Quarterly review

Economy
Oil price plunge leads to drop in imports, inflation

The Cayman Islands’ gross domestic product grew by 1.4 percent in the first quarter of 2015 and 2.1 percent last year, the highest growth for the country since 2007.
In the first quarter the economy was buoyed by strong growth in the hotel and restaurant, and real estate, rental and business services segments. The number of work permit holders increased 7.9 percent to 21,562.

The hotel and restaurant sector grew 5.8 percent, reflecting 1.1 percent increase in tourist numbers year on year. While cruise arrivals increased only slightly, air arrivals totaled 115,640 visitors in the first three months, the highest first quarter performance since 2003.

Financial services, the largest sector in the economy, saw only marginal growth of 0.4 percent, following an estimated decline of 0.2 percent in 2014.

Meanwhile, the consumer price index fell by almost half a percent in the first quarter and another 3.6 percent in the second quarter of 2015.

“Similar to the first quarter, the second quarter decline is traced primarily to the reduction in fuel prices this year compared to a year ago,” Finance Minister Marco Archer said.
Imports declined by almost 13 percent.

The 12.9 percent decline in imports for the quarter was also mainly based on falling petroleum prices, but imports of construction materials, vehicles and telecommunications equipment also dropped, according to the Economics and Statistics Office.

Regulatory

Cayman named on new EU blacklist
European Commission included the Cayman Islands on a list of the top 30 non-cooperative jurisdictions that are blacklisted by at least 10 European Union member states. Others on the list include Bermuda, the British Virgin Islands, Hong Kong, Guernsey, Liechtenstein and Monaco, as well as other offshore financial centers.

To determine noncooperation, the EU member states used a mishmash of individual methodologies ranging from compliance with transparency and exchange of information standards to the absence of harmful tax measures and other criteria.

The list, published on the website of the EU Tax and Customs Union, reflects how countries and territories around the world apply standards of tax governance, including “transparency, exchange of information and fair tax competition.”

The analysis was based on work done by the Platform for Tax Good Governance and information provided by EU member states.

The platform was formed by the European Commission to assist in developing initiatives to promote good governance in tax matters in third countries, to tackle aggressive tax planning and to identify and address double taxation.

It brings together tax authorities from EU member states and 15 representatives from businesses, tax professionals and civil society organizations.

Cayman was blacklisted by Belgium, Bulgaria, Croatia, Estonia, Greece, Italy, Latvia, Lithuania, Poland, Portugal and Spain.

The Cayman Islands government said Europe’s major economies, which have been rated similar to the Cayman Islands on upholding international standards on transparency, do not list Cayman.

“The national blacklists that have resulted in this overall blacklisting are primarily generated by European countries that are not major economic trading partners of the Cayman Islands. These countries therefore may not be aware of Cayman’s adherence to standards, both in terms of our bilateral and multilateral agreements for exchange of information,” said Cayman’s Minister of Financial Services Wayne Panton.

“It is unfortunate that the EU blacklist unfairly downplays the significant strides made by Cayman, as well as the significant global accomplishments in the area of transparency,” he said.

Banks cutting ties to remittance service providers

Remittance service providers in Cayman are no longer accepting Cayman Islands currency. The step came after the last banks that effected cross-border payments for the service companies cut ties with the remitters.

Cayman National Bank was the only bank in Cayman to offer services to the remittance companies since Fidelity Bank closed its Western Union franchises in July.

Despite talks facilitated by the Financial Services Ministry and the Monetary Authority, Cayman National maintained its decision to exit the increasingly risky business of helping transfer cash around the world.

Last year, people in Cayman sent more than $180 million overseas, according to CIMA data, with $110 million of that going to Jamaica. Workers here sent about $23 million to the Philippines in 2014 and more than $12 million each to Honduras and the U.S. over the year, according to CIMA.

Fidelity Group, which owns the local Fidelity Bank, closed its popular Western Union counters, along with its Western Union operations in the Bahamas and Turks and Caicos. Fidelity Group’s board voted in July to close the remittance services and the next day shuttered the eight counters in Cayman, which were mainly in grocery stores.

Brett Hill, CEO of Fidelity Bank in Cayman explained that increasing regulation on cash transfer services was becoming more expensive to deal with while fees the bank collected were getting lower. “Banks are trying to de-risk,” he said. “It’s getting harder and harder to bank this business.”

Remitters are now believed to be flying U.S. dollars in cash out of Cayman to effect the remittance payments from elsewhere.

This led to a short-term shortage of U.S. dollar notes available in Cayman.

CIMA petitioned to wind up Brighton SPC

The Cayman Islands Monetary Authority has petitioned the Grand Court to wind up Brighton SPC nearly six months after media reports called the fund’s sponsor and promoter Belvedere Management Group a “criminal financial enterprise” and Brighton a “$130 million Ponzi scheme.”

CIMA said in its court filing that it was alerted to Brighton SPC’s affairs on March 17 when the directors of the company resigned and an article by Offshore Alert alleged Belvedere was “one of the biggest criminal financial enterprises in history” that was being assisted “by professional service providers who were willfully complicit or grossly negligent.”

According to the article, the group operated in several jurisdictions including Mauritius, Guernsey, the BVI, Cayman, Gibraltar, Switzerland, the Seychelles, South Africa, Panama and England.

Between June and December 2014, Brighton SPC initially set up 36 segregated portfolios in Cayman, of which 29 remained unfunded. A large number of the portfolios were pre-fixed CWM and “apparently intended as vehicles for investments related to CWM FX, a London-based foreign exchange broker,” CIMA said.

On March 3, the Metropolitan Police raided the 21st-floor Heron Tower offices of Belvedere Group’s foreign exchange division CWM in London and arrested 13 people, including the CWM owner and former Belvedere financial manager in connection with a money laundering and fraud investigation.

CIMA said the official liquidation would enable the liquidators to use statutory powers to enforce more cooperation from service providers to Brighton, coordinate communications with investors and form a committee and bring actions to recover assets on behalf of Brighton that are likely to be conducted in overseas jurisdictions.

Caledonian depositors will receive about 90 cents on the dollar

Creditors of Caledonian will recover most of their money, according to the Cayman bank’s liquidators.

The second report of the official liquidators to creditors of the bank, released Sept. 4, estimates that depositors will receive between 89.5 cents and 94 cents on the dollar, provided the U.S. Securities and Exchange Commission’s claim against the bank is resolved and no new unaccounted claims are made.

Caledonian Bank was put into liquidation in February after the SEC charged Caledonian Bank and its brokerage arm Caledonian Securities with securities law violations, and a U.S. court froze all of the bank’s U.S. assets, rendering it insolvent.

Liquidators announced on Aug. 21 that an agreement with the SEC to settle the lawsuit had been reached, but the settlement in principle still must be approved by courts in Cayman and the U.S., as well as by the SEC.

The latest estimates of how much of the depositor funds will be recovered are based on three different scenarios for the realization of illiquid assets.

Attempts to sell the largest illiquid asset, the bank’s book of 64 loans totaling US$179 million, did not result in “an offer acceptable to the liquidators,” the report said.

The report estimates that 79 percent to 86 percent of the bank’s loan book can be recovered over a two-year “work out” period. The loss on the loan book would accordingly range from US$23 million to US$34 million.

Financial services
Elian agrees terms to buy SFM Europe

Elian agreed terms to buy SFM Europe, a provider of corporate services with more than 1 trillion euros (US$1.12 trillion) of assets under administration.

SFM Europe provides corporate services for the management of securitizations, structured finance and asset finance to global banks, investment managers and blue chip companies, whereas Elian specializes in the establishment and ongoing administration of companies, funds and trusts for multinational corporations, financial institutions, fund managers and high net worth individuals.

Elian was established in September 2014 following a management buyout of the business from Ogier, the offshore legal and administration group.
Paul Willing, CEO of Elian, said SFM Europe is an outstanding strategic fit for Elian.

“SFM Europe has a long established reputation for providing the highest level of client service, coupled with industry expertise and an excellent client base. 

“This deal will complement Elian’s corporate services business and extend the group’s geographic reach in the key European financial markets of Amsterdam, Frankfurt, Lisbon, Madrid, and Milan,” he said.

SFM Europe was established in 1999 and has offices in jurisdictions in Europe.

SFM Europe will operate as a separate division of Elian once the deal is completed. The transaction is subject to approval by the regulators.

The acquisition will bring Elian’s total number of staff to 640 by adding 115 employees and will significantly expand the company’s European footprint and enhance its corporate services and structured finance offering.

Cayman named top offshore domicile for captives

The Cayman Islands received the top prize in the 2015 “Offshore Captive Domicile” category at the U.S. Captive Services Awards.

Cayman won the award by demonstrating its ongoing commitment to the captive sector and by passing new Portfolio Insurance Company (PIC) legislation at the start of 2015, organizers said. The panel of judges further highlighted Cayman’s innovation and the jurisdiction’s leading expertise in healthcare captives. 

Kieran O’Mahony, chairman of the Insurance Managers Association of the Cayman Islands, said: “We are delighted that Cayman has again received this prestigious honor. This award acknowledges Cayman’s significant and sustained efforts in ensuring it offers progressive, leading edge legislation and sophisticated solutions to captives and the alternative risk transfer universe. 

“These solutions, developed in consultation and collaboration with clients, industry stakeholders, government representatives and the regulator, coupled with the availability of world class industry professionals on-island, are the pillars of Cayman’s success. It is gratifying that these Cayman advantages are recognized on a global stage and by our industry peers,” he added.

 

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Michael Klein
Michael Klein Editor Pinnacle Media Group Ltd. PO Box 1365, Grand Cayman, KY1-1108, Cayman Islands T: 345-326-1720C: 345-815-0064 E: mklein@pinnaclemedialtd.comMichael is a financial journalist and copywriter.  In the past he has been responsible for the Risk Management and Corporate Finance sections of a British monthly Corporate Treasury publication.  He has written various financial handbooks, notably on European Banking and Cash Management and the Debt Capital Markets.   In addition he has worked as a copywriter for banks and investment funds and served as corporate communications consultant to US and European blue chip companies.   Michael holds an MA in Political Science and International Law from the University of Bonn in Germany. 

Pinnacle Media Ltd

Cayman Financial Review is the only magazine which promotes the Cayman Islands financial services industry at a local and international level. Produced by Cayman’s leading printing and publishing company Pinnacle Media Ltd, the Cayman Financial Review is published quarterly and is distributed in print and online to organisations and associations worldwide as well as at key financial conferences.

Over 30,000 online and targeted printed copies are distributed to clients, their nominated local and international contacts, relevant conference participation lists and a current researched international contact list continuously updated and prepared by Pinnacle Media Ltd. In addition the product has a fully integrated website, a link of which will be sent to ‘Top 500’ legal, accountant, government, insurance, financial service and hedge fund contact list in United States, United Kingdom, Europe, South East Asia, Dubai and the South Americas.
 

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