The future of Cayman’s relationship with the UK: More of the same please

EDITOR’S NOTE:  Former
British Prime Minister Tony Blair will visit the Cayman Islands as the guest
speaker at the opening gala dinner of the KPMG Legends Tennis Tournament on 16
November at the Ritz Carlton. Given that the UK Overseas Territories
Consultative Council recently launched a consultation on a new strategy for the
Overseas Territories, there will be a range of topics he will speak to
including globalisation, peace talks and also the future of the overseas
territories in modern Britain. The Caymanian Compass is taking this opportunity
to present a series of viewpoints on the future of Cayman’s relationship with
the UK. Today’s viewpoint is from Alasdair Robertson, partner at Maples and
Calder.

The Overseas Territory relationship with Britain is important to the Cayman Islands not only because of its historical ties and links that we have with the UK, but also for the future of the Cayman Islands. 

When attracting business to the Cayman Islands, the fact that we are a British Overseas Territory is often an unspoken but vital component of what makes us attractive. There are several elements to this which are important to our potential clients:  

First, and probably most importantly, is the political stability that our relationship with the UK brings. Although most clients do not fully understand or appreciate the complexity of the relationship, the mere fact we are a British Overseas Territory with a UK governor and a democracy based loosely along Westminster lines, provides practical stability.  

Secondly, the relationship with the Overseas Territories brings with it our legal system. Our closeness to the English legal system has proved very attractive given that English Law is one of the two leading internationally used legal systems. Two relatively unknown additional elements to this equation include the fact that our ultimate right of appeal is to the Privy Counsel in the UK, which adds to the credibility of our judicial system, as well as the ability to extend international conventions and or UK laws to the Cayman Islands, where appropriate. A good example of this, is the extension of the Hague Convention on enforceability of judgements, which is particularly important in cross-border disputes. 

The relatively low crime rate in the Cayman Islands is another positive which attracts new business, particularly where business is looking to set up a presence in the Cayman Islands. Businesses are comforted by the knowledge that the Royal Cayman Islands Police Service can rely upon UK police forces to assist with more specialised and problematic issues, if need be, as was the case with the recent gang warfare problem. Whilst I appreciate some of the recent history, (in particular Operation Tempura, which was not the smoothest part of our relationship with the UK), the fact that we have a quality of lifestyle that includes a lack of crime and the ability to lean on the UK assistance, does play a very important role in attracting businesses to the Islands. 

Although there has been some political sensitivity with the ability of the UK to approve borrowing by the Cayman Islands government, it does assist in keeping our financial management on a even keel. You only have to look at the current issues in Greece as an example, to understand why capital flows are attracted to jurisdictions which have prudent financial management. It is important to have an overview to balance out the need to develop infrastructure and services, whilst also understanding that excessive borrowing can only lead to erosion of our current tax structure, which in itself, is vitally important and underpins our ability to bring business to the Islands. As a jurisdiction, where there is no direct taxation, we are able to perform our critical tax-neutral role in cross-border transactions. Without this, the vast majority of financial services businesses would probably not exist.  

I hope that some of the points made above show the positive impact of having the UK as the “mother country” does help in providing the confidence to do business with Cayman. It is no mere coincidence all of the leading international financial centres (Channel Islands, Isle of Man, Bermuda and the British Virgin Islands) share one common feature with us, namely that each is an Overseas Territory or Crown Dependency. 

Relationships, however, should never be one-sided and I believe this relationship does bring benefits to the UK. The most obvious of which is that we provide a platform for international transfer of capital into the UK through, amongst others, funds and structured finance products. In addition, the structuring and management of these products generates substantial amounts of revenue for the City of London with respect to banks, law firms, accountancy firms and investment managers. A further element, is that as an Overseas Territory we give Britain the comfort that as a critical cog in the international financial markets our adherence to these international standards not only brings credibility to the Cayman Islands, but gives comfort to the UK in ensuring its partners in the Overseas Territories continue to adhere to those standards and this business is not transacted through other jurisdictions which may be less compliant with internationals standards. The very recent recognition of the Cayman Islands by the Financial Stability Board in the top tier of jurisdictions adhering to international standards should be a source of pride to both Cayman and the UK. 

This article is the personal view of Alasdair Robertson, partner at Maples and Calder. It does not express, or in any way relate to the views of Maples and Calder and is a viewpoint of someone who works in the Financial Services Industry.