Offshore Banking and Investment

written by:
Sheree Ebanks, Director & Head of Wealth Management, Butterfield Bank

The Cayman Islands is a remarkably successful offshore jurisdiction, recognised as one of the top 10 international financial centres in the world, well known for its stable political and macroeconomic environment.

The success of the Cayman Islands as an offshore jurisdiction is mainly attributed to the sound regulatory system that has been put in place and practise for many years. The banking sector conforms to the guidelines of the Basle Committee on Banking Supervision with the Cayman Islands Monetary Authority acting as the regulatory body performing such supervision.

Indeed the International Monetary Fund (IMF) performed an assessment of the jurisdiction’s regulations surrounding the country’s banking, insurance and securities industries and anti-money laundering regime in 2003 and has recognised the Cayman Islands’ comprehensive regulatory and compliance frameworks.

The final report from the IMF stated that “An extensive programme of legislative, rule and guideline development has introduced an increasingly effective system of regulation, both formalising earlier practices and introducing enhanced procedures.” Unsurprisingly, 47 of the 50 largest banks in the world are licensed here.

Banks are licensed under the Banks and Trust Companies Law (2003) Revision. The two main categories of licences are Category A and B. Category A licences allow institutions to carry on business “within and outside of the Islands”; Category B licensees generally are prohibited from performing general banking facilities to persons resident in Cayman.

There are a total of 22 Class A Banks and 392 Class B Banks on record with around US$1 trillion on deposit, 80 per cent of which represent inter-bank bookings between onshore banks and their Cayman Islands counterparts, an extremely low risk profile for money laundering. Stringent Know Your Customer (KYC) regulation has led to qualified jurisdiction status being granted by the US Internal Revenue Service paving the way for institutions to become qualified intermediaries under the US Withholding Tax Rules.

The Cayman Islands Stock Exchange was established in 1997 and has received recognition by the UK Inland Revenue which enables companies listed on the exchange to take advantage of the “quoted Eurobond exemption”, allowing interest to be paid on securities listed on the Exchange without the UK withholding tax reduction. The Exchange also has membership in The Intermarket Surveillance Group, IOSCO, the London Stock Exchange and the World Federation of Exchanges.

The establishment of the Stock Exchange, which facilitates the listing of mutual funds and specialist debt securities among other issues, has contributed to the exceptional growth experienced in the fund industry and becoming the jurisdiction of choice for offshore hedge funds. As at 31 December, 2004 there were over 850 listed issues showing a combined market capitalisation of close to US$55 billion, with a remarkable increase in listings for the year 2004.

Cayman is a thriving centre for offshore banking and investment. With the strong regulatory environment, globally recognised accounting and law firms, the largest banks in the world, an abundance of qualified professionals, a standard of living envied by many and a destination that would satisfy even the most discerning of travellers, it is no wonder it has become the success story it is today.


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