CIG received a request for an interview from a German reporter about the ‘potential bankruptcy of Cayman’.  What we are witnessing seems to be a third stage in an organized effort to damage the reputations of all Offshore Financial Centres.

The first stage was the attempt to lay blame for the financial crisis and stock market meltdown of 2008 at the feet of OFC’s.   That effort failed miserably under the weight of factual evidence to the contrary but it took many weeks and months to undue the damage done by the initial headlines and speeches.

The second stage was the lost taxation argument which saw the creation of the OECD White List and had politicians quoting ridiculous sums of revenue they could collect if given information on secret accounts in Cayman and elsewhere.  Once the Obama administration had to actually produce a budget they finally had to admit that there is no windfall tax revenue to go after and no secret bank accounts in the Cayman Islands.  Again, the initial story received much greater coverage.

So now we have entered this third stage in the propaganda war.  This latest effort seems intent on disparaging the financial viability of many OFC’s, Cayman included, despite the recent validation of our triple A credit and ignoring our ability to raise revenues from a variety of sources (which stands in stark contrast to the severely overtaxed populations in the US and UK and many other onshore jurisdictions).

As with the previous efforts this one will ultimately fail as well once more attention is drawn to the issues and more responsible news outlets and individuals delve into the facts.  CIFSA will continue to work diligently on behalf of the jurisdiction to ensure the truth is not overwhelmed by political rhetoric aimed at harming our key industries.

As always the truth is our strongest ally.  Our financial services industry will continue to offer services that are valuable and necessary for the efficient operation of the global economy.  Efficiencies that just so happen to help create jobs in the very countries that are most critical of us.

Posted in Fiction vs. Fact, G20, OECD | 2 Comments »