Finance industry association suggests alternatives to proposed Cayman Islands’ financial reporting laws

Monday, 16 November 2020
The Cayman Islands' financial industry association, Cayman Finance, has responded to the government’s consultation over legislation requiring offshore service providers to keep their accounting records within the jurisdiction.
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The measure is one of several in a set of eight contentious Bills introduced by the government to satisfy accounting transparency issues raised by the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes (the Forum), related to exchange of information requests. The Bills are:

  • Companies (Amendment)(No.3) Bill, 2020
  • Exempted Limited Partnership (Amendment)(No.2) Bill, 2020
  • Limited Liability Companies (Amendment)(No.3) Bill, 2020
  • Limited Liability Partnership (Amendment)(No.3) Bill, 2020
  • Partnership (Amendment) Bill, 2020
  • Trusts (Amendment)(No.2) Bill, 2020
  • Banks and Trust Companies (Amendment)(No.2) Bill, 2020
  • Companies Management (Amendment)(No.2) Bill, 2020

The text of these draft Bills have been circulated to industry stakeholders, several of whom have objected that they pose a threat to corporate service providers. Last month, the Cayman Islands Company Managers Association commented that the proposed amendments were unnecessary.

Criticisms were also made that the consultation is merely cosmetic, to which the government responded by extending the consultation period until earlier this month. At this point, Cayman Finance made its position public.

Its response to the consultation, published on 6 November, states the Bills could place an ‘unacceptable burden’ on corporate service providers, by requiring them to make an annual declaration confirming whether their clients are maintaining 'proper' accounts. They could also cause the jurisdiction to lose competitiveness by increasing the number of filings to be made by each Cayman Islands entity, as well as increasing the responsibility of Cayman Islands company service providers (CSPs) in servicing their clients.

Moreover, Cayman Finance's members have suggested the proposed legislation is out of proportion to the oversight issues raised by the Forum that it is meant to address. It notes that the Cayman Islands has a good history regarding the provision of accounting records in practice, with a failure to provide accounting records being experienced in only one case out of 161 requests received during the relevant Forum review period.

The association has therefore proposed an alternative to requiring CSPs to maintain accounting records within the jurisdiction. Its solution would entail ‘an obligation to (a) keep proper books of account and (b) where books of account are maintained outside the Cayman Islands, comply with any request from the Tax Information Authority (TIA),’ with non-compliant companies being struck off. There would be no requirement that unregulated Cayman Island entities maintain certain accounting information with their registered office service provider in the Cayman Islands.

'Requiring each Cayman entity – of which there are hundreds of thousands – to maintain information regarding their books and records in Cayman...places an undue and unnecessary burden on the jurisdiction, its service providers and its customers, when the underlying goal can be achieved with less impact on legitimate businesses', commented Cayman Finance.

If the Ministry of Financial Services and Home Affairs decides not to accept its suggestion, Cayman Finance 'strongly suggests' that further industry consultation take place.

Sources

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