EDITORIAL – Staying on top of the global financial industry

Consistent declines in Cayman’s banking sector are a reminder that we must never be complacent – especially in today’s accelerated economy. The figures, presented to the Legislative Assembly last week, should be a call to action. More specifically, to adaptation, evolution and innovation.

As the Cayman Islands Monetary Authority reported to the Legislative Assembly last week, over the past seven years, the number of retail and non-retail banks operating on our islands has steadily decreased – the continuation of a longer-term trend. Just since 2010, the number of banks in Cayman has been reduced by one-third.

The decline in banking in Cayman reflects a global pattern. As CIMA reported, there has been a worldwide drop in banking licenses since the 2008-09 global financial crisis. In other words, Cayman is not being “out-competed” by other jurisdictions. In the past year, the Bahamas, Jersey, Hong Kong and Switzerland all experienced similar decreases in banking licenses.

“Changes in the laws and regulations around the world have had some impact on banks in the Cayman Islands,” according to CIMA.

The “good news” is that this “bad news” is not news at all to the country’s financial services sector, where the shrinkage in the banking sector has been more than compensated for by our growth in the hedge fund industry.

The private sector continues to compete well in other lucrative lines of business, including trusts, captive insurance, structured finance, and shipping registration, although the massive reinsurance industry, largely dominated by Bermuda, remains elusive. With the left-leaning, ethnic-centric policies of Bermuda’s newly elected Progressive Labour Party government, this may be an opportune time for Cayman to put out the proverbial red carpet for companies contemplating a change of address.

With our hallmark hedge funds being a “maturing” industry (as opposed to a “growing” one), our private sector must put renewed emphasis, of course, on innovation but also on marketing and promotion of the jurisdiction. Historically, Cayman has demonstrated little acumen, appetite or expertise in addressing these essential pursuits.

Recently, one of Cayman’s boldest and most-forward thinkers, iconic Cayman attorney Anthony Travers, examined what he senses are significant opportunities for our country after the U.K. leaves the European Union.

In an article published in the IFC Review, Mr. Travers writes, “What should be clear is that in a post-Brexit environment, the City of London in particular, should be looking hard at highly successful, superbly regulated, offshore financial centres like the Cayman Islands as beacons of financial rectitude and probity from which, with the right legislative and regulatory framework introduced in the United Kingdom, greater investment should be encouraged. Post Brexit, the City of London should be looking to fill the gap in revenues that will be left by the inevitable relocation of certain financial services to Paris, Frankfurt or Dublin.”

Of course, a first order of business (as Mr. Travers alludes to) must be to dispel the almost indelible myth of “Shady Cayman,” a reputation promulgated by either ignorant or ideologically driven politicians, regulators and, of course, the media. This is not a small challenge, but it is one we must rise to.

And as Cayman’s legal and financial communities strive to stay ahead of the needs of a changing regulatory environment, government, too, has a central role to play.

In addition to being agile and innovative in crafting regulations and legislation, government must conduct its affairs in a manner that can withstand the scrutiny of international investors and, more broadly, the international community.

Every component of our public sector – from the executive, to the legislative to the judicial – must be seen to operate in a manner that is transparent and beyond reproach. That is the environment that businesses and individuals want to invest in – and residents want to live in.

1 COMMENT

  1. I am not sure Cayman deserves the description ‘shady’ but there does have to be a recognition that Cayman’s system does encourage people, particularly the rich, to feed their money via Cayman and other ‘offshore’ jurisdictions for the simple reason that it reduces their tax bill in their home countries.

    While there is nothing shady in that, Cayman does need to recognise that the home jurisdictions would like to ensure that the maximum tax is paid by their residents or those who profit from this countries where there is a clear moral obligation to do so.

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