The Cayman Islands in Transition: The Politics, History and Sociology of a Changing Society by J.A. Roy Bodden

Author:J.A. Roy Bodden
Language: eng
Format: epub
Tags: J.A. Roy Bodden, The Cayman Islands in Transition, Ian Randle Publishers, Caribbean Books
Publisher: Ian Randle Publishers
Published: 2014-04-23T16:00:00+00:00

2 United Kingdom, The Cayman Islands (Constitution) Order 2003, p. 4.

3 Hansard Reports April 11, 1979, pp. 11–13.

4 Hansard Reports 1993 Volume 2, pp. 485–686.

5 Malcolm Rifkind, Secretary of State, to Herbert Hughes, Chief Minster, Anguilla, December 11, 1996.

6 Fifth Ministerial Group on the Dependent Territories, p. 5.

7 Ibid.

8 Ibid., p. 6.

Banks, Hedge Funds, and Trusts: The Rise and Fall of the Cayman Islands as an International Financial Centre

This chapter represents the efforts of one who is neither a practitioner nor a theoretician in the field of finance. It is, rather, the offering of an observer whose disposition is neither flawed by proximity to the subject matter nor coloured by the need to impress readers so as to maintain an established reputation.

The writer’s objective is to avoid legal and technical jargon and to follow a simple, easily understandable line. What is proposed is to trace the beginnings of the tax-haven concept in the Cayman Islands and to progress to the state of the industry as it is today. In its rise to prominence among international financial centres, the Cayman Islands’ rate of ascent has been phenomenal. It was only in the 1950s that the Islands were opened to international banking, and in 1957 Barclays Bank DCO opened its first branch in the Cayman Islands (Crossley and Blanford 1957, 314).

In the years since, the Islands have become home to over 500 banks, including 20 of the world’s largest (Financial Times, July 16, 2001), numerous mutual-fund management and captive insurance companies, and a much-sought-after market in the creation of hedge funds and the segregated portfolio company (SPC), a vehicle created for the captive insurance business. Not surprisingly, the jurisdiction has received some negative publicity, been associated with major international financial scandals, come into disfavour with the Organisation for Economic Cooperation and Development (OECD) in 1998, and been blacklisted by the Financial Action Task Force (FATF) in 2000.

Despite these setbacks, the Cayman Islands are, at present, one of the best-regulated international financial centres. As an offshore centre, its practices have recently earned accolades following inspections by the International Monetary Fund (2005) and Moody’s Investor Service (2004). So meticulous and thorough are the standards in the jurisdiction that it is easier to open a bank account in London or New York than in the Cayman Islands. Concomitant with this strict regulation has been a change in focus from individual to corporate business – including in the banking industry, where private banking is now discouraged unless applicants are established international entities or can provide credible references from internationally accepted referees.

Contrary to what many may think, it is not preposterous to write of the fall of the Cayman Islands as a major international financial centre. Over the course of the past two decades since it emerged as a major financial centre, Cayman has had to make major adjustments to its modus operandi to maintain credibility and standing. Each time challenges were encountered, the jurisdiction, like a chameleon, changed operational practices to meet the required criteria.

Consider that each time requirements changed, the jurisdiction sacrificed some of its original appeal.

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