Foot concedes Cayman’s role

(CNS): On the eve of the British government’s budget which will be presented by the Chancellor Alistair Darling tomorrow, the leader of the team reviewing the UK’s offshore financial centre territories Michael Foot has issued a progress report in which he acknowledges the contribution of the Cayman Islands and other British OFCs to the UK economy as well as the importance of the industry to Cayman’s own domestic product and employment levels.

The UK’s independent review of offshore financial centres was instigated in the wake of Darlings pre-budget report last year when questions were being asked about how much of a part offshore centres had played in the economic crisis despite the fact that the economic credit crunch was a result of the behaviour of onshore lending practices. Foot and his team visited Cayman last moth to assess the jurisdiction with regards to its terms of reference which included assessing the long-term opportunities and challenges facing the British Crown Dependencies and Overseas Territories as financial centres.

Foot does not refer specifically to Cayman in the progress report save to list the jurisdiction’s dependence on the sector. The report talks in general terms about all of the offshore financial centres, (OFC) but notes the significant differences in the size of the jurisdictions, the nature of the business being conducted, the reason why the centres have developed in certain ways and the standards of regulation.

On receipt of the progress report the Leader of Government Business Kurt Tibbetts said today, that the government welcomed it and would continue to work with Foot as he moved towards the completion of the full report.

 “The Cayman Islands welcomes this progress report and its observations relating to the importance of the Cayman Islands financial services industry, our commitment to upholding international standards and the interdependent relationship between the financial services  sectors of the Cayman Islands and the UK,” he added. “We look forward to working with Mr Foot and his team to support the completion of this review, expected before the end of 2009.”

The report summarises the economic contributions of the Cayman Islands financial services industry, attributing 36 per cent of the country’s gross domestic product and 21 per cent of total employment to the sector. It also recognised the favourable reviews that the Cayman Islands have received from the International Monetary Fund and the [Caribbean] Financial Action Task Force.

During his visit to Cayman Foot and his team met with a cross-section of public and private sector representatives from the financial services sector. The Cayman Islands government said it assisted the review team prior to the visit and will continue to provide assistance for the duration of the review.

In this progress report Foot continues to ask for input from interested parties regarding issues such as the projected short to medium term outlook for the financial centres and the implications of downsizing. He also asked for comment on whether more should be done to strengthen regulatory co-operation between the UK FSA and the OFC”s local regulators.

The review is also focusing on the risks that the OFCs face flowing from the current and forecast macro-economicenvironment and revealed that Bermuda has increased its debt ceiling beyond its immediate needs to give the option of a strategic response to any problems in the financial sector that pose a systemic threat or risks to its economy. Gibraltar has a compensation schemes for depositors and investors consistent with the requirements of European Directives and the Isle of Man has had a bank deposit protection scheme in place for some. It also stated Guernsey has recently moved to introduce one. “The other financial centres covered by this Review do not currently have ‘safety nets’ in place, but some are actively considering whether to introduce them,” the report stated. Cayman does not have any kind of policy requiring insurance coverage for the deposits held in its retail banking system.

With the renewed focus on tax transparency and tax avoidance the progress report notes this will have implications for the financial centres covered by the Review.

“…the growing focus on tax avoidance and the emergence of national initiatives such as the US Stop Tax Haven Abuse Bill will continue to shape international opinion in the short to medium term. Each centre will need to take this into account in balancing the real or perceived competitive advantages of current tax regimes with the need to generate sufficient revenue to support its domestic economy,” Foots report states.

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