Cayman Finance update: Looking forward to 2013

There are a few major developments for us to watch in 2013 that will all likely have some implications for the Cayman Islands financial services industry.

Some of these such as the impact of the ‘fiscal cliff’ situation in the US are out of our control, while others such as FATCA are partly in control of the Cayman Islands Government and by extension the industry stakeholders via the usual consultative process.

Fiscal cliff
While the fiscal cliff is reported to be largely avoided, there is general consensus that times will remain challenging for the US economy and many US citizens for the time being. On the one hand, tighter rules on US taxes will drive capital offshore. But on the other, tax policies for US investors, nonprofits and businesses will continue to tighten, thereby removing treasured tax breaks. The president’s budget may seek to end deferral on US companies’ foreign profits, making it less necessary to form and operate foreign subsidiaries and vehicles.

For investment managers, commodity funds could lose their status as regulated investment companies. All of these changes could impact Cayman and other offshore financial centres by making foreign transactions less profitable and reducing the demand for our services. The question is what changes if any will be implemented now that the president’s honeymoon period is over.

The US treasury released its ‘Model 2’ version of the Intergovernmental agreement for FATCA in November 2012. In summary, Model 1, which was released earlier in the year, relies on exchange of information between governments.

This was established partly to address concerns that some Foreign Financial Institutions may face from domestic laws in their own country which prevents them for reporting directly to the IRS in the US. Model 2 on the other hand attempts to address these concerns in an alternative way while allowing direct reporting to the US.

General elections and Cayman economy
The local economy has held up relatively well since the 2008 global crisis but there are clear challenges as evidenced by the unemployment situation and a general strain on government finances.

These challenges have not impeded the industry significantly and we are hopeful that the economy will start to recover later this year as the general elections usually provide an impetus for positive changes. There is no doubt that the incoming government will be faced with a challenging situation and Cayman Finance stands ready to assist with both support and in bringing new ideas to the table.

Cayman Finance has been busy providing support wherever we feel we can add value within the wider business community and particularly through our relationship with the Chamber. We sponsored the 2012 Chamber Future of Cayman Forum and continue to endorse and sit on the steering committee of this important initiative. Once again we are committed to being a major sponsor of the important Chamber Career Expo, engaging with our younger population and highlighting the differing employment opportunities that our industry provides.

We are expecting 2013 to be a somewhat challenging year particularly in the short term but hope that the latter half of the year will see the jurisdiction more settled as the general elections end and the local economy starts to recover.

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