Business drivers for change
Change can come from any direction and
is as frequently unpredictable and disruptive as it is planned and staged.
There are many business drivers for change, but they often fall into one of two
categories, which can be classified as ‘Business Defence’ or ‘Business
Change drivers can originate from within the business, perhaps as
a result of growth or restructuring initiatives, or from the external
environment, due to requirements coming from government or regulatory bodies.
See Figure 1.
The drive for compliance
The significant burden of remaining
compliant with the plethora of ever expanding applicable financial regulation
is a very pertinent example of a driver of business change brought about by the
external environment. Ongoing changes to regulations worldwide make it
essential for corporate secretary and company and trust management service
providers to dedicate sufficient expert resources to oversee corporate
governance, involving close data management and the de-risking of business
To illustrate with a specific example,
the Foreign Account Tax Compliance Act, enacted in 2010 as part of the Hiring
Incentives to Restore Employment Act, is an important development in US efforts
to combat tax evasion by US persons holding investments in offshore accounts.
Under FATCA, US taxpayers holding
financial assets outside the United States must report those assets to the IRS
on a new form attached to their tax return. Penalties apply for failure to
comply with this new reporting requirement. Reporting is required for assets
held in taxable years beginning on or after 1 January 2011.
In addition, and of particular interest
to practitioners and service providers in Cayman, FATCA will require foreign
financial institutions to report directly to the IRS certain information about
financial accounts held by US taxpayers, or by foreign entities in which US
taxpayers hold a substantial ownership interest. This new reporting regime
applies with respect to payments made by foreign financial institutions to
covered accounts on or after 1 January 2013. In addition, the FFI’s entering
into agreements with the IRS will also be required to apply a withholding tax.
Although the details of the new
reporting and withholding requirements pertaining to FFIs are yet to be
communicated, there is little doubt that they will introduce additional
complexity and overhead to an already stretched compliance and governance
There is no doubt that the routine tasks
associated with administering the affairs of a portfolio of clients have
increased noticeably for both the large and small service provider as the
corporate and trust administration function has accommodated requirements to
report and disclose in order to ensure that entities under management are
compliant with statutory and regulatory requirements. As FATCA demonstrates,
there is also no indication that these requirements will lessen in the
The drive for efficiency
Within the wider sector, performance figures
published by Gartner in 20101, demonstrate that the performance of wealth
management institutions slipped in 2009/2010. For instance, although Wealth
Manager’s assets under management did increase by an average of 14.3 per cent
in 2009, revenues actually declined by an average of 7.3 per cent. In addition,
the average cost-to-income ratio increased by an average of 2 per cent from
2008, meaning that as revenues fell and cost-to-income rose, the average
Against this backdrop, there is a
pressing requirement to ‘do more with less’ to alleviate pressure on the bottom
line. Fiduciary service providers are increasingly revisiting their business
model and have begun to investigate ways to improve the efficiency of corporate
and trust administration by exploring the automation of the highly manually
intensive front-office and back-office processes that introduce cost. The
implementation of standardised workflows, process management, straight-through
processing and the self-service client model have the potential to radically
improve efficiency and mitigate risk, whilst also improving oversight and
standardising client deliverables. See Figure 2.
If these ratios can be improved by the
application of technology, overall profitability will improve
But technology doesn’t work, right?
Despite the fact that technology is
often an integral part of business change, there is a widespread perception
that innovation is not delivered quickly enough and that technology solutions
do not meet the exact requirements of the business. There are examples where
transformation has not proved wholly successful such as in the retail banking
sector, where Internet or online banking has become prevalent, but where
widespread security concerns remain. There are also numerous examples of true
technology ‘horror stories’, not the least of which can be found in the UK:
A 2010 investigation found that the
total cost of the then government’s 10 most notorious IT failures was
equivalent to more than half of the budget for Britain’s schools. Parliament’s
spending watchdog described the projects as “fundamentally flawed”
and blamed ministers for “stupendous incompetence” in managing them.
The most costly programme was the mammoth £12.7bn IT scheme to revolutionise
the NHS. The investigation revealed that just 160 health organisations out of
about 9,000 were using electronic patient records delivered under the scheme.
However, where technology has been
specified, planned and implemented correctly with the right remit and with the
right partner there is every chance of success. Some of those success stories
are right here in the Cayman Islands.
One particular company’s executive
management expressed a desire to invest in improving the governance associated
with the corporate administration practice. Their aims were to gain
efficiencies and tangible savings by automating high volume/high demand
processes which were intensively manual; ongoing risk mitigation; improvements
in oversight and the standardisation of external client deliverables. Through
the process of thorough mapping and prioritisation, nine workflows were
identified as the most manually intensive and high volume transactions. By
implementing both the appropriate technology solution and changing corporate
procedures and related policies savings gained through the process of workflow
automation ranged from 35 per cent to 81 per cent across the set of
transactions. For one particular high volume transaction, the net effective
savings translated to 54.4 man days per year based on prior year performance.
Cayman and technology – a jurisdictional
There is evidence to support the
hypothesis that Cayman may have a jurisdictional advantage in leveraging
technology to address the drivers for change that we have identified in this
article. It is a fact, for example, that MCS Ltd was recognised by Microsoft as
the “Information Management Partner of the Year” for the Latin American region,
beating off stiff competition from 14,000 partners in geographies including
Mexico, Brazil and other much larger markets. This award recognises MCS’s deep
organisational core competency in the Microsoft SharePoint platform and is not
insignificant in a broader context given that the effective management of
information is a very important component in the delivery of incremental
efficiency – which, as we have discussed, contributes directly to improved
bottom line profitability.
As organisational efficiency comes under
the microscope, the application of technology to reduce operating costs comes
to the fore. A very large number of Cayman fiduciary service providers also
benefit from usage of the ViewPoint Entity Administration solution. ViewPoint
is the leading global software solution for the management and administration
of entities such as companies, trusts, partnerships, foundations and funds.
ViewPoint provides a complete practice management solution to cover the needs
of professionals directly or indirectly involved with private client and entity
It is the appropriate application of
relevant technologies which holds out the promise of the Next Generation
Fiduciary Service Provider Platform. This platform will both enable the
evolution of an organisation that can break out from the boundaries of a fixed
ratio of entities to administrators, thus improving cost-to-income ratios and
ensure that a flexible framework is delivered to facilitate full compliance
with regulatory requirements now and in the future.
On 24 February 2011, over 70 attendees
gave up their time to preview version 7 of the Viewpoint application at The
Ritz-Carlton, Grand Cayman. Version 7 promises closer integration between
modules and a seamless workflow process. This degree of interest bodes well for
Cayman and is indicative of a forward thinking mentally that will continue to
deliver success to all stakeholders with an interest in the jurisdiction.