A renewed commitment to boosting the financial services industry, and in particular the hedge fund sector, is a main plank of the government’s policy.

Financial services, and in particular the hedge funds industry, is a vital part of Cayman’s economy.

Accounting for 45% or more of government revenues, this sector is one the government not only needs to watch closely but is also keen to nurture.

Over the past few years, there has been a growing tension between the financial services sector and the government.

With the election in May 2008 of McKeeva Bush as premier, many hope the tide has turned. Bush, who has represented the district of West Bay in the Legislative Assembly continuously since 1984, is the longest serving member and is sometimes referred to as the ‘father of the house’.

A self-employed businessman, Bush is well aware of the need to maintain a healthy and expanding financial services sector. As a politician, however, he is also treading a delicate path.

While Caymanians enjoy one of the highest living standards in the Caribbean, many are disgruntled with the government and in particular its handling of the budget deficit. In order to get spending under control, it is likely Bush will have to slash the number of civil servants.

This may prove unpopular with the 6,000 state employees. Privatisation of some services as a sustainable cost cutting measure is also likely to be opposed.

The government may find itself stuck between the proverbial rock and a hard place, facing both an irate electorate as well as a financial services business community unhappy with Bush’s performance.

So far, however, he has managed to make some much needed and welcomed changes to help boost financial services.

Top of the list has been reform of Cayman’s immigration policy which now enlarges the ‘key employee’ list and also streamlines the process.

“We have failed the stress test on how we were managing immigration policy,” Bush states.

“This is a large area that has been identified. Our immigration policies need to be more sensitive to the needs of the financial service sector. So we have taken specific action to address these needs to ensure key staff of companies can work here as well as extend their work permits.”

In addition Bush has been vocal in his support of financial services and has publicly declared his intention to be “pro-business” as the Cayman leader.

“Financial services is the most important industry for Cayman,” he says. He thinks that over the past 40 years the financial services sector has helped transform Cayman into a first tier international financial centre.

“We need to put resources into the financial services sector in order to move it to another level. We need to look at ways to stimulate the sector in ways that will benefit the market and island,” he notes.

His plan includes speaking out to support financial services and the business community both at home and abroad. One of his most significant initiatives so far has been to set up a new sub-committee devoted solely to financial services.

This is where representatives of industry can meet with the premier on a monthly basis to highlight any concerns or areas where government action is needed.

Senior members of the financial services sector sit on the grouping and so far it has highlighted concern over a government plan to try to raise revenue for building leases as well as other issues.

“We are committed to putting in the resources, to looking at ways to stimulate the sector,” says Bush.

“There is intense competition. First we need to improve services,” he notes.

“Stimulating the financial services sector and economic growth, which includes the funds sector, is paramount not just to mitigate the global financial crisis, but in order to take advantage of the opportunities global recovery will offer.

“This is why we are talking about how Cayman can remain competitive internationally,” Bush explains.

Testing times
“It is in the interests of everyone to know that we have good lawyers, a regulatory regime through the Cayman Islands Monetary Authority (CIMA), ensure the importance of the private sector and assert our position with global institutional investors.

“We need to build on the success of our financial services industry. We need to attract investment managers as well as related service providers. We need to build new products. The global recovery will generate opportunities and we need to make sure our services continue to be at the forefront,” Bush declares.

No longer will Cayman be a passive participant of the global economy. Bush means business.

“Talk is cheap. The last government did nothing to enhance business. That is one reason why we have problems today. They ran an immigration policy that was negative to business.

“That meant businesses couldn’t keep key staff. Cayman Islands depends on business investment. So when we lost out to places like Ireland and Nova Scotia [to fund administration], we need to think again. We are in a global arena. Business is global and we need to think globally.”

Bush likens Cayman’s attributes to a beautiful woman. “We are not just a beautiful girl; we are the most beautiful girl on the block.”

He declares his government is prepared to assist the private sector, act as a facilitator and make sure the private sector moves in the right direction. “Now is the time to grasp opportunities. It is not the time for apathy.”

Bush is also keen to emphasise Cayman’s place on the global stage as a leading hedge funds jurisdiction and international financial centre.

 “In Europe and in the US some people have failed to recognise what good jobs jurisdictions like Cayman do,” declares Bush.

He believes the money made in Cayman helps secure jobs in Europe and the US.

He dismisses their attacks on Cayman and again stresses the fact that countries operate in a global marketplace.

“The Cayman Islands operates a well regulated funds industry, perhaps better than some other countries,” he notes.

The state has always been prompt to adopt international standards and comply with best practice. Looking at the move towards greater regulation of funds, particularly from the European Union, Bush is not worried about Cayman’s ability to match criteria.

However, he emphasises that he wants to see a level playing field.

Cayman has shown it can match EU equivalency measures, most recently on the EU savings directive.

“We need to make sure there is clarity. There needs to be a level playing field. It should not be something that shifts with the wind as soon as we implement a new piece of regulation.

“We do not want to see the goal posts shifted,” he declares. As long as the EU plays fair, says Bush, Cayman will meet the challenge.

Changes likely
He expects some modifications will be needed to ensure equivalency but he is “not concerned”.

“We will not do something that is not good for our business and clients. As long as the legislation is good for them, we are happy to comply,” he says.

He expects Cayman to continue to be the leading hedge funds domicile. Cayman, says Bush, will keep pace with global competition and markets.

“The geopolitical situation impacts financial services internationally. UK elections, Congressional laws, EU regulations, these are all issues that also impact Cayman.

“We want to see a significant debt when the time comes, not grand-standing by politicians,” he says in reference to expected changes in global regulation.

Commenting on one of the most recent issues confronting Cayman’s hedge funds industry, the use of independent directors, Bush says his government will do what is best for industry.

“Some changes may be needed. We are reviewing the whole situation,” he notes, adding that directorships are not the simplest area of regulation and there are many aspects to it that need to be considered.

Wider issues
Looking at the wider issues, Bush says he wants to keep Cayman competitive and meet the challenges of globalisation.

“I will listen to both sides and act as a facilitator to the private sector.”

He has little time, however, for countries that repeat incorrect information about Cayman.

He admits the country could have done more in the past to ensure politicians in the US and Europe had a better (and correct) understanding of Cayman and its activities.

“We were not on top of things. We did not let people know exactly where and how we were as a country or government.

“Now we need to engage with our audience, to influence and make sure the correct information about Cayman is being given,” he explains.

Cayman is not interested in “engaging with those who will not listen” and intends to spend time on initiatives that will be effective.

Correcting the message
“There is a lot of misunderstanding. Every country wants to protect its own interests. I know what that means. At the same time it must tell the truth and be realistic. Politicians when they speak can be informed and are being informed,” he concludes.

For Bush, the closest and most lasting relationship is with the US, Cayman’s main trading partner. About 80% of trust work for the state come from the US and Canada.

Over the past 25 years, there has been a mutual legal assistance treaty with the US. The country has co-operated with the US attorney general, justice department, Securities and Exchange Commission and others. “I am hopeful we will maintain a good relationship,” Bush adds.

With Brussels, however, Bush admits not enough was done to ensure the EU knew about and understood Cayman.

“We need to do the same thing with the EU as we did in the US. We need to put people in Europe, in Brussels to talk to them. We need to ensure they discuss matters with us,” he says.

As the leader of the largest hedge fund domicile, Bush believes he needs to be more proactive in shaping the global debate on the industry. He says Cayman needs to play a full part within existing international organisations like Iosco and the OECD.

Meanwhile, he reiterates his attention will be on addressing local business issues and “working closely with the new financial services committee, sitting down and discussing matters that pertain to the industry.

Working closely with the industry is the only way the government can survive. We need to address their concerns. If we do not facilitate business, we will drive it away.”