December 6, 2021

Cayman Islands: Top ten drivers of a successful IFC

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Gonzalo JallesBy Gonzalo Jalles From Cayman Finance

I’ve written recently about the many reasons why Cayman is a successful international financial centre (IFC) – specifically ten key ingredients, all of which, in my opinion, Cayman delivers on and which no other IFC in the region can claim.  To substantiate my opinion the Cayman Islands just topped all of its competitors in the region in the latest Global Financial Centres Index (GFCI) – Global Offshore Financial Centres category.

We are well known among our peers for offering superior service, and we have a strong diversity within our product, excelling in insurance, banking, professional services, and investment management – all working within a well-regulated jurisdiction.  It therefore comes as no surprise the Cayman Islands again ranks so highly in the GFCI.

Here are the ten elements I believe help Cayman keep its competitive edge:

1)  Legal & Judicial Framework

The use of English common law and statute and English-style courts is the preferred standard in the vast majority of international transactions. Many successful FSCs are current or former territories of the UK.

2)  Political Stability

Countries that demonstrate a long history of commitment to the democratic institutions and little social pressure to change the political landscape are better positioned in this regard and Cayman is without a doubt ahead of its key competitors in this area.

3)  Human Capital

While the desire of every politician is and should be to ensure citizens have access to the best jobs available, this must be balanced with the reality that the international clientele that is serviced will necessarily look for the best service providers in the market place – wherever they may be located.

Cayman has historically maintained a more flexible immigration policy than its peers, probably because population growth is less problematic for Cayman than for many other jurisdictions.

4)  Availability of Land

without land the social cost of growth is high, and without growth the countries find themselves faced with typical fiscal and economic problems. Cayman is uniquely positioned in this regard against other territories in the region.

5)  Critical Mass

Without the critical mass to support the regulatory framework needed for compliance, IFCs will find themselves unable to offer services or will have to impose taxes, fees, and duties that effectively price them out of market.  Cayman has achieved critical mass .

6)  Credit Quality

While IFCs usually act as a conduit of funds between the investors and the destination of the investments, the credit rating of the IFC itself can add a layer of risk, and as such, its fiscal status is critical. Cayman has maintained its credit rating at the same level as before the 2008 crisis – that’s something very few countries can claim.

7)  Government Revenue Collection System

Regularly IFCs are wrongly considered “tax free” or a “tax haven”.  I am not aware of any such place.  All Governments need revenue to pay for services.  Cayman has concentrated its taxes on consumption, which is one of the less-distortive taxes and the least damaging to economic growth.

8)  Accessibility

Location is the first obvious measure of accessibility, which can easily explain the correlation between IFCs in the Caribbean and Americas business.  The direct, short flights from major hubs in the US to Cayman are clearly a positive factor.  However, accessibility should also include language, the ability to communicate effectively with the end users, and culture.

9)  Focus

Financial services are a highly-competitive sector, and IFCs need to remain agile and responsive to customer needs in terms of products, legislation, and regulation.  Financial services contribute over half of Cayman’s GDP and government revenue, ensuring it receives the attention needed for its continued success.

10) Appropriate Regulation

It is crucial the jurisdiction’s regulator sees the industry it regulates as customers and to understand a vital part of its role is advancing the overall wealth of the IFC.  Historically the Cayman Islands Monetary Authority, has successfully navigated the changing landscape while maintaining this equilibrium.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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