July 4, 2020

KBC GROUP and the Cayman Islands


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673px-KBC_Logo_svgKBC responds to media reports regarding its presence in the Cayman Islands, the British Virgin Islands, Ireland and Luxembourg through subsidiaries and representative offices abroad

In response to recent reports, KBC would like to give a complete overview of its presence in the Cayman Islands, the British Virgin Islands, the Isle of Man, Ireland and Luxembourg.

3 Companies in the Cayman Islands

In the past, KBC set up companies in the Cayman Islands and the British Virgin Islands purely for reasons relating to company and financial law. These companies specialise in financial transactions with US investment funds and in credit and equity derivatives. The legislation in these countries provided greater contractual freedom and flexibility for making tailored contracts for such specific financial transactions. KBC currently still has three companies in these islands.

The companies in question are trading companies that deal only with professional financial counterparties and are not authorised to hold client assets in any form whatsoever (none of these offshore companies has a banking licence and therefore cannot take client deposits). Every one of these companies pays tax in the country in which the head office of the KBC company responsible for managing the product line is established, i.e. Belgium, the US or the UK.

Each of the activities involved relates to companies from the KBC Financial Products business lines that are currently being run down, i.e. no new contracts are being concluded and the only activity remaining is the management or reduction of existing contracts. The companies will be liquidated as soon as the contractual situation so allows.

10 CDO issuers in Jersey

KBC still owns 10 CDO issuers. These companies were established solely for the purpose of issuing CDO notes to which KBC clients and certain KBC companies subscribed. They do not generate any accounting or taxable result as all income is paid in full to the investors in these notes (as set out in the relevant contracts). Consequently, no result remains untaxed in these companies in Jersey. The investors are taxed in the countries in which they are resident for tax purposes.

The companies were established in Jersey for reasons relating solely to company law, since legislation in Jersey allows considerable contractual freedom in terms of defining the rights of a company’s creditors. This was essential to facilitate the specific redemption terms of the CDO notes from a legal point of view.

KBC does not have any shares in these CDO issuers. They are included in KBC’s scope of consolidation because, by repurchasing the notes and through its historical positions in them, KBC has a large claim against the companies. As a result, KBC has some element of control over them, which means that, pursuant to IFRS rules, they have to be included in KBC’s scope of consolidation.

These companies are being managed on a passive basis only, with no activities other than management of the risks and, where possible, the accelerated reduction of those risks. When the CDO notes reach their final maturity dates (the last of which in 2017), all the companies will be liquidated.

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