G-20 may hold Cayman’s fate

The topic of regulation is making waves in the lead-up to the G-20 Summit in London which begins 2 April, and it’s not entirely clear whether the Cayman Islands will emerge relatively unscathed.

On 19 March the Financial Times reported that in a speech to the UK Parliament, German Chancellor Angela Merkel said Europe and the US should not become distracted in their efforts to regulate financial markets by ‘artificial discussions’ over the size of their respective fiscal stimulus programmes.

The FT reported other European leaders echoed Ms Merkel’s sentiments, while Germany and France spearhead an effort to make a priority of financial market regulatory reform, rather than new anti-recession spending measures, at the upcoming G-20 meeting taking place in London beginning 2 April.

‘What we need is for [the G20 summit] to send a strong psychological signal. We should not be competing for the most unrealistic fiscal stimulus,’ said Ms Merkel. Further adding new urgency to the role of regulation at the summit, a communiqué was issued by the G20 Finance Ministers and Central Bank Governors following their meeting on 14 March 2009.

Furthermore, a communiqué released on 14 March after the meeting of the G20 Finance Ministers and Central Bank Governors, in preparation for the Leaders’ London Summit, said they agreed on further action to restore global growth and support lending, and reforms to strengthen the global financial system.

The communiqué noted the parties would make recommendations to the London Summit to ensure that ‘all systemically important financial institutions, markets and instruments are subject to an appropriate degree of regulation and oversight, and that hedge funds or their managers are registered and disclose appropriate information to assess the risks they pose.’

The communiqué also stated that the group would advocate that ‘the relevant international bodies identify non-cooperative jurisdictions and to develop a tool box of effective counter measures.’

The Cayman Islands have been targeted by similar rhetoric in the lead-up to the summit, although it appears that recent efforts to enhance Cayman’s acceptance as a transparent and cooperative jurisdiction may yet prove useful.

Ted Bravakis, Director of Public Relations for the Portfolio of Finance and Economics, was emphatic that the Cayman Islands is cooperative, regulated and transparent.

‘In that regard, if you look at the international standard setters related to those areas, you would see that the Cayman Islands long ago adopted OECD standards for tax information exchange,’ he said.

With the announcement of seven new arrangements, the Cayman Islands has a total of 15 tax information arrangements.

‘We have never been on any OECD blacklist in that regard. And in fact, we have been active members of the OECD’s Global Forum on Taxation, even chairing a sub-group on level playing field issues. The most recent report from the Global Forum shows that the Cayman Islands platform for cooperation on tax matters is not at all inhibited by an confidentiality laws (unlike the case with Switzerland, Austria, Belgium and other European states),’ said Mr. Bravakis.

Mr. Bravakis noted that with regard to regulation, the IMF has found, in its OFC evaluation programme that regulation standards in OFCs are in many cases, higher than onshore.

‘We scored very well on that evaluation when it was published in 2005 and have consistently made efforts to ensure we are compliant with international standards in banking (Basel Committee on Banking Supervision), funds (International Organisation of Securities Commissions principles), insurance (International Association of Insurance Supervisors principles),’ he said.

‘We follow these to the letter and have been recognised as such by the IMF.’

Another subject which sometimes gets raised in the same breath when a discussion involving Cayman is taking place is its anti-money laundering and countering financing of terrorism (AML/CFT) regime.

‘Our most recent evaluation by the CFATF published in December 2007 scored us within the top 5 of ALL countries evaluated to date using the latest benchmarks (40 recommendations on AML and 9 special recommendations on CFT),’ said Mr. Bravakis.

‘The Cayman Islands has spent significant time and resources – and will continue to invest – in ensuring we uphold international standards in these areas. It’s part of the cost of being an international financial services centre. So to the extent that the G20 want to label us as anything by cooperative, regulated and transparent, we are hard pressed as to what they will use as evidence, other than their own assumptions,’ he said.

He observed that to the extent that the G20 can focus on stimulus or regulation is really their issue.

‘That said, if the focus is on the latter, our position is that any new standards should apply to everyone, not just a list of mostly small island countries,’ he said.

And it’s not just government that is taking action. Within the private sector, the Cayman Islands Financial Services Association has taken on an increased role in advocating for Cayman.

CIFSA’s task force is working in conjunction with the Cayman Islands Government and their contacts overseas in gathering information and assessing the possible scenarios that could result of this G20 meeting. Even as we get so close to the date of the summit, there’s still a lot of uncertainty and we are making sure that we understand all ramifications of it.,’ said Eduardo D’Angelo P. Silva, CIFSA Vice-Chairman.

‘The new TIEAs and the extension of comprehensive tax information assistance to countries like Germany, Austria, Belgium, Czech Republic, Luxembourg, Slovak Republic, and Switzerland are all very positive developments that attest Cayman’s dedication to our earlier commitments to transparency and assistance by way of exchange of information, but based on a level playing field approach that is not damaging to our own financial industry.’

Former Cayman Islands Monetary Authority chair Tim Ridley is hopeful Cayman’s actions to date have been beneficial.

“We should encourage, endorse and welcome all progress by the Cayman Islands Government to expand and enhance Cayman’s cross-border assistance, cooperation and exchange of information arrangements provided they continue to include the appropriate standards to protect legitimate privacy and other rights. It will be interesting to see whether the recent flurry of activity will assist Cayman’s case with the OECD and the G20 meeting.’

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