The year ahead for the financial industry

Gonzalo Jalles, CEO of Cayman Finance, gives an overview of what can be expected in terms of regulatory initiatives.  

Cayman Journal – January 2014

My economic history professor spent the whole of the first lesson explaining why you shouldn’t use a title like the one in this article. I’m not sure if he was a good teacher; clearly, I wasn’t a good student. To put it bluntly, we know very little, if anything, about the future.

What we know of the year ahead is that we can expect the continued implementation of certain initiatives that are already under way, particularly in the areas of sharing tax information across borders.

We can also expect sectors of the media, NGOs, bureaucrats, regulators and politicians from several parts of the world to continue blaming IFCs for some of their challenges and to continue exercising pressure toward change, often through mischaracterization of what IFCs do.

We should expect the unexpected. If there is something history has shown us over the last few years, it is that the pace and size of regulatory change has significantly increased, and industry players should continue to focus on remaining agile and responsive to these changes.

FATCA and the automatic exchange of information

The Foreign Account Tax Compliance Act is the tip of the iceberg. As technology improves and governments look for scapegoats for their fiscal challenges created by excessive spending, the support to develop the automatic exchange of tax and banking information across borders gains momentum.

Unsurprisingly, the U.S. became the first, as it had the advantage of issuing the standard currency for international transactions, which translates into the ability to tax the flows of all transactions in the world’s primary currency to those that refuse to become informants for the IRS. However, the “first move” approach by the U.S. created a wave being followed by others who would have not had the ability to implement a FATCA-type requirement unilaterally.

Regardless of future additional delays or changes, automatic exchange of information (enhanced from early attempts like European Savings Directive) is here to stay, and our industry will have to deal with the significant costs related to its implementation.


Base Erosion and Profit Shifting is the latest attempt by OECD bureaucrats to curb legal tax avoidance. These are the same bureaucrats who avoid paying income tax on their salaries despite working between two countries that have some of the highest tax rates in Europe and enjoying the benefits provided by those governments.

The BEPS project has established 15 recommendations, including areas like disclosing profits per country, or considering the creation of formulas to determine how companies should allocate their profits.

The BEPS project is likely to stay in the center scene for as long as the fiscal challenges of the major economies remain unresolved, and has the potential to change the way our industry looks by forcing companies to increase their presence in order to benefit from what Cayman has to offer. If Cayman remains flexible and welcoming, we have nothing to fear.

Public central registry of beneficial ownership

The latest initiative is the creation of a central registry of beneficial ownership; in particular, promulgated by the UK, which lags behind Cayman in the collection and availability of beneficial ownership information as recognized by the FATF (a subset of the OECD) peer reviews. Not only that, but Mr. [Prime Minister David] Cameron has committed to making such a registry available to the public, only to say briefly after, and as quietly as possible, that it may not include trusts, invalidating his claims for total transparency.

What Mr. Cameron fails to recognize is a basic distinction between the legitimate need for confidentiality and unjustified secrecy. Cayman already has a system that is recognized by the FATF as superior to that of the U.K.

Providing information to relevant authorities across borders is something we should support. Putting ourselves in a situation where customers simply migrate to places like Delaware, which continues to be completely deficient in the collection of beneficial ownership information, is something we should not do.

Cayman Finance’s response to international challenges

During 2013, Cayman Finance ade significant progress on several fronts: We increased our media presence to unrivaled levels in our history; we signed an MOU with the Cayman Islands government that, for the first time, solidifies the partnership needed for an effective consultative and promotional body; we added a record number of new members; and we participated jointly with government, speaking at local and international industry conferences, just to name a few. These activities have set the foundation for an even more active 2014.

As part of the agreement signed with government, we established a base plan that includes all the activities of last year and several more. We are starting 2014 with a local, full-day seminar this month on international tax initiatives and a customer breakfast for key players in New York.

We are finalizing details of several other customer events and participation in international conferences. We are making progress on the publication of a jurisdictional magazine that will be distributed internationally, and we continue to see an increase in the frequency with which we interact with the local and international media.

Cayman has a great story to tell; but unfortunately, we have not been successful enough in communicating the reality of our business today.

While many IFCs have, for many years, been complying in a way that exceeds what many major centers have done, they have failed to successfully communicate this at many levels. The FATF (Financial Action Task Force) is a prime example. It has issued 49 recommendations and has done a first peer review based on the laws and regulations, and a second review with on-site visits.

The results surprised the majority of the media with whom Cayman Finance speaks: Cayman is one level below the top rating, along with the U.K., the U.S., Germany and the Netherlands. More detailed reading of the report reveals Cayman is, in fact, ahead of the U.K. and U.S. in the area of collection and availability of beneficial ownership information.

While having your house in order in the form of legislation, regulation, transparency, infrastructure, competitive pricing, etc., is necessary, it is clearly not sufficient. The days of bankers sitting behind their desks waiting for the next customer to come in are over. Now banks look for their customers, or at least the successful ones do. It should not be any different for IFCs.


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