Cayman Islands an increasingly popular magnet for Canadian wealth
Sophisticated financial hub with special links to Canada has come a long way from its sleepy beginnings in the 1960s
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“Cows wandering through Georgetown, one bank, only one paved road, and no telephones.” William Walker’s first impressions of the Cayman Islands in the 1960s are the antithesis of today’s bustling, connected, international financial services centre that the visionary attorney helped to create. If Walker could see Cayman through those same eyes today, the island would be virtually unrecognizable.
Walker was a Canadian citizen and would perhaps not be surprised by the impressive movement of ultra-high-net-worth individuals and family offices from Canada to Cayman of late. It’s a long-term trend that we have termed “Maple leaf to palm frond in three generations.”
In this article we examine why intellectual capital is being drawn to Cayman, and we provide a brief history of Caymanian-Canadian economic relations, and why Cayman will likely continue to serve as Canada’s preeminent jurisdiction of choice in the future.
A modern-day financial hub
Through a cooperative bilateral relationship, Canada and the Cayman Islands have developed strong economic ties. As a result, the islands have become an increasingly popular destination for Canadians looking to call it home, not only for protecting and compounding wealth but for the unique and sought-after community that Cayman offers.
Cayman’s infrastructure, sophisticated legal framework, education, low crime rate and health care are behind its appreciable growth. Add to this an excellent communications network, political stability and world-class service providers and one has a hard time imagining the sleepy island of the 1960s.
Canada and the Cayman Islands cooperate within the framework of the Commonwealth, and Canadian direct investment in the Cayman Islands totalled $40.9 billion in 2021. However, this only tells part of the story. Canadians continue to make up a large portion of the resident population, and Canadian traditions and holidays are well recognized.
Yet, the Cayman Islands remain what some refer to as the “best-kept secret” in the Caribbean, as its benefits remain less broadly known outside specialist circles in Canada and across the globe.
Financial services industry
The Cayman Islands were initially administered as a dependency of Jamaica, then became an independent colony in 1959. Today they are a self-governing British Overseas Territory, and home to about 83,000 people.
The first wave of Canadian investment began in the 1960s. In 1965-66, major players in Canada’s financial services industry began doing business there, and this helped lay the foundations for Cayman becoming a financial services centre.
The Bank of Nova Scotia Trust Company (Cayman) was the first trust company to open there. The Canadian Imperial Bank of Commerce also opened a branch office, in Grand Cayman, making it the third commercial bank along with Barclays and Royal Bank of Canada. Since then, Canadian controlled banks have been instrumental in shaping the financial services sector and have assisted the Cayman Islands in building a reputation as a leading offshore financial centre.
Funds industry
A strong legal framework, dynamic regulatory landscape and access to global markets are the threads by which Cayman’s funds industry has been woven. It is for this reason that Cayman has grown to become a sophisticated financial centre.
Through Cayman funds assembled by world-leading asset managers, Canadian pension funds and other forms of sophisticated capital have actively invested in global opportunities through the jurisdiction for more than 30 years, and Canada has been and will continue to be an important actor.
Captive insurance companies
As part of Cayman’s diversification into other industries, its government introduced the Insurance Law in 1979, which was successful in accelerating the formation of the captive insurance industry.
Cayman is now a leading jurisdiction for captive insurance companies licensed by the Insurance Supervision Division of the Cayman Islands Monetary Authority (CIMA); the captive insurer population is composed mainly of insureds emanating from North America (89 per cent), which, of course, includes many Canadian businesses.
More specifically, the Cayman Islands is the second largest domicile in the world for captives and holds the top position globally for healthcare captives.
Family offices
Also relocating to Cayman have been a growing number of family offices of all sizes. As an international financial centre with well-developed infrastructure for managing and safeguarding wealth, Cayman has become a first choice for many Canadians and continues to attract a growing number of wealthy families and their advisers.
Cayman offers flexible estate planning and innovative structuring solutions, which provide long-term asset protection for present and future generations, along with world-class service providers to assist such families to implement solutions, as necessary.
The most noteworthy family office on the island, which has made Cayman its home since the early 1990s, is the Dart Family Office. It has played an important role in the development of Cayman with investments in residential, commercial, office and hospitality industries of more than US$1.5 billion.
As the family office community and its ecosystems continue to grow, family offices are finding more opportunities to co-invest with other like-minded family offices and organizations. Indeed, this has been a major bonus for offices arriving there. Such co-investment opportunities allow them to pool their resources, gain access to higher-value transactions, leverage each other’s networks and deal flow, share due diligence responsibilities and benefit from each other’s respective expertise.
A recent development that further supports this increased collaboration is the formation of the Cayman Islands Family Office Association, which helps promote Cayman as a jurisdiction for family offices and assists in connecting families.
Special Economic Zone – technology, fintech and virtual assets
In recent years, Cayman has seen an uptick in the arrival of Canadian fintech entrepreneurs along with others active in cryptocurrency, NFTs and other virtual assets.
Some of these entrepreneurs sought permanent residency by way of investment; others have chosen to establish a physical business presence by way of a Special Economic Zone (SEZ) or otherwise. The SEZ grants globally competitive concessions to businesses that establish a physical presence, and offers a convenient way to obtain residency in Cayman.
Such companies also have the benefit of turnkey solutions, such as available corporate office space, licensing and a ready-made network of like-minded entrepreneurs.
Global economics and fiscal policy play a role
The global monetary and fiscal response to Covid is considered by many to be the final act in a decade-long economic experiment that began with quantitative easing, turned into a zero-interest-rate policy, and then mutated into other policies that are not favourable to stewards of wealth. Private and public debt have reached levels that were historically akin to wartime policy, and to date there is little being done to allay deficits. As global economies attempt to recover from these events, governments are expected to undertake a fundamental reassessment of their fiscal policies and framework.
As such, ultra-high-net-worth individuals, family offices and companies beholden to shareholders, whose mandate is to preserve wealth, are looking to Cayman and other jurisdictions to assist them as they face increased taxation and possible future capital controls. Cayman takes this responsibility seriously and offers flexible but robust estate planning and structuring solutions, with a focus on proper regulation, transparency and compliance. These solutions alone make the island an enticing jurisdiction.
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Moreover, updates to global reporting regulations such as the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS), along with enhancements to the Cayman anti-money laundering (AML) regime and Economic Substance Act, have strengthened Cayman’s status and elevated its recognition and reputation in Canada. Canadians can be assured that a presence in Cayman brings no scarlet letter among those who know it as a serious jurisdiction of systemic international financial importance.
As Canadians continue to learn about the advantages of the Cayman Islands, Cayman will continue to serve Canadians continuing the journey from maple leaf to palm frond across the generations.
Philip Paschalides is based in the Cayman Islands office of the law firm Walkers and is a partner in the firm’s Private Capital & Trusts Group. Philip represents private clients and family offices on the financial aspects of cross-border transactions and leads a specialist team that structures and establishes single-family offices in the Cayman Islands and assists with the deployment of private capital in acquisitions and other commercial transactions. Philip has received the “Leading Individual” ranking in Banking, Finance & Capital Markets in the Legal 500 Caribbean directory since 2018.
Philip Aubry is based in Walkers’ Cayman Islands office and is a senior counsel in the firm’s Private Capital & Trusts Group. Philip acts for private clients and family offices on a broad range of structures involving private capital, including the structuring and establishment of family offices as well as the establishment of new businesses within (or the redomiciliation of existing businesses to) the Cayman Islands and assists with mergers and acquisitions, divestments, joint ventures, corporate reorganizations and other commercial transactions.
Walkers is an international financial services firm with offices across geographies and expertise in multiple jurisdictions. We provide legal, corporate, regulatory filing, compliance and fiduciary services to the world’s leading financial institutions and companies. With teams based in 10 locations across the Americas, Europe, Asia and the Middle East, our clients receive the responsive service, clear commercial advice and jurisdiction-relevant solutions that make deals happen, markets move and businesses thrive.
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