Financial services industry sees mixed results in 2015

The financial services sector in Cayman saw mixed results in 2015, according to data from the Cayman Islands Monetary Authority and government’s annual economic report for the last year.

The number of mutual funds, registered companies, stock listings and insurance licenses all declined last year, according to figures from CIMA. But there was some positive movement in 2015 on the number of new company registrations, new partnerships and master funds.

RBC’s group economist for the Caribbean, Marla Dukharan, speaking from Trinidad, said the declines in CIMA banking licensees predates the financial crisis. She said banking registrations have fallen by an average 5.6 percent per year since 2002.

“There is a steady downward trend. This is a secular decline,” she said. In part, she explained, this is a result of bank consolidation. But increased competition from other jurisdictions and more regulation from Europe and the United States are also changing the financial services industry in Cayman and globally.

Financial Services Minister Wayne Panton said Tuesday that Cayman’s financial sector has seen growing revenue in recent years.

“However, we ended 2015 with a very slight decrease in overall financial services revenue, from $239.9 [million] to $234.9 million. This is not unexpected, because global markets are reacting to economic and political developments worldwide such as pre-Brexit, Brazil, Cuba and China,” he said responding to questions by email.

CIMA data shows the number of licensees and others supervised by its Banking Supervision Division has dropped from 477 in 2002 to 209 as of the first quarter of this year.

The Economics and Statistics Office, in its annual economic report released last week, noted, “Amidst sustained challenges in global banking, the registration of banks and trust licenses maintained a downward trend falling by 7.1 percent to 184 in 2015.”

The ESO report states, “As in prior years, the financial services indicators posted mixed results. Although registration of new companies, new partnerships and master-funds maintained positive momentum, other indicators declined.”

New company registrations ticked up almost 8 percent to 11,864 last year, according to the Cayman islands General Registry. But the overall number of companies fell about half a percent to end the year at 98,838.

The number of trusts registered with CIMA has been on the rebound in recent years. Since 2001, the high mark for trusts was in 2006 with 161 registered. The number of trusts hit a low in fourth quarter of 2014 with 137 registered. Since then, the number is back up to 152 as of the end of June this year.

The financial services sector’s strongest growth has been in partnerships. New partnership registrations jumped by more than 16 percent between 2014 and 2015. Active partnerships also went up about 16 percent to more than 18,000 at the end of last year.

Ms. Dukharan said Cayman is not alone in its slowing financial services industry. She said jurisdictions like the Bahamas and the British Virgin Islands have seen similar issues in the sector.

Some of the slowdown, she said, is coming from moves by multinational corporations away from places seen as “tax havens” amid heightened scrutiny from regulators in the United States and Europe. “Companies don’t want to attract scrutiny,” she said, and incorporating in a place like Cayman can cause just that.

She said regulatory changes in the U.S. and European companies are “the single most important factor” in declines for offshore jurisdictions.

“Corporations are less and less able and willing to register offshore to avoid taxes,” Ms. Dukharan said.

But there is a bright side for Cayman, she added. “They’ve done a good job in diversifying away from the multinationals to trusts and partnerships,” she said.

“You have to be nimble and shift focus,” Ms. Dukharan said. CIMA and Cayman’s financial services companies “have shifted a little bit and that’s a positive move.”

Mr. Panton said, “In terms of our competitiveness, Cayman has kept an eye on the significant increase in global competition, and this is why we continue to work closely with industry to develop new financial services products such as LLCs and LLPs, and to improve our current offerings such as through amendments to our Companies Law.”

“We also closely monitor and evaluate global regulatory requirements, and in response we have enacted important regulatory legislation and amendments in order to remain current with global developments,” he added. “By both developing new products and adhering to globally practiced regulation, Cayman is positioned long-term to maintain and enhance our competitiveness.”