The Cayman Islands dropped 11 places to rank 54th out of 83 financial centers in the latest Global Financial Centres Index. Cayman scored 23 points lower than in the previous ranking.
The index is released twice a year and provides profiles, ratings and rankings for financial centers based on both instrumental factors and responses to an online survey.
The current index notes that offshore centers continue to struggle with reputation and regulation. Although offshore financial centers scored higher than a few years ago, all 14 offshore centers tracked in the ranking saw their ratings decline since the last Global Financial Centre Index 15, published six months ago.
In particular, the British Crown dependencies of Jersey, Guernsey and the Isle of Man dropped significantly in the ranks, the report said. The four British overseas territories also declined, but less severely than the dependencies.
The British Virgin Islands is the highest placed offshore center, ranked 47th, followed by Gibraltar (53rd) and the Cayman Islands (54th). Bermuda (58th) and the Crown dependencies placed further down the ranking.
“The reason for the declines is that finance professionals have given offshore centers significantly lower ratings rather than fundamental changes measured by the instrumental factors,” the report said. “Jersey’s average assessment in GFCI 16 is 633 (down from 666 in GFCI 15), the mean for the Isle of Man is 581 (down from 604) and the mean for Guernsey is 619 (down from 644).”
The global average assessment based on survey responses for the Cayman Islands, however, increased from 624 to 635 since the last index. Cayman received above-average assessments from respondents in Latin America, Asia, the Middle East and Africa, Eastern Europe and North America, whereas assessments from respondents in offshore centers and from Western Europe were more negative.
Cayman Finance CEO Gonzalo Jalles said this part of the ranking was good news for the jurisdiction. “The assessment based upon responses, which is equally applied to all jurisdictions represented in the survey, is, in my opinion, the most critical piece of data that the entire index has produced,” he said. “Under that assessment, the Cayman Islands ranks nine positions higher than the previous survey, and ahead of all the countries listed as offshore centers. This is significant because it reflects the fact that our customers believe Cayman is the offshore center of choice for their business.”
Mr. Jalles was, however, critical of the overall methodology of the report.
“While we welcome the fact that Cayman is ranked in the top three of offshore centers ahead of significant competitors, like Bermuda, Jersey and Guernsey, the dramatic changes in ranking that have been displayed in this current index and some particular results make us doubt of the usefulness of this index,” he stated. “The changes in the rankings of offshore centers are difficult to reconcile with recent industry developments.”
He said the index is a combination of a survey and a number of discretionary chosen indexes without full transparency on how each country calculation is performed. “This makes us doubt the validity of the overall results. Combining a survey of qualitative measure with quantitative indexes is particularly difficult, if not impossible, as highlighted by the recent study we commissioned – ‘An analysis of the efficacy of Tax Justice Network’s methodology in constructing a secrecy index,’ by Aaron D. Smallwood, PhD, Associate Professor of Economics, University of Texas-Arlington, released earlier this year.”
In addition, the results were made even more challenging because some of the recognized countries are not ranked in some of the indexes, he said. “Overall, we welcome the feedback from our customers as reflected in the survey, but we put very little confidence in the rest of the analysis, despite our positive result, as we do on any index that lacks transparency in regards to the methodology used for its construction.”
The author of the report, Mark Yeandle, responded to the criticism, saying, “We do have a great deal of faith in the methodology and are very open about the methodology on our website and in our reports – we also encourage anyone who is interested to contact us for further information.”
“Basically, we use a combination of objective factors – 105 of these factors in the latest edition from organizations such as the OECD, World Bank, EIU etc. – and the results of an online questionnaire completed by financial professionals around the world (3,633 respondents in the latest edition).”
In an article in the Cayman Financial Review earlier this year, he explained that the average assessment from survey responses is adjusted to reflect instrumental factors. If the overall rating in the index is higher than the score from survey responses, he wrote, the result reflected a reputational disadvantage. All offshore centers in the ranking suffer from this reputational weakness.
The top four global financial centers in the index are New York, London, Hong Kong and Singapore.