Quarterly Review

The Cayman Islands government withdrew the Legal Practitioners Bill after repeated attempts to negotiate a compromise failed.

Cayman’s bond rating ‘stable’

The Cayman Islands government’s debt rating has stayed the same and maintains a “stable” outlook going forward, according to Moody’s Investors Service.

Moody’s reaffirmed Cayman’s Aa3 debt rating on Feb. 17, putting it three places below the highest possible rating of AAA for sovereign debt.

The Moody’s evaluation gave Cayman high marks for gross domestic product, financial strength and institutional (political/government) strength.

“Our rating proves that government’s general fiscal fundamentals are strong,” Finance Minister Marco Archer said.

“The high rating and stable outlook for the Cayman Islands is attributed primarily to a very high gross domestic product per capita, high levels of economic development and the government’s commitment to reducing debt,” he added.

Moody’s said the rating decision was driven by Cayman’s comparatively low and falling debt burden, a high per capita income and a strong institutional framework including a broad consensus on macroeconomic policies and fiscal oversight by the U.K.

Moody’s reported that Cayman’s estimated GDP per capita of US$57,936 for 2017 is among the highest in Moody’s rating universe.

Strong revenues and budget surpluses, since 2013, have reduced Cayman’s debt burden. The debt-to-GDP ratio is expected to fall to 17 percent in 2017 and further still in 2019 when the government plans to pay most of a single large bullet bond payment from its cash reserves.

A further improvement of Cayman’s bond credit rating would require greater and more diversified economic growth and sustained lower debt, the rating agency said.

In March, the Economics and Statistics Office announced that the Cayman Islands’ economy grew by an estimated 2.8 percent in the first nine months of 2016, higher than the 2.6 percent recorded for the corresponding period of 2015.

Government’s fiscal surplus widened to $112.5 million as total revenue growth outpaced government expenditures. The central government’s outstanding debt also continued its downward trend and settled at CI$198.7 million as at September 2016, 3.8 percent lower than at the end of the third quarter 2015.

Beneficial ownership registry on track for June launch

Following the passage of three legislative amendment bills last in the first quarter of this year, Cayman will establish a centralized beneficial ownership platform by the June 2017 deadline agreed to with the U.K.

The amendments to the Companies Law, the Companies Management Law and the Limited Liabilities Companies Law define beneficial ownership and enable the creation of a corporate registry that is accessible by U.K. law enforcement and tax authorities.

Cayman has collected beneficial ownership information for anti-money laundering purposes for the last 15 years. The Financial Action Task Force, the international anti-money laundering body, sets out in its recommendations that countries should collect beneficial ownership data and have the ability to share that information through centralized registries or similarly effective systems.

Although the U.K. has been advocating publicly accessible centralized registries, Cayman agreed with the U.K. government in April 2016 to the creation of a similarly effective system.
The deal requires the Cayman Islands to establish a centralized platform that retains the current system whereby financial service providers collect and maintain beneficial ownership information.

The centralized platform will simply provide faster delivery of the data by connecting decentralized databases at each of the about 180 service providers with one centralized access point.

However, the process of requesting corporate ownership data does not change for U.K. authorities. The U.K.’s National Crime Agency and Serious Fraud Office will typically request beneficial ownership information as part of criminal investigations from Cayman’s Financial Intelligence Unit.

Under the new system, the information can then be retrieved electronically without having to inform the financial services provider.

In the past, U.K. authorities sent about eight requests for beneficial ownership information per year, in addition to an average of four cases per year in which the Cayman government proactively provided unsolicited information.

Wayne Panton, minister for Financial Services, denied that the new platform is only one step away from a public register, which would reveal all beneficial owners of Cayman-registered companies to the public.

“The approach that we are taking is to protect the privacy of our clients,” he said. Only if those clients are under legitimate investigation would the beneficial ownership information be provided to the authorities, Panton added.

Government has offered to provide beneficial ownership data on request through the centralized platform to countries other than the U.K., but none has shown any interest so far, the minister confirmed.

He said the costs for the project are likely to be twice as high as originally thought, “but not that significant.”

Private sector companies typically have sophisticated systems for corporate record keeping, the minister said, and off-the-shelf type solutions would be available for smaller firms.

Government drops Legal Practitioners Bill again

The Cayman Islands government has, once again, dropped plans to rewrite the law governing legal practitioners in the territory after repeated attempts to negotiate a compromise failed.

The withdrawal of the Legal Practitioners Bill marks at least the sixth time lawmakers have tried in the past 15 years to update the 1969 law that regulates the operations of law firms and the rules of conduct for lawyers in Cayman.

The bill’s passage is considered a crucial step toward protecting Cayman’s financial services industry from external competitors with no connection to the islands who profit from the use of local financial services regimes without being licensed to practice law locally.

It is also viewed as required legislation ahead of a territorial evaluation of money laundering and terrorism financing safeguards in September.

The crux of the dispute over the bill centers on law firms that wish to expand their presence in overseas financial services markets to remain competitive in what has become a global industry, and Caymanian-born attorneys who fear they will be left behind in that expansion and believe that globalization will lead to outsourcing.

There is no significant evidence of Cayman-established law firms moving large numbers of staff overseas to the detriment of their local operations, Financial Services Minister Wayne Panton said during a Legislative Assembly debate on the bill.

However, the minister said the government did have evidence of foreign operations starting up that were “practicing Cayman Islands law” and using Cayman-registered financing vehicles without maintaining any local presence, an activity the bill sought to prevent.

Panton said it was simply a function of the modern financial services industry in a globalized world that required local law firms to maintain and grow their presence in overseas “centers of commerce” like Hong Kong, Singapore and London.

During the debate, opposition Legislative Assembly members quoted from a number of documents written by Caymanian attorneys, dating back to a January 2013 presentation to the Grand Court opening by Law Reform Commission Chairman Ian Paget-Brown.

“The evidence shows that Caymanians are deliberately being marginalized in the workplace, denied fair opportunities to advance, have been instructed on occasions about how to vote at Caymanian Bar Association elections, told that to be a ‘team player’ they must allow the status quo to continue uninterrupted, and used as pawns to secure status grants and permanent residence and once the Caymanian has outlived his or her usefulness in securing those grants they are unfairly or constructively dismissed,” Paget-Brown’s 2013 statement read.

It made further allegations that some firms had “misled” the Trade and Business Licensing Board and potentially misled immigration authorities about the experience of their job applicants and in the filing of job advertisements. Legislative Assembly member Winston Connolly noted during his debate on the Legal Practitioners Bill that no one had publicly disputed those claims, and that “nothing happened” after the claims were made.

The law society responded to these by reiterating “that it strongly objects to allegations that actions by local law firms in hiring attorneys overseas could amount to a breach of Cayman Islands laws and notes that Attorney General Samuel Bulgin has previously refuted such claims in the Legislative Assembly.”

Opponents of the legislation, which included a number of local lawyers who wrote letters to the government and assembly members complaining of discrimination in hiring and promotion at local law firms, said the current version of the bill merely cemented the “status quo” that had prevented Caymanian attorneys from advancing in the profession.

However, some recent numbers from the financial services industry indicate the winds of change are blowing, the minister said. The large law firms have reported 65 percent staff retention of Caymanians after three years on the job, which Minister Panton said is better than in many other jurisdictions.

The Caymanian Bar Association has 130 student members and there are now 21 Caymanian articled clerks [trainee lawyers], with a further 114 who have completed that training, he said.

Of the roughly 700 lawyers now licensed in the jurisdiction, about 240 are Caymanian, the minister added.

“We don’t need mechanisms which give Caymanians anything,” Panton noted. “There are many young Caymanians out there and others in the profession … who got there on their own merit. We simply need a framework that provides that platform for them to do that … they don’t need to be handed anything.”

The government would not support any “mandates” that made “a certain number of people” law firm partners regardless of merit, the minister said.

Following the withdrawal of the bill, Premier Alden McLaughlin said the government elected in the May 24 general election would be left to deal with the bill, hopefully before the September review of the Cayman Islands’ protections against money laundering and terrorism financing by the Caribbean Financial Action Task Force.

If Cayman fails to pass the bill, it is “guaranteed to fail” a territorial assessment by the Caribbean Financial Action Task Force due later this year, Minister Panton said.

Premier: UK must ‘moderate’ Brexit impact on territories

The U.K. government must do its best to back financial services industries in its overseas territories, both before and after Brexit talks with the European Union, Premier Alden McLaughlin said in February.

The premier attended discussions in London with British leaders who are overseeing Britain’s exit from the EU, including MP Robin Walker and Overseas Territories Minister, Baroness Joyce Anelay.

Premier McLaughlin noted that EU countries had sought to place Cayman on various “black or grey lists,” even after it had attempted to cooperate on tax enforcement and anti-money laundering efforts. Because of this, McLaughlin said it was important for the U.K. to be a “moderating voice” both before and after the EU exit occurs.

Britain formally announced its intention to separate from the union in March.

The Joint Ministerial Council, made up of British representatives and leaders from its remaining overseas territories, will meet again in June to discuss Brexit progress. “This initial [council] on European negotiations was promising,” the premier said.

During the meeting, he was joined by representatives from nine other British Overseas Territories, to discuss a range of issues related to Brexit.

The main subjects included international trade agreements, including territories’ access to the EU single market, and free movement of overseas territories citizens within the EU countries.

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Michael Klein
Michael Klein Editor Compass Media Ltd. PO Box 1365, Grand Cayman, KY1-1108, Cayman Islands T: 345-326-1720C: 345-815-0064 E: [email protected] Michael 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. 

Compass Media Ltd

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