For better or worse US president Donald Trump is shaking up the world order.
New tariffs are expected to cause inflation in Cayman and have created volatility in the global stock markets in recent days.
But there are reasons to be hopeful for Cayman’s financial services and crypto sectors.
The Trump administration has taken a very different stance to previous US governments on beneficial ownership and transparency regulations, prioritising privacy. It has also moved to incentivise the fintech industry, a double-edged sword for Cayman, which is gaining a foothold in the fledgling sector.
Former Maples partner Tim Ridley suggests that perhaps just as pivotal is what the administration hasn’t said. In previous elections in both the UK and the US politicians have made scathing reference to Cayman.
“Donald Trump has said almost nothing about the [offshore] financial services sector per se, as far as I am aware. That, to me, is encouraging,” Ridley said.
The Trump decisions that will impact the sector include:
- Opting out of an OECD initiative for a minimum global tax of 15%;
- Halting efforts to introduce a beneficial ownership regime in the US;
- Rolling back red tape for crypto and blockchain industries; and,
- Implementing a global system of tariffs on trading partners, causing stock market volatility.
Let’s take a closer look at some of the impacts for Cayman.
US now an ally in ‘pro-privacy’ conversation
The debate on financial services and beneficial ownership is moving from one dominated by calls for transparency to include a growing conversation about privacy.
Cayman is under pressure from the UK to introduce public beneficial ownership registries and has already moved to make its existing register on the major financial stakeholders in Cayman-registered companies more broadly available, including to journalists and academics.
The US treasury’s decision not to enforce the reporting rules in the Corporate Transparency Act doesn’t impact Cayman companies directly. But it does mean Cayman, which already has a transparency regime that is significantly more open than that in the US, now has a powerful ally in the global conversation on further regulation in this area. Coupled with the European Union Court of Justice decision that open registers violate privacy rights, there’s a subtle shift that could be important for Cayman.
Julian Morris, an economist based in Cayman, argues that the islands may already have gone too far in appeasing UK opponents of offshore financial centres.
In respect of major jurisdictions, he said, the US was an outlier, in that it does not have a beneficial-ownership regime. The continuation of that should keep global regulatory spotlight off Cayman and empower the islands to take a stronger stance against UK and European pressure, Morris believes.
He said the Cayman Islands already makes information on company ownership available to law enforcement on request, and he fears pushes for further transparency simply serve to fuel salacious journalism and expose wealthy people to greater extortion and kidnapping threats.
Morris added that Cayman’s beneficial-ownership regime includes fully verified information and is more robust and effective from a law enforcement perspective than the UK’s.
Crypto-friendly US administration
The Trump administration is unquestionably crypto friendly.
In his first weeks in office, the US president directed the Securities and Exchange Commission and the Commodity Futures Trading Commission to ease up on regulation. Earlier this week, the Justice Department disbanded its crypto enforcement team.
Trump, who has also launched his own crypto currency and appointed a US crypto czar, is keen to create a light-touch regulatory environment that will make the US the “crypto capital of the planet”.
Anthony Travers, senior partner at Travers Thorp Alberga, said, “We can see that the Trump Administration will reverse the prior hostility evidence by [former chairman Gary] Gensler at the SEC with regard to all things crypto, and we should anticipate the US will introduce a favourable regime for establishment, regulation and marketing.”
What does that mean for Cayman?
Always an early adopter of virtual assets, the Cayman Islands has led the way in developing a structure that involves Cayman-based foundations with a subsidiary in the British Virgin Islands, that has allowed blockchain and crypto companies to thrive in a complex and evolving global regulatory environment.
Analysis from Cayman law firm Mourant highlights how this structure has become the vehicle of choice for decentralised autonomous organisations and to facilitate crypto trading on international exchanges.
Danielle Pienaar, foundation and funds director at Hash directors and treasurer of the Blockchain Association of the Cayman Islands, said there had been rapid growth in the sector.
The Trump Effect
There were 622 new foundation companies registered last year, compared with 228 in 2023.
She highlights the US crypto-friendly approach as both a potential threat and an opportunity.
On the plus side, bigger institutional players adopting crypto and blockchain will see the industry grow globally. “We believe in the technology, so we want that to happen,” she said.
The potential downside is that more business may stay on-shore if the US regulatory environment remains friendly.
More likely, she says, is that Cayman’s industry will continue to grow, given the tax advantages and stable bespoke regulatory regime.
“Even if we get more competition and jurisdictions that adopt regulation, I think Cayman can still establish itself as a leader within the industry.”
An end to the global minimum tax initiative?
The US decision to opt out of the Organization for Economic Co-operation and Development’s global minimum tax initiative is “vindication” of Cayman’s stance on that issue, says Morris.
Cayman chose not to get involved in any kind of tax collection regime, but agreed to co-operate with relevant tax authorities to exchange information that would allow participating countries to levy “top up” taxes to reach the global minimum of 15%.
The benefits to Cayman of staying ‘tax neutral’ far outweigh any revenue it might have collected, said Morris.
Travers agrees. He said Cayman had avoided the “mixed messaging” of other jurisdictions, like Bahamas and Bermuda, and maintained its reputation as an offshore financial centre. He argues the US opting out will likely nix the entire scheme in any case.
“As matters have transpired, the OECD initiative seems now redundant in any event, but it was very unclear what benefits an offshore financial centre thought it would obtain from these heavily Eurocentric global tax initiatives,” he said.
The good, the bad and the uncertain
While the signs are broadly positive for Cayman’s biggest industry, a note of cautions surrounds the unpredictability of the Trump administration.
The sweeping global tariffs implemented on what Trump called “liberation day” last week stunned the stock market and have presaged predictions of a recession.
As an importer of goods and an exporter of services, Cayman will suffer the downstream effects of any inflationary impact in the US. It is also conceivable that a global trade war could broaden and expand to include other types of taxation.
But Travers believes this is unlikely.
“If the inflows of capital into the United States from Cayman Islands structures are well understood by the Trump Administration, there should be no concern from the perspective of the new US tariff regime, which appears to be limited to physical goods and products,” he said.
More broadly, Paul Byles, founder and director of FTS management and consulting, suggests that a downturn in the US economy could see less capital flowing into certain types of funds, with investors inclined towards conservative strategies in uncertain times.
Following the 2008 crisis, he said, hedge funds suffered significant losses due to sudden market shifts, which led to the erosion of investor confidence and capital withdrawals.
“In general, Cayman’s financial services sector tends to be fairly resilient over the medium term, so I wouldn’t expect any significant impact in terms of governments fees from the sector because fees are linked to the number of entities, and unless it’s a significant recession, we won’t expect to see a material reduction in the number of entities registered,” Byles said.
That’s a key consideration, financial services drive the Cayman economy and fees from the sector provide more than half of the Cayman government’s annual $1 billion in income.