Is Business Leaving Cayman?

Over the past years there has been some debate about whether companies are leaving the Islands, whether immigration rules are hampering business and about business costs being too high in Cayman.

However, hard statistics on companies leaving to set up shop somewhere else are hard to come by. Even if relevant company statistics existed they would not be able to record business that is partially moved out of Cayman. Moreover, it would be difficult to pinpoint the exact motivation and incentive for such a move.

Relocating business

There is, however, some evidence of companies in the financial services sector having left the Cayman Islands and relocated citing cost reasons and the immigration system.

In fund administration Fortis Prime Fund Solutions is the best known example for a firm that has openly blamed the inflexibility of the immigration system and the inability to obtain work permits for longer time periods for its move to Curacao. Other fund administrators have relocated business to Canada in the expectation of cutting costs.

The issues faced by Cayman fund administrators are not only the cost of work permits but also the fact that Immigration historically required fund accountants to hold a professional qualification.

This means that generally the cost of fund accountancy is higher in Cayman than in other locations where non-qualified accountants can be used. There are also not enough qualified accountants in Cayman and those that are here are somewhat overqualified and expensive.

The upside for Cayman is that qualified accountants show greater professionalism, have a (different) work ethic and more experience. Clients also prefer to deal with qualified accountants.

Nova Scotia was initially an unlikely competitor in the attraction of the fund administration business, but lower living costs, and thus lower salaries, greater access to high quality graduates and aggressive marketing on the part of the province and its development agency Nova Scotia Business Inc as well as subsidies have tempted some companies to shift business activity to Canada.

According to industry insiders these moves have not always turned out to be as beneficial as anticipated. The increased access to non-qualified accountants was matched by a growing demand and consequently their cost increased.

Not using qualified accountants has also in some cases translated into operational issues, requiring additional training, controls and supervision which added another middle management layer and hence more cost.

This does not mean however that business is ready to move back to Cayman. Unless incentivised by the Cayman government, payroll subsidies, paid in Nova Scotia for instance, will prove an attractive draw.


Steve McIntosh, CEO of offshore recruitment firm CML, says that these incentives abroad and higher costs in Cayman may have even had a stronger impact than the rollover.

“The rollover has not helped, but is not the biggest issue facing the financial sector. I would guess that more irreplaceable jobs have been lost in the last five years than irreplaceable people, particularly in the ailing fund administration sector, which has been in slow decline for years even as it boomed in Toronto, Halifax and Dublin.

Provincial governments heaped subsidies and concessions on financial firms while ours heaped nothing but costs and regulations, not least who they may and may not hire,“ McIntosh says.

In addition industry representatives say off the record, the industry is going to continue to contract and that Ireland and Canada currently have the momentum.

Costs are a significant issue for companies that are carrying out business in the Cayman Islands. A plethora of duty, registration, licensing and work permit fee increases have made running a business in the Cayman Islands more expensive.

This may have been a contributing factor to companies relocating some or all of their business. International companies are generally very flexible and able to react to cost increases in any one jurisdiction by redistributing their business across different offices worldwide.

Cost increases are even more of a concern for companies searching for a new domicile. In 2008 and 2009 Cayman counted just over 6,027 and 6,071 active companies respectively. By the end of 2010 this number had shrunk to 5,829. Overall registrations of new companies has been in decline since 2005 and only in the first half of this year the average registration levels of the time before the financial crisis were reached again.


The cost differences between Cayman and other locations coupled with cheap but advanced communication technologies have also prompted many businesses to change their business model by adopting outsourcing as a viable part of client service.

Butterfield Fulcrum for instance has made extensive use of outsourcing with India and in the process substantially reduced its workforce in Cayman over the years. Outsourcing is of course not limited to one particular industry. It effectively opens up most types of business at least in part to be relocated out of Cayman.

This affects particularly back-office positions, leaving Cayman with higher level technical or senior functions. The negative effect of this, apart from lost business, jobs and government revenue, is that entry paths for Caymanians into the profession are slowly eroded.

“I think what is happening is technically known as “offshoring” of jobs which means moving individual jobs or entire departments overseas, mainly to take advantage of lower labour costs,” says McIntosh.

“It’s notable that when you mention ‘offshoring’ most people think of moving back office functions to lower-cost developing nations such as India or the Philippines, and to be sure some local companies have gone down this road.  More often, for Cayman Islands companies, offshoring has meant moving jobs ‘onshore’ to ‘lower-cost jurisdictions’ such as Canada and the UK!” he says.

“It is a damning indictment of Cayman immigration policy that companies prefer to employ people in a country with significant corporate and individual taxes as well as not-incomparable costs of living and doing business.  Companies will not tolerate government interference in their hiring practices indefinitely.”  

Immigration and rollover

Uncertainty surrounding key employee applications and rollover has indeed been a contributing factor to firms moving, as it effectively makes running a business more difficult from a business continuity and strategic planning point of view. Another weakness of the work permit system is that it is not progressively linked to salary but to rather arbitrary job titles.

Arbitrary guidelines on work experience and qualifications, intended to help Caymanians receive training and enter the financial services sector, also sometimes have the opposite effect.

The requirement for expatriate auditors to be professionally qualified and for lawyers to have at least three years professional experience, after two years of articleship, not only make service provision generally more expensive but also make it harder for Caymanian graduates without work experience to break into a job market, filled with more experienced expatriate workers.  

When Premier McKeeva Bush announced a suspension of the rollover policy to allow a committee to study the policy’s impact and make recommendations for future laws, the reaction in Cayman’s business community was positive and the reaction in other jurisdictions was illuminating in that it condensed the issue to a question of competitiveness.

Bermuda, the country that was the inspiration for Cayman’s rollover policy, was quick to praise the virtues of its current system compared to Cayman. Bermuda’s work permit mechanism was quicker and more flexible than Cayman’s, said Premier Paula Cox.

She also claimed that work permit fees were lower in Bermuda than in Cayman. However, unlike Cayman, Bermuda does impose a payroll tax so that a comparison like for like is not straight forward. Bermuda’s long term immigration system does also not offer a clearly defined path for security of tenure.

Bermuda’s Shadow Finance Minister Bob Richards noted that “Cayman, our competitor, instead of just thinking about it, has taken action to help its people and put Cayman first. Here at home, the government is putting pride before country unwilling to change one of its signature policies despite evidence that it is neither working for the benefit of Bermudians nor enhancing the Island’s attractiveness as a business centre.”

The review of the rollover system is certainly welcome and may ultimately result in a more business friendly environment than Bermuda. But according to McIntosh other offshore jurisdictions are no longer Cayman’s chief competitors for talent.

“Truth be told, there is very little competition for talent from other offshore financial centres. The main competition is with onshore jurisdictions such as Ireland, Canada, London and Hong Kong.”