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FTS Cayman Islands Presents COVID-19, AML & Risk Management Webinar

May 27, 2020
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The COVID-19 pandemic has disrupted lives in numerous ways including in the risk management environment. This disruption has not only occurred by interrupting the ability of risk management and compliance professionals to carry out their duties, but will also have implications for risk management and compliance systems.

To help address this disruption, FTS Cayman Islands is hosting a webinar on COVID-19, AML & Risk Management; covering new FATF COVID-19 AML Guidelines, Cybersecurity risks and updates from the Financial Reporting Authority.

Ms. Kim France, Sanctions Coordinator of the Cayman Financial Reporting Authority will speak on the FRA key updates during  COVID-19 while Mr. Paul Byles, Director of FTS will be presenting on the new FATF COVID-19 AML guidelines.

They will be joined by two Directors from Deloitte, Mr Wayne Green and Ms Alexandra Green who will be discussing specific Cybersecurity risks.

The main presentations will be followed by a panel discussion featuring all the speakers.

“This first webinar aims to help compliance professionals to refocus in the current environment which can be very distracting for effective risk management. Cyber risks, and FATF COVID-19 policy and guidance are highly relevant at this time and those topics along with important updates from the FRA makes for a valuable agenda for much needed compliance training”, said Paul Byles, Director of FTS.

The webinar will take place on Thursday 4 June, 2020, from 9.00am – 11.00am. Registration is KYD$100. To register visit www.ftscayman.com/events.  Deadline for registration is 2 June.

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EU to put Cayman on tax blacklist next week

February 12, 2020
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The European Union is set to place the Cayman Islands on its list of uncooperative countries in tax matters at a European Council session next week. The move comes less than a month after the UK has exited the EU.

According to diplomats, cited by the Financial Times, EU27 ambassadors on Wednesday took a decision to place the Cayman Islands on a list of nine territories that do not effectively cooperate with the European bloc. European finance ministers are set to confirm the decision at a meeting on Tuesday, 18 Feb.

In order to avoid inclusion on the tax blacklist, the Cayman Islands government had agreed last year to address EU concerns over the economic substance of collective investment vehicles before the end of 2019.

The Legislative Assembly passed amendments to the Mutual Funds Law and a new Private Funds Law reforming the registration, administration and supervision of funds at the end of January 2020. Whether the delay in passing the legislation has caused the move is not clear.

According to unnamed officials quoted by the Financial Times, the Cayman Islands “did not pass legislation that adequately addressed concerns about companies who claim tax advantages but do not have a sufficient economic presence on the island”.

An EU official said the Cayman law was found to be “deficient”.

Given that EU finance ministers are expected to make the final decision next week, the Cayman Islands government said it has not received official confirmation of a blacklisting.

In a statement issued on Wednesday, the government said, “We believe that we have introduced the appropriate legislative changes to enhance our regulatory framework, in line with the EU’s requests.

“Over the past two years, the Cayman Islands Government has adopted a number of fundamental legislative changes to enhance tax transparency and cooperation with the EU, fully delivering on our commitment to strengthen our regulatory regime and addressing the concerns reflected in the EU Council conclusions of 12 March 2019. The Cayman Islands Government has offered to make itself available for further dialogue or clarification with the Commission and the EU Ministers of Finance,” the statement said.

The EU is targeting Cayman and two other British Overseas Territories – Bermuda and the British Virgin Islands – as well as the Bahamas for enabling structures that attract profits without having corresponding economic activity locally.

In response, all four territories introduced domestic legislation that requires certain companies, which want to take advantage of the zero- or low-tax regimes in these jurisdictions, to demonstrate they have a sufficient level of management, staff, offices or expenditures in the territories.

Cayman adopted the International Tax Cooperation (Economic Substance) Law in December 2018. In March 2019, the EU Council said Cayman, the Bahamas and the British Virgin Islands committed to addressing the concerns relating to economic substance in the area of collective investment funds. While the three jurisdictions had engaged in a positive dialogue with the EU Code of Conduct Group on Business Taxation and have remained cooperative, the EU Council said at the time, they will “require further technical guidance” and “were granted until end [of] 2019 to adapt their legislation”.

Bermuda was briefly blacklisted and then removed from the list last year after the territory passed additional amendments to its Economic Substance Regulation and thereby resolved an issue highlighted by the EU regarding the wording of core income-generating activities for intellectual property assets.

Paul Byles, director of consulting firm FTS, said the Cayman Islands had done “an extraordinary job” in the area of addressing concerns and perceptions in relation to its anti-money laundering and counter-terrorism financing regime.

“This blacklisting relates more to tax-competition issues which are susceptible to more discretion by overseas bodies and commercial politics between countries,” Byles said.

He added, “Without reading the analysis that led to the EU blacklisting, it is hard to comment on the tax issues, but it is surprising that Cayman would be blacklisted given the amount of effort and resources we have invested into that area as well.

“If we consider the extent of cross-border cooperation that has been in place for decades, plus the recent legislation on economic substance, as well as beneficial ownership, it is hard to conclude that we belong on such a list.”

The current list of countries that are deemed uncooperative in tax matters exempts EU members. Since the first EU blacklist was published in December 2017, it has been revised 10 times.

Only eight countries are currently blacklisted. Most of them have virtually no financial relations with the EU. They are American Samoa, Fiji, Guam, Oman, Samoa, Trinidad and Tobago, the US Virgin Islands and Vanuatu.

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Cayman Enterprise City invests big in Cayman’s tech future

January 21, 2020
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Cayman Enterprise City (CEC), through its technology-focused special economic zone, Cayman Tech City, has announced a five-year founding sponsorship commitment to the Digital Cayman not-for-profit initiative valued at $250,000.

Digital Cayman was first announced at the Cayman Islands Digital Economy Conference (CYDEC) on June 20, 2019, following a meeting with government representatives and industry professionals held during CYDEC 2018. The initiative emerged due to a growing demand by the Cayman Islands digital sector for a professional body to represent digital industries and support the Cayman Islands Government with relevant policy and legislation development.

“Our five-year commitment and sponsorship of the Digital Cayman initiative has enabled its recent launch and will ensure the initiative’s longevity,” said CEC’s Chief Executive Officer and Digital Cayman executive board member, Charlie Kirkconnell.

“The CEC mission is to help diversify Cayman’s economy and develop a business community where innovation thrives, so supporting Digital Cayman aligns seamlessly with our goals. We’re excited to help drive this project forward and to further positively impact the Cayman Islands community.”

The industry body was initially conceived by Paul Byles, Digital Cayman executive board member, founder of the CYDEC conference, and director at FTS, and is now being actively facilitated by a steering committee of 15 prominent technology professionals and industry leaders.

“We’re on a mission to strengthen Cayman’s digital sector by advocating for positive policy changes that will encourage the growth of the digital sector while adhering to appropriate standards for risk and reputational management purposes,” explained Byles.

As the voice of the Cayman Islands’ digital sector, cultivating Cayman’s dynamic and innovative digital ecosystem is at the forefront of the Digital Cayman mission. Since its launch, and together with Cayman Tech City, the initiative has already hosted seven public ‘Tech Talks’ events which have welcomed over 225 industry professionals to discuss tech trends.

Topics discussed and actively debated include Facebook’s Libra cryptocurrency, building tech ecosystems, IT security systems, product development cycles, smart contracts, data protection, and most recently sector advocacy. Digital Cayman plans to officially welcome members into the association later this year.

Chris Wall, Digital Cayman executive board member, explained that to achieve the goals set out by the Digital Cayman initiative, they will actively engage and work with government and regulators in Cayman and across the world to ensure that the Cayman Islands and its people aren’t left behind.

“The digital sector is moving at an absolute rapid pace,” he explained during a recent Radio Cayman interview. “There’s no reason for the Cayman Islands to lag behind. Through Cayman’s growing tech community and through the Digital Cayman initiative, we can be at the absolute forefront of innovation, digital development, and ultimately positive progress.”

To date, CEC has contributed over USD$39,000 in capital for financial support and services to establish the Digital Cayman initiative. This initial expenditure covered everything from legal to brand development and design to marketing services for the launch of the initiative.

CEC’s five-year founding partner sponsorship of Digital Cayman is an annual commitment of USD$50,000 – totalling USD$250,000 over the five-year period.

As part of the commitment, CEC is also providing Digital Cayman with the opportunity to participate in the CEC’s Enterprise Cayman outreach initiatives, which includes internships and school programmes, and will enable the non-profit organisation to provide industry knowledge and expertise directly to Cayman’s youth, up-and-coming digital professionals, and entrepreneurs.

“The attributes that have made the Cayman Islands so enticing to the financial services sector have also attracted some of the world’s top technology entrepreneurs and leading fintech, media, and blockchain businesses to set up a genuine physical presence in the jurisdiction,” said Kirkconnell.

“While CEC is now home to a vibrant community of over 250 global special economic zone companies, 170 of which operate from within Cayman Tech City, Digital Cayman membership is not restricted to the special economic zones; it is open to everyone working in the digital sector who is interested in helping to develop a dynamic technology ecosystem in the Cayman Islands.”

For more information about the Digital Cayman initiative and to register your interest, visit www.digitalcayman.com.

‘Tech Talks’ take place on the second Thursday of each month and members of the public who are working within the Cayman Islands’ technology sector are invited to register their interest by emailing innovate@caymanenterprisecity.com.

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Cayman Islands: CyDEC explores latest trends and the future landscape of the digital economy

June 27, 2019
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The 2nd annual Cayman Islands Digital Economy Conference recently welcomed over a hundred delegates to the Kimpton Seafire Resort & Spa to discuss fintech, blockchain, cryptocurrency, digitization of education, ICO’s and what it all means for the future of Cayman’s digital economy.

Acting Premier Hon. Moses Kirkconnell opened the conference saying Cayman is the jurisdiction of choice for financial services, fintech and digital services and highlighted how the Cayman Islands government is working to keep up with the evolving technology.

Minister of Financial Services, Hon. Tara Rivers touched on the importance of the digital economy to the Cayman Islands and how the Ministry is working to strengthen the jurisdiction in a manner consistent with our reputation as a global leader in financial services.

A day after the announcement of Facebook’s own digital currency, Libra, Justin Fisher, CEO and Co-Founder of VeriBlock gave a fascinating presentation on the pros and cons of this system and how this will allow billions of users to make financial transactions across the globe in a move that could change the worlds banking system.

With the dramatic highs and lows of the cryptocurrency landscape in recent years, Nolan Bauerle, writer and researcher at CoinDesk delved into the current cryptocurrency climate and discussed how far the digital economy has come, finishing on a discussion around AI and how it will impact our lives. 

As the integration of digital technology becomes apparent in our everyday lives, Kwaku Aning, Director at Center for Innovation and Entrepreneurial Thinking discussed how the digitisation of education practices can both improve and hinder our children’s way of learning as we move from ‘old school’ to ‘new school’ systems.

ICO’s remain an opportunity for international financial centres, such as the Cayman Islands according to Ravi Bahadursingh, Barrister at Chancery Lane Chambers, who explored how these risks can be manged and where this structure is headed in the future.

Expert panels featuring international and local experts focused on how regulators should manage the risks associated with fintech and what the future of the digital economy might look like and how our lives are being ‘disrupted’.

The conference also brought together students from local schools that recently competed in the Dart Minds Inspired “Rover Ruckus” challenge to discuss the importance of this programme in Cayman and demonstrate their fascinating robotic creations.

Conference organiser and Director of FTS, Paul Byles, said, “The speakers for this year’s conference truly captured what the digital economy signifies and how these developments will impact our way of life and the way we do business in the Cayman Islands.” 

Thanks to the support of conference sponsor, Cayman Tech City, ten young students were invited to to attend the conference who had expressed an interest in technology through the CEC “Summer in the City” internship programme.

“With an eye to the future, Cayman Enterprise City is inspiring the next generation to pursue technology-driven careers by connecting students with the experts, supporting forward-looking programs like CyDEC and providing engaging learning opportunities within Cayman’s special economic zones,” explained Kaitlyn Elphinstone, VP Marketing Cayman Enterprise City.

“The second annual Cayman Islands Digital Economy Conference was once again a huge success and I am grateful to the speakers, sponsors and delegates who attended without which this conference would not be possible,” said Mr Byles.

CyDEC would like to thank its sponsors Ministry of Financial Services, Ministry of Commerce, Planning & Infrastructure, Tower, EQI, Ministry of Commerce, Cayman Tech City, Veriblock, Health City, Cayman Islands Chamber of Commerce, Ministry of District Administration, Tourism & Transport, Digital Cayman, Deloitte, Pinnacle Media and Hurley’s Media.

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Digital Cayman to advocate for the tech industry

June 26, 2019
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A new digital sector industry body, called Digital Cayman, was launched last week with the aim of developing and growing Cayman’s digital economy.

The establishment of the non-profit organisation was announced at the Cayman Islands Digital Economy Conference (CyDEC) on 20 June.

“The digital economy is growing rapidly, and the digital revolution is well and truly under way on a global scale,” said Digital Cayman executive board member Chris Wall, owner of Walzzy Creative SEZC, and co-founder of Grappzie, a UK-based digital first marketplace for personalised creativity.

“As an industry-led, not-for-profit organisation, Digital Cayman aims to cultivate Cayman’s dynamic and innovative digital ecosystem to ensure that the Cayman Islands adopts and adapts to this ever-changing environment,” he said.

The idea for an organisation to support the government in the development of industry-specific policy and legislation was developed at the 2018 CyDEC conference during a meeting of industry professionals and government representatives.

Paul Byles, Digital Cayman executive board member, founder of the CyDEC conference, and director at management consulting company FTS, said, “We’re on a mission to strengthen Cayman’s digital sector by advocating for positive policy changes that will encourage the growth of the digital sector while adhering to appropriate standards for risk and reputational management purposes.”

Minister of Financial Services Tara Rivers said at this year’s CyDEC event, “We look forward to engaging with Digital Cayman as we explore new regulatory needs and legislation to ensure that the Cayman Islands remains at the forefront of innovation, and compliant with International standards.”

Digital Cayman is currently facilitated by a steering committee of 15 technology professionals and industry leaders, and is supported by Cayman’s special economic zone Cayman Enterprise City.

John Edge, Digital Cayman committee member and Connection Science Fellow at Massachusetts Institute of Technology, said that the growing number of opportunities for the Cayman Islands is significant. “Digital Cayman is a much-needed industry group which will coordinate and champion opportunities to make certain that the Cayman Islands plays a meaningful global role in the data economy through its proven trust and fiduciary services,” he said.

CyDEC conference

The second annual Cayman Islands Digital Economy Conference at the Kimpton Seafire Resort + Spa discussed fintech, blockchain, cryptocurrency and digitisation topics, and their implications for the future of Cayman economy.

A day after the announcement of Facebook’s own digital currency, Libra, Justin Fisher, CEO and co-founder of VeriBlock, presented the pros and cons of this system and how it will allow billions of users to make financial transactions across the globe in a move that could change the world’s banking system.

With the dramatic highs and lows of the cryptocurrency landscape in recent years, Nolan Bauerle, writer and researcher at CoinDesk delved into the current cryptocurrency climate and discussed how far the digital economy has come, finishing on a discussion around artificial intelligence and how it will impact our lives.

As the integration of digital technology becomes apparent in our everyday lives, Kwaku Aning, director at the Center for Innovation and Entrepreneurial Thinking, discussed how the digitisation of education practices can both improve and hinder our children’s way of learning as we move from ‘old school’ to ‘new school’ systems.

Initial coin offerings, or ICOs, remain an opportunity for international financial centres, such as the Cayman Islands, according to Ravi Bahadursingh, barrister at Chancery Lane Chambers, who explored how these risks can be managed and where this structure is headed in the future.

Expert panels featuring international and local experts focussed on how regulators should manage the risks associated with fintech and what the future of the digital economy might look like and how our lives are being ‘disrupted’.

The conference also brought together students from local schools that recently competed in the Dart Minds Inspired ‘Rover Ruckus’ challenge, to discuss the importance of this programme in Cayman and demonstrate their fascinating robotic creations.

Conference organiser Paul Byles said, “The speakers for this year’s conference truly captured what the digital economy signifies and how these developments will impact our way of life and the way we do business in the Cayman Islands.”

Conference sponsor Cayman Tech City invited 10 students to attend the conference who had expressed an interest in technology through the CEC ‘Summer in the City’ internship programme.

“With an eye to the future, Cayman Enterprise City is inspiring the next generation to pursue technology-driven careers by connecting students with the experts, supporting forward-looking programs like CyDEC and providing engaging learning opportunities within Cayman’s special economic zones,” said Kaitlyn Elphinstone, VP Marketing, Cayman Enterprise City.

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Conference to address blockchain and digital economy

June 16, 2019
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Local and international experts will discuss developments in the digital economy and their implications for the finance, technology and legal industries, as well as the public sector, at the Cayman Islands Digital Economy Conference on Thursday, 20 June, at the Kimpton Seafire Resort.

“With the success of the first event last year, we are thrilled to be able to bring this event back to the local business community,” Paul Byles, director of consulting firm FTS, said.

“It is important for Cayman, as a global financial centre, to remain abreast of the latest trends within the digital economy, not only so that we may serve our clients better but also so we can ensure our regulations stay up-to-date,” he added.

This year’s line-up of speakers will showcase global trends, groundbreaking ideas and technological advancements.

Following welcome remarks from Premier Alden McLaughlin, the minister of Financial Services and Home Affairs Tara Rivers will be giving an opening address.

“Fintech is an ever-growing sector within Cayman’s largest industry,” Minister Rivers said. “As a jurisdiction, we are actively working on ways to create the appropriate regulatory environment to ensure that this new technology is properly assessed and implemented in a manner consistent with our reputation as a global leader in financial services.”

Co-founder and CEO of VeriBlock, Justin Fisher, will discuss some of the world’s most fascinating innovations involving blockchain technology during the first presentation of the morning. Nolan Bauerle, writer and researcher at CoinDesk, will explore the successes and failures of cryptocurrencies and Ravi Bahadursingh, barrister at Chancery Lane Chambers, will look at the implications of digital advances for initial coin offerings.

“As the digital economy is anything but one dimension, it is important that we explore the multiple sectors that make up the digital economy so that our attendees can receive a more rounded view of the current state and future developments,” Byles said in a press release.

The conference will also include what organisers called “a fireside chat” on how local regulators are approaching the risks associated with fintech and a panel titled ‘Technology and us’ as well as a display of local, young talent in Cayman’s robotics arena.

The Cayman Islands Digital Economy Conference, known as CyDEC, is organised by FTS and sponsored by the Ministry of Financial Services, the Ministry of Commerce, Planning and Infrastructure, Tower Marketing, Cayman Tech City, Veriblock, the Ministry of District Administration, Tourism and Transport, the Cayman Islands Chamber of Commerce and Pinnacle Media, among others.

Tickets are $350 and include entry to the full-day conference, breakfast, lunch and a cocktail reception. Visit www.cydec.ky for more details.

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CyDEC returns in 2019

May 31, 2019
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The Cayman Islands Digital Economy Conference (CyDEC) will return to the Aurea Ballroom at Kimpton Seafire Resort and Spa on Thursday, June 20th, bring together local and international experts to discuss developments within the digital economy and their applications for leaders across the financial, technological, legal and public sector industries.

To register for CyDEC 2019, click here.

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AML risk meets SIBL entities

October 9, 2018
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If you are licensed under the Securities and Investment Bill (SIBL) in the Cayman Islands, or you are registered as an Excluded Person under SIBL, you can be forgiven for either thinking that much of the anti-money laundering framework doesn’t seem to apply to your business, or being confused about what you need to do to ensure you are fully compliant.

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Race To The Top: In A New Era

August 20, 2018
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IFCs have been under immense pressure for the past two decades to introduce ever increasing regulation of their financial services industry. Whether this pressure has been politically motivated (lopsided pressure from the OECD or EU- based bodies) or genuinely required is up for debate. But the end result is that many of the mainstream IFCs have taken the view that keeping up with reasonable global regulatory standards is the only way to go.

Striking A Balance: Tax Compli…

To say that such pressure has increased exponentially over the past three to five years would not be an exaggeration. New economic substance requirements, changes resulting from Caribbean Financial Action Task Force (CFATF) mutual evaluation reports, the OECD’s BEPS (Base Erosion and Profit Shifting) driven initiatives and the UK’s call for beneficial ownership public registries are among the key initiatives that have threatened to push the economies of all faint- hearted IFCs over the edge.
In the past, it has been argued that when there is pressure to increase regulations many IFCs engage in regulatory competition by offering less regulation to attract the clients from the newly and more well-regulated IFCs, resulting in the so- styled ‘race to the bottom’. This argument has been used for more than two decades beginning with the tax arbitrage argument. This ‘race to the bottom’ is, of course, unsustainable because the less regulated IFCs will eventually come under so much global pressure that they can no longer offer services and they risk eventually being forced to close their financial services centres down entirely.
The reverse competition, referred to as a ‘race to the top’, has also been criticised because of the risk that an IFC could win the ‘regulatory awards’ but regulate itself out of a thriving economy and jobs. This theory behind this latter type of race is not that the IFC will now lose many unscrupulous clients. It’s that an IFC may well lose many good and reputable clients because the sheer and immense increased cost of doing business in the jurisdiction (as a direct result of having to abide by many new regulatory procedures) may make some legitimate transactions commercially unviable, leading to a similar fate as its sister race; a declining economy.
The actual experience in some jurisdictions that have been involved in the ‘race to the top’, such as the Cayman Islands, is quite different from the theory. At the same time as the Cayman Islands has introduced numerous amendments to existing legislation, as well as introducing new laws and imposing tens of millions of dollars in additional compliance costs on financial services institutions, the jurisdiction continues to demonstrate a robust financial services sector. The number of Cayman Islands hedge funds stood at 10,992 in 2018 and all signs are that the jurisdiction will very shortly surpass its peak of just over 11,000 funds which occurred in 2013.
The Cayman Islands banking sector remains one of the strongest among IFCs, with over 650 billion in assets and the jurisdiction’s captive insurance sector has maintained steady growth.
Several other IFCs, including Bermuda and the BVI, have also demonstrated resilience in the face of increasing regulatory requirements on their financial services industry.

The Pressure
The following 3 key developments have imposed extraordinary pressure on IFCs within the past 3 years:
Beneficial Ownership
Several IFCs introduced legislation to establish beneficial ownership registers in 2017. The UK applied pressure on all of its territories operating as IFCs to introduce this new regime. The new requirements mean that companies within the jurisdiction must create and maintain a register of beneficial ownership, unless they fall within certain categories of exemption. The Cayman Islands and several other IFCs have already established these registries. The purpose of the registries is, essentially, to enable law enforcement agencies and regulators the ability to easily obtain information on the ownership of entities to facilitate any investigations.
Despite being viewed by many clients as a risk to their legitimate right to financial privacy, the initiative has not had a material negative impact on IFCs.
Economic Substance Initiative
Although the pressure came from the EU, this initiative is influenced partly by the OECD’s BEPs project which focuses on the extent to which international companies can superficially engineer their operations to minimise their tax burden. The approach taken by BEPs is unique in that it does not distinguish between whether the reduction of taxes is carried out illegally or legally, but merely that there is a method to reduce payment of tax in one country.
Economic substance requirements seek to establish minimum legal requirements on international companies doing business from IFCs to demonstrate that these companies have a substantial economic presence in the jurisdictions from which they are earning profits. The onus is placed on each company to prove that it does indeed have a physical economic presence in the jurisdiction from which it earns profits from certain activities.
While, technically, economic substance laws have already been enacted in most of the mainstream IFCs, it will take some time for clarity on what is regarded as ‘adequate’ proof that each company meets the economic substance standards. This is the case largely because there are no current globally adopted economic substance measures and it’s likely that only through the courts when challenged, or via regulatory inspections, will precedents be established to give more clarity for IFC clients, For the time being, clients are advised to make some efforts, based on the best judgement of their advisors, to put in place measures to meet the general principles outlined in the legislation.
To date, this initiative has not had any material impact on IFCs although it has the potential to have a significant impact. The new requirements provide an opportunity for increased economic activity within IFCs to the extent that companies need to establish a more significant physical presence. On the other hand, if such presence presents an overbearing increase in a company’s operational costs there is also a risk that IFCs may lose some clients. The net effect can be assessed over the next few years once the law has been in force for a longer period.
CFATF Mutual Evaluation Exercise
Many Caribbean IFCs have recently undergone their 4th Mutual Evaluation Review (MER) by the CFATF. This is by far one of the most significant developments impacting Caribbean IFCs and has resulted in many recommended enhancements to each IFC’s anti money laundering, terrorist financing and proliferation financing framework. A raft of legislative and regulatory changes are required in most IFCs, resulting in many tens of millions of dollars being allocated to increased public sector staff, systems, new departments, legislation, and additional public awareness and education. In addition, the increased reporting requirements on the financial services industry will most certainly result in a significant increase in compliance related operational costs for hundreds of businesses in the private sector.

Why Is the ‘Race To The Top’ So Different Now?


Despite all of these changes, many of the more established IFCs in the Caribbean are likely not only to survive but continue to experience growth in their financial services sectors. The so- styled ‘race to the top’ is likely to have a positive impact for the following two reasons:


Correspondent Banking Relationships


Access to the correspondent banking network can no longer be taken for granted by financial institutions operating in IFCs which need to move funds across borders to facilitate clients’ transactions. Over the past years, many US based correspondent banks have been engaged significantly in ‘De-Risking’, as a direct result of pressures from US regulators, by closing accounts held by institutions operating in certain sectors (for example, money remittance or casino services or certain jurisdictions deemed as high risk).
When a US- based correspondent bank considers the risk profile of each entity, it looks carefully at the jurisdiction from which that entity operates. The fact that several Caribbean- based IFCs have made significant enhancements to their regulatory frameworks will be viewed positively by many US- based correspondents.
In that sense, the ‘race to the top’ is no longer a luxury but essential to survival. It also means that there are significant benefits to an IFC in implementing these new onerous and costly enhancements to their regulatory frameworks. For an IFC Government, having a fully functioning financial system whereby the domestic and international financial sectors can participate fully in the globally markets through free movements of funds takes priority over whether several businesses may lose clients, or whether a jurisdiction might see a reduction in some of its financial services licenses.


Client Perception and Branding Considerations


Perception is reality and for IFCs there is no shortage of misperceptions perpetuating an image of a 1980s’ world where very few countries (including the OECD member countries) had anti money laundering legislation in place. For the most part, this perception issue did not have a material negative impact on IFCs between the early 2000s and 2015. But over the past three to five years, there seems to be a change in client perceptions based partly on pressures from onshore regulators as well as the fact that media coverage is included in the long list of information being assessed when a client considers doing business in a certain jurisdiction. Take, for example, a major fund group looking to establish a new entity for investors. Saying that the fund will be incorporated in country X which is on the FATF blacklist and has a long list of sanctions against it will make all the difference in comparison to creating that vehicle in one of the more well-known and highly regulated IFCs such as the Cayman Islands. In today’s era, and in addition to potential investors in the fund, third party service providers, such as fund administrators, auditors, and legal counsel will all require some level of confidence that the fund will be operating from a credible IFC. Indeed, very few credible investors will commit to the fund manager if that’s not the case.
While there are still several good reasons why IFCs need to ensure continued balance between the extent of regulation and commercial success, the lines between the two have become increasingly blurred simply because being well regulated is an even more important factor today than it was a decade ago.
IFCs that can afford to make the costly adjustments to their regulatory frameworks, providing that such changes are genuinely global standards and a level playing field remains, will continue to do well. But perhaps, more importantly, those that cannot won’t be in the race at all.

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Digital IDs can resolve Caymanian status question

May 22, 2018
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The solution to the growing problem of Caymanians needing to prove their status is most likely to be found through the use of digital technology, Premier Alden McLaughlin told an industry conference in Cayman on Thursday. Speaking at the Cayman Islands Digital Economy Conference (CYDEC), held at the Kimpton Seafire, McLaughlin said the ability to identify who is Caymanian has become ever more important to gain access to voting and employment opportunities. 

“Having to prove that you are Caymanian can be onerous, and having to do it over and over when changing jobs for instance can be annoying to say the least,” the premier said. “So it is important that we find some way to solve this issue and it is thought that by using a digital identification, where ones status as a Caymanian is proven for once and all and linked to your digital ID, is likely the best solution to this problem.  And potentially this ID will also serve as your voter ID, driver’s licence as well as identity card.”

McLaughlin said the government had made some important progress in delivering public services online, notably in the business sector, with company registrations, land registry and work permits, along with areas that most have welcomed, like online driving licences and motor vehicle registration, which would otherwise involve long queues and often a return visit.

Today some 36% of police clearances are done online, he stated, but there is much more to be done.

“But certainly the last administration that I lead, as well as the current administration, is taking e-Government seriously and we intend to make a lot of progress over the next three years to move our e-Government initiatives forward and ensure that Government is doing its part for Cayman’s digital economy,” McLaughlin said.

Turning to the financial industry and fintech sector in Cayman, the premier said he was very excited about Cayman’s prospects to become a major player in this fourth industrial revolution. Leveraging on the conditions that have made the Cayman Islands such a successful jurisdiction for financial services, McLaughlin said the same things make us attractive to the blockchain industry.

These include Cayman’s ability to cater to a diverse market, as it does with funds, insurance and trusts, all supported by the industry’s world class service providers, strong copyright and IP protection, of course in a tax neutral jurisdiction.

“Blockchain related companies have already set up shop at Cayman Tech City, a part of Cayman Enterprise City, and I am told there are more in the offing. We are embracing the opportunity for innovation,” he said

While Cayman is indeed making progress in online delivery of government services, the question remains how far away Cayman is away from a full digital ID system for the population, compared to progressive digital countries like Estonia, represented at CYDEC by Dr Arvo Ott of the nation’s e-government Foundation, which can deliver a digital ID to an individual in just one day.

Ian Tibbetts, Director of e-Government at the Cayman Islands Government, however, indicated that the timeline might be not be that far away.

The key issue of interoperability will be in place by July, Tibbetts said, which is where a system is in place for the different parts of government IT to talk to each other, so that when an individual shows up at a government department, the system is able to check what it needs to.

In terms of solutions to get the base data for a digital ID system, procurement is currently ongoing and that is expected to be in place by the first half of next year. At that point, e-government services for individuals can be identified and employed. As for full rollout of a system of digital IDs to the population, that could be done in up to three years, he said.

Right now, the areas the department is most closely focused on are identity and citizenship, trade and business licensing and property transactions.

“In terms of e-voting, the technology will be ready in six months but do we really want it as a community?” Tibbetts asked. “That is a discussion we need to have. E-voting systems require earned trust. You need to have the technology but also to be able to trust that technology. You can’t just transplant and deploy an e-voting system in a matter of months.”

It was further noted that the process of digitising public services would have an impact on employment in Cayman, particularly in the civil service for the individuals at the front line delivering these services.

Chris Bailey, of PwC, added that in addition to thinking about retraining and what these workers will be doing in three years, we also need to address a potential skills shortage in technology and to train our young people for the jobs that will need to be done in the future, and we don’t know yet what some of those will be.

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