in enhancing Cayman’s reputation on the international stage
Cayman Islands are finding that, with the right sort of preparation, a flexible approach, and a willingness to adapt, significant opportunities
remain for businesses to grow.
In the midst of persistent difficult economic conditions, the onslaught of regulation, such as the Foreign Account Tax Compliance Act, is also requiring banks outside of the US to grapple with new operational challenges – and added costs associated with meeting these challenges.
For many banks, the combination of tougher regulatory control, added operational stress and crushing cost-to-income ratios means that certain services and products are simply having to be withdrawn.
However, opportunities exist for banks that can successfully adjust their operating models.
Those banks that have remained alert, have a commitment to innovation and have already begun to adapt to the new environment are now in the best position to grow their market share.
With this in mind, it was clear that there was an opportunity for an organisation like Deutsche Bank to add a good deal of value in the marketplace by launching a complete custody service in Cayman – an area that it believes will not just prove successful for the bank and its clients, but also in helping Cayman establish itself as a centre of excellence for custody services on the international stage.
Within the Caribbean, the new service is a tactical expansion of the range of products for financial intermediaries in particular. Indeed, it was significant demand from these intermediaries that really drove the development of the enhanced custody offering.
Most financial intermediaries – fund administrators, trust companies, family offices, law firms, accounting firms, liquidators – demand a strong service provider with global capability, so a locally available custody service in Cayman backed by a global banking organisation is an attractive proposition for them.
Historically, Deutsche Bank’s Cayman office has referred a large proportion of its custody business for these intermediaries to other offshore locations in Europe which already had established platforms that we could leverage. The result was that a lot of business that could potentially have been done in Cayman actually ended having to go elsewhere and, whilst that was satisfactory for some clients, it posed some issues for others.
Many clients, for instance, like to keep their custody relationship in line with their banking and corporate relationship. If they are setting up a Cayman Islands holding company, a Cayman Islands trust company or a Cayman Islands captive insurance vehicle, for example, there is a preference to keep that all in Cayman, under the same governing law. There is also increasing interest from hedge fund managers for this offering.
The addition of custody and safekeeping to our Cayman product range, therefore, enables the bank to deliver a much more holistic offering, providing clients of our Cayman office with a complete suite of services.
For example, through the bank’s global network, financial intermediaries can access securities settlement services in more than 100 markets. In addition, the prerequisite in today’s markets for asset owners and managers is the capability to offer comprehensive reporting tools, which must work in concert with their custody and safekeeping services – our custody offering delivers this.
It also allows clients to take advantage of complementary products, including cash management services and the foreign exchange desk, which was launched in Cayman in 2009, bringing together all their banking and corporate activity. All along, the goal was to introduce a service that would have both an immediate impact for clients and, at the same time, ensure that a solution was created that would meet their future demands.
Another key operational challenge often faced by clients, is that of time zone. With custody business previously being booked through other centres in Europe, a lot of executing brokers, quite understandably, didn’t want to deal with a custodian who was five or six hours away.
This is important for the underlying clients – wealthy families, ultra high net worth individuals or institutions – of the financial intermediaries we look to support from Cayman. Latin America, for example, is a growth region for many of our financial intermediary clients.
Trust companies who are setting up Cayman and BVI structures for their Latin American clients are increasingly looking for a high quality offshore custodian too. We hear frequently from trustees that Brazilian families especially have a preference for dealing with custodians within the Rio de Janeiro or São Paulo time zone.
Up to now, this has meant a significant repatriation of assets to South American banks, but a Cayman custody service could suit them perfectly too.
At the same time, Brazilian ultra high net worth individuals are increasingly looking at forming Cayman Islands funds and, consequently, are looking for Cayman Islands administrators and custodians. There is clearly a great deal of potential in supporting this area of business growth in Cayman.
Whilst in the past finance firms have preached about asset diversification, today we are seeing a shift, with wealthy individuals, families and institutions talking more and more about jurisdictional diversification.
Having accumulated a significant volume of assets and seen that they’ve done well in terms of diversifying their portfolios, they are now asking whether it is safe to keep all their eggs in one jurisdictional basket. The recent US credit downgrading, for example, has sparked this sort of concern amongst treasury brokers, who are now looking for an extra layer of protection.
Cayman must be ready to make sure it is part of the jurisdictional decisions they make, and having a strong custody industry can be a key part of that.
Local access to global expertise
Understanding the needs of the local client base and what services they require is absolutely vital for any business and is certainly at the heart of launching a complete custody service in Cayman.
In a world where jurisdictional competition is getting greater and greater, it is important for Cayman that wide ranging, high quality services are available locally and having a strong custody element in its armoury can certainly play a part in positioning Cayman as a leading finance centre.
In addition, institutional clients absolutely demand that their financial service providers have multi-jurisdictional reach. So whilst clients desire a locally accessible service, they also want that service to retain a global dynamic into markets like Singapore, São Paulo and Mumbai, and be backed up by an international organisation.
When it comes to Tier 1 banks, there were previously a small number of options in Cayman for custodians that had the kind of global reputation and strong investment banking name for which high net worth individuals, families and multi-national companies were looking.
In that respect, Deutsche Bank’s global reputation for custody solutions – it currently looks after in excess of US$18 trillion of assets globally – can play a role in attracting high quality custody business to the jurisdiction.
By tapping into the global reach of banks like Deutsche Bank, clients in Cayman can also benefit from worldwide networks and complementary financial solutions such as banking, foreign exchange, hedging and credit.
We are seeing that foreign exchange in particular is an increasingly important factor for institutional clients, helping to manage the performance and risk levels of funds. It is reassuring for them that Deutsche Bank’s global FX business has retained its leading position in Euromoney’s 2011 FX Survey for the seventh year in a row.
We are confident that this new custody service in Cayman is an area that can really grow over the coming years and has the potential to help our clients grow simultaneously. The Cayman financial intermediaries we service employ many local people and their businesses contribute a significant amount to the overall local economy. By supporting them as best we can, by providing the services they are telling us they want, such as custody, local financial intermediaries can also prosper.
With an excellent reputation as a centre for funds, captive insurance and trust work, the Cayman Islands are well placed to build a strong, high quality custody business. Having been quick to spot an opportunity in the marketplace, Deutsche Bank is looking forward to supporting this growth in 2012 and beyond and, at the same time, helping Cayman enhance its reputation as a first class centre for international custody services.