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Deutsche Bank Cayman has earned the accolade of the best private bank in the Cayman Islands in the prestigious Euromoney private banking survey 2007.

The survey reflects the opinions of both advisers to private clients and other wealth management companies. The survey also takes into account a wide range of factors including assets under management, profitability, ratio of clients to relationship managers and the services offered.

The results of the survey were announced this week and include an impressive list of the world’s best private banks, fund and investment management houses and private client stockbrokers. The survey provides a qualitative and quantitative review of the best services in private banking, organized by region and areas of service.

Whilst Deutsche Bank has featured in the top end of the rankings in the Cayman section since the listings were started in 2003, this is the first time the Bank has been named in the top spot.

The award comes at a particularly significant time for Deutsche Bank, which is continuing to build on its range of specialist services this year through the expansion of solutions available to the Cayman captive insurance market. Deutsche Bank Offshore Group also has offices in the Channel Islands and Mauritius.

Janet Hislop of Deutsche Bank Cayman commented: “It is very pleasing to win this award and to be recognised by advisers of private clients. To be named at the top of the rankings in this prestigious survey is a tribute to the staff in the Cayman Islands. This award serves to highlight Deutsche Bank’s commitment to client service and care, which is at the centre of all we do. It is also fitting that this success comes at such a milestone in Deutsche Bank’s history in the Cayman Islands.”

The rankings for the survey are the basis for the Euromoney Private Banking Awards, which will be presented at the Euromoney Private Banking Dinner in London on 1 February 2007.

Cayman banks must be licensed under the Banks and Trust Companies Law 1995 as amended in 2003. The astonishing Cayman Islands banking industry has 340 such licensed banks, of which about 30 hold Class A licenses permitting local and offshore business activity, while the remainder hold Class B licenses, permitting only offshore business – a local office is allowed, but only very limited transactions can be carried out with Cayman Islands residents. Banks do not need to be incorporated locally: a foreign bank can register as a foreign company and then obtain a license. For further details of licensing requirements and procedures and fees payable see Law of Offshore and Offshore Legal and Tax Regimes.

The assets of Cayman banks exceed US$1 trillion as at March 2005. A very wide range of services is offered: the 65,000 offshore companies registered in Cayman include many treasury management or investment management subsidiaries of multinationals taking advantage of the excellent banking environment and absence of taxation. Evidently, private banking is a major component of the industry: asset protection rather than tax avoidance as such is the driving force, so that the stability of Cayman alongside stringent banking secrecy and its sophisticated investment environment are very attractive to wealthy individuals, particularly those from the US where Cayman has a very good reputation.

Cayman Islands’ banks are supervised by the Cayman Islands Monetary Authority (CIMA), which concentrates on 110 banks for which Cayman is the home-country supervisor. CIMA recently extended its bank inspection program to on-shore subsidiaries of Cayman banks.

Cayman signed a Memorandum of Understanding on cross-border banking supervision with Brazil in 1999, and intends to create a network of such agreements with all the countries whose banking supervisors evince interest in Cayman’s banking sector.

Following KPMG’s independent report to the UK Government on the regulatory regime in the Cayman Islands and other offshore financial centers in the autumn of 2000, CIMA made a ruling on private ‘shell’ banks that have no effective supervision because they are not units of established international banks, subject to stringent regulation in their home jurisdictions. Such mainly US banks have no physical presence in the Cayman Islands.

In 2000, the Cayman Islands introduced additional due diligence procedures for banks when they were required to comply with fresh Know Your Customer regulations. The original deadline of 31 December 2002 for the provision of information about customers to the authorities was extended, and the new rules came into force in March 2004.

The due diligence rules require both new and long-standing account holders in the jurisdiction to provide proof of identity and physical address, in addition to an explanation of their banking activities. The rules have provoked criticism from some quarters, particularly from those who have banked in the Caymans for many years, who argue that they are intrusive and unnecessary.

Trust Management

Trust Management has been a major activity in the Cayman Islands for 30 years or more, and trust assets in Cayman now equal or exceed banking assets. Originally the trust was used primarily by wealthy individuals from the major common law countries, but it is now accepted as a major technique of asset protection in all parts of the world. Over the last 25 years the Cayman Islands, perhaps more than some other jurisdictions, have extended and adapted their trust laws to accommodate this wider market, which is not necessarily interested so much just in tax avoidance, but also in the efficient management of wealth in a more general sense. See Law of Offshore for a fuller treatment of trust law in Cayman.

There is a large and sophisticated community of professional advisers on trust matters in Cayman. Individuals can provide trust services in the Cayman Islands without registration, but companies offering trust services must be licensed under the Banks and Trust Companies Law 1995. Foreign or Cayman-resident companies may obtain licenses. These are issued by the Governor, after the Monetary Authority has accepted an application giving comprehensive information about the applicant.

A licensed trust company may be ‘restricted’ or ‘unrestricted’. ‘Restricted’ companies require less capital, but are more strictly controlled.

Private trustee companies have recently become popular. In this arrangement, the trust itself remains uncluttered by control arrangements, which are exercised by the private trustee company, which in turn can be administered by a licensed trust company. This form is particularly suited to the larger type of family trusts with multiple beneficiaries and objects.

Insurance

The Cayman Islands insurance sector is regulated under the Insurance Law 1979 as amended, most recently in 2004. Class A insurance licenses cover domestic insurance in Cayman itself; Class B licenses cover Cayman or (registered) foreign companies conducting external business; restricted Class B licenses are for captives. Applications for licenses are made to the Cayman Islands Monetary Authority (CIMA). See Law of Offshore and Offshore Legal and Tax Regimes for further details of the licensing regime, minimum capital requirements and fee levels.

Legislation in 1998 introduced a Segregated Portfolio Company Law. The SPC is an exempted company which may create one or more segregated portfolios in order to segregate the assets and liabilities of the company held within or on behalf of the portfolio from the assets and liabilities of other portfolios. As originally passed, SPCs were available only to certain types of insurance company, but in 2002 amendments extended the provisions relating to segregated portfolios to any exempted company. In essence, the new law provided that any new company may apply to be registered as a segregated portfolio company. A segregated portfolio company must pay additional fees and must provide notice to the Registrar of the names of all segregated portfolio accounts created.

The changes now in process will allow an existing company to convert into an SPC, although a number of criteria will need to be met, including the written consent of each creditor of the company and the approval of the Cayman Islands Monetary Authority (CIMA). An SPC will also be able to create separate portfolios by reference to a series of shares, as well as by reference to separate classes of shares.

An improvement to the current SPC structure, adopted from Guernsey legislation, will ensure that there will now be no ‘flow over’ from an insolvent cell to general assets. A key change for mutual fund issuers is a provision that secured creditors will now be able to enforce their security against a segregated portfolio, despite the existence of a receivership order against that portfolio. This will ensure that a segregated portfolio will be acceptable to – and will be rated by – the rating agencies in the same manner as an exempt company.

The Cayman Islands has the second-largest captive insurance community in the world, after Bermuda. The year 2000 saw 48 new captives set up in the Caymans, bringing the total to 535. By the end of 2002 Cayman had 642 captives, having beaten Bermuda into second place for new formations in the year with 97 new companies. A total of 83 new captives were licensed during 2003, bringing the total number of active captives to 644 at December 31st writing US$4.98 billion in premium and reporting US$19.35 billion in assets. Additionally, 39 new segregated portfolios were established within the segregated portfolio companies. At December 31, there were 79 Segregated Portfolio Companies licensed with a total of 350 Segregated Portfolios.

Hurricane Ivan in 2004 damaged the Cayman Islands in physical terms, but did not halt the expansion of the insurance sector. According to CIMA, in the weeks that followed the devastating hurricane, nine licenses were granted to captive insurance companies, and the authority also issued an insurance management license to Strategic Risk Solutions (Cayman) Limited.

Brady Young, President of SRS, noted: “There is a strong demand among current and prospective captive owners to domicile their companies in Cayman. As a captive manager it is important for us to be present in this domicile.”

The number of captives increased by 75 to 693 at the end of 2004, a 7% net increase.

The Conservative government, having just shut down one costly tax avoidance scheme, income trusts, now has another in its sights, offshore tax havens.

”There’s some significant tax avoidance there,” Finance Minister Jim Flaherty said, after revealing to the Commons finance committee that the government is reviewing the use of offshore tax havens to avoid paying tax.

Using offshore tax havens to avoid tax, just as corporations were using income trusts to do so, is not illegal but is costly to the government, he said.

Last year, Statistics Canada revealed Canadian direct investment in offshore financial centers, including ”tax havens,” had soared eight-fold since 1990 to $88 billion in 2003.

”Canadian enterprises invested substantial and growing amounts in countries known as ‘Offshore Financial Centers’, many of them in the Caribbean,” it said. ”These centers include countries that are often referred to as ‘tax havens’, as well as those which have important financial sectors, such as Switzerland, but also Ireland,” it said.

The largest increases went into Barbados, Bermuda, the Cayman Islands, the Bahamas and Ireland, the five countries being among the 11 nations with the most Canadian assets.

Auditor General Sheila Fraser has charged that multinational companies operating in Canada have avoided ”hundreds of millions” of dollars in taxes over the past decade through the use of tax havens, while one university study put the tax savings to Canadian banks alone at $10 billion over that period.

Flaherty later introduced a motion in the Commons to amend the Income Tax Act to prevent ”non-resident trusts and foreign investment entities” from using offshore tax havens to avoid tax.

”The motion will amend existing income tax rules to help ensure that income earned by Canadians through foreign jurisdictions, including tax havens, is subject to tax as if it had been earned in Canada,” he said in introducing the motion.

However, he said the amendments are separate from the overall review of income trust funds which is still underway.

The amendments mainly deal with the taxation of income earned through the use of non-resident trusts and foreign investment entities, the department said. They carry through on long-standing proposals that were first announced in the 1999 budget but whose implementation has been delayed by repeated proposals for changes.

Meanwhile, Flaherty continued to defend his decision to break an election promise not to tax income trusts, saying they were being used as a tax avoidance scheme by some corporations and that they threatened to push the government back into a deficit.

The loss in revenues resulting from the escalating number and size of corporations that were converting into trusts would have eventually pushed the federal government back into a deficit, he told the committee.

”The alternative would have been to impose a heavier tax burden on individual Canadians and their families and that’s not fair and we did not want to go there,” he told reporters later.

However, Liberal finance critic John McCallum argued that the government could have given investors a 10-year grace period before imposing the tax as the Americans did when they shut that tax loophole, rather than the four it did.

‘You would have the same long-run consequences but you would have very substantially reduced the meltdown which all sorts of Canadians who invested in good faith suffered,” McCallum said.

Flaherty responded that the Australians only gave investors a three-year grace period when it took such action, suggesting that is the model he followed.

Meanwhile, the Conservative government’s decision to tax income trusts faces a legal challenge from Democracy Watch. Duff Conacher head of the government accountability advocacy organization refused to reveal the grounds for the court challenge before today but it’s likely related to the breaking of a written commitment in the Conservatives election platform to not tax on trusts.

Source: Montreal Gazette