Monday, May 29, 2017

Cinemas embrace VIP perks to meet industry challenges

The history of the movie industry is filled with challenges and doomsayers predicting the demise of Hollywood. From the introduction of sound to the advent of television, the motion picture industry has always been forced to evolve to stay relevant. Now the industry is facing flat ticket sales, strong competition from streaming services, and a heavy economic reliance on blockbusters and so-called franchises that are producing an inordinate number of superhero movies and sequels.

Movie fans are consuming films in new ways, including as streamed or downloaded content that is accessible on smartphones and tablets.

Industry data shows that younger cinema-goers will still flock to the movie theater for the biggest blockbusters from “Star Wars” to “Deadpool,” but increasingly prefer the small screen for other types of film.

And while watching movies on a mobile phone is not the same as seeing it in a cinema, home theater systems, video game consoles and the internet make visiting a movie theater far from the only entertainment option.

This has had a marked effect on attendance figures.

According to the National Association of Theater Owners, there were about 41,000 movie screens in the U.S. and Canada in 2016, nearly twice as many as 30 years ago. North American box office reached a record high of $11.4 billion last year, while global box office also set a record of $38.6 billion.

But attendance has been flat for more than a decade. In North America, a 49 percent increase in ticket prices since 2002 simply masked the 16 percent decline in ticket sales during the same period.

Trend in Cayman

Cayman is not immune to the trend. “The world is changing, so we have to change to,” says Simon Watson, the operations manager for Active Capital Ltd., a subsidiary of the Dart group, which runs the local six-screen Regal Cinemas.

He says that clearly the quality of films is vastly degraded when people stream movies, but it still constitutes competition for cinema operators all over the world.

The movie industry answer is to emphasize the experience. “Our view is that if you want to watch the latest movies in the best way possible, the only place to do that is the cinema,” Watson says. “You can never get that experience anywhere else apart from the big screen. But we have to continue to upgrade.”

This includes Regal Cinemas’ latest VIP Auditorium theater, which offers luxury leather recliner seats, state-of-the-art surround-sound and a 4K ultra-high-resolution digital projection system.

The theater’s Dolby Atmos sound system delivers seamless, crystal clear surround-sound through speakers installed on each of the four walls and the ceiling. It is so cutting edge that it has been rolled out only in a few high-end U.S. cinemas.

The extra-large recliner seats with double arm rests and small tables for drinks, food and other concessions provide a maximum of comfort and space. Regal cinema had to convert one of its theaters from 150 to only 56 seats to enhance the viewing experience.

To make up for the likely decline in attendance, tickets are priced $10 higher than for movies that are shown on other screens, making it $21.50 per movie.

Customer feedback has been positive as cinema-goers realize that they pay for quality, says Watson.

“As we go forward, we hope that the VIP [facilities] will be so popular that we look at eventually upgrading a second theater.”

The VIP auditorium also helps the cinema to put on events for private hire with an adjacent lounge and concessions area.

Cayman’s theater operator has made further changes to enhance the cinema experience.

Regal eliminated separate queueing and payment transactions for tickets and concessions. Customers can now buy their tickets, popcorn, drinks and 3-D glasses in one location at the same counter.

To manage the longer queues Regal has more than doubled the number of tills from five to 11 and implemented a queue management system.

In addition, the cinema has upgraded its food options from nachos and hot dogs as the only hot food options to a full range of food, including home-baked thin crust pizzas.

“Now we have an opportunity for people to go to the cinema, buy their tickets, their popcorn, their pizza, go into the VIP if they wish, recline on those nice big leather seats and eat their pizza in comfort, watching a film,” Watson says.

Offering a wider range of food and drink items and a more streamlined sales transaction not only improves the experience for customers. For theater operators, these concession sales are key, because the ticket revenue is shared with the movie producers, who receive half of the proceeds.

Shortening the theatrical release window

Globally, cinemas continue to benefit from the theatrical release window which ensures that movies are first shown in theaters for a period of the first 90 days before they are released on a staggered schedule to video on demand, Blu-ray, streaming services and other distribution methods.

However, this exclusivity is increasingly questioned.

Last year news hit that six of the seven biggest Hollywood studios were in negotiations to release their films for home viewing less than three weeks after they hit theaters for a higher price.

For studio bosses, the idea that a product cannot be sold for a certain time period becomes increasingly anachronistic. Fox Film chief Stacey Snider told delegates at February’s Code Media conference that most big films and blockbusters have done 90 percent of their business in the first three to four weeks. “Who is it helping not to offer premium video on demand earlier? Who is it hurting?” she asked.

The studios are getting agitated because revenue from U.S. home entertainment like DVDs, Blu-rays and video on demand is fading and has shrunk nearly 50 percent in the last 10 years to $12 billion in 2016, data from Digital Entertainment Group shows.

The studios are trying to recover some of the losses by exploring different options for premium video on demand but neither the price point, the release window nor the distribution method is clear. They range from paying $30 after 45 days and $40 to watch a movie 10 days after big-screen release to $50 on the same day as the release in theaters. The latter option is touted by The Screening Room, a venture backed by former Napster and Facebook director Sean Parker, which would stream current cinema movies via an encrypted set-top box.

Because of antitrust laws, the studios, which include Fox, Paramount, Lionsgate, Sony, Warner Bros., and Universal, are talking unilaterally to major theaters chains like AMC or Regal making negotiations a protracted process.

In an attempt to bring theater owners onboard, distributors are offering to give them a cut of their digital sales. But cinema operators have vehemently opposed the idea and warned that a shortened cinema release window would significant harm and potentially cannibalize their business.

Unpredictability of consumer behavior

Part of the problem is the unpredictability of consumer behavior. Would movie fans still prefer the big screen if they can see films shortly after their release? And how many would be willing to pay a premium?

Cowen & Co. media analyst Doug Creutz does not believe demand will be sufficient to make up for the losses in DVD sales.

In his annual industry report, Creutz predicted that 2017 will bring “another round of punishment for the industry characterized by several big-budget bombs and disappointing performances from mid-budget pictures.”

The pressure is high for producers. Movie operating profits for the seven leading Hollywood studios declined by 14.6 percent to $4.18 billion last year. Yet Disney raked in 60.5 percent of total profits, as Paramount and Sony lost money.

Meanwhile streaming services like Netflix and Amazon have become major industry players not only in the distribution but also the production of movies.

Netflix is defying industry conventions by releasing its own films online without any theatrical distribution. Those Netflix-produced movies that are released in cinemas, often simply to qualify for awards, hit the big screen the same day they are available online.

Amazon Studios in contrast, which hit the big time with Kenneth Lonergan’s Oscar-winning drama “Manchester by the Sea,” continues to respect the 90-day theatrical window. “Manchester by the Sea” alone grossed $62 million at the box office through April, according to Box Office Mojo.

“We really believe in the theatrical experience by fully supporting the theatrical window for our releases,” Jason Ropell, Amazon’s head of motion pictures, said at CinemaCon in Las Vegas in March.

At the annual trade show organized by the National Association of Theatre Owners, studio bosses were quick to hail the cinema experience, and like Dave Hollis, the executive vice president of distribution at the Walt Disney Co., told delegates that they “all believe deeply that films should be seen in a theater” and that they “have a common goal to get people to see them in your cinemas.”

Making best use of the cinema asset

In Cayman, the theatrical release window is less of an issue, where Regal Cinemas is constantly turning films over. It is rare for a movie to be shown for more than two weeks. “We only have six screens. That is a lot of for the island but not for the amount of films that are being produced,” explains Watson.

“The cinema has a good following on our Facebook,” he adds, which is used for feedback, to announce new movies and to inform movies fans when films are taken out of the program.

“To weather the competition that we have, we also look to make best use of the cinema,” Watson notes. For instance, Regal is putting on Kids Club every second Saturday matinee, which features a children’s film classic for $5. There is a culture-themed event once a month with a showing of ballet or theater filmed live with up to six cameras. There are live sports events and even a church service on a Sunday.

In a small place like Cayman where it is impossible to grow the set cinema audience, the customer base can be widened to people interested in these non-movie events.

“We have this fantastic asset and it is up to us to make best use of it, not just for Hollywood movies,” Watson says.

And for the movie buffs, Regal will launch a Classics in the Cinema series next month. Set in the VIP auditorium at slightly reduced prices, it will offer showings of true classic like “Gone with the Wind,” “Casablanca” or Alfred Hitchcock’s “The Birds,” which moviegoers are unlikely to have ever seen on the big screen. The the next set will feature classics from the ‘70s and ‘80s, such as “Terminator,” “Alien,” “Dirty Dancing” or “Pretty Woman.”

“We can give a lot more than just the blockbusters,” Watson says.

This is all the more important in an industry that becomes increasingly dependent on blockbusters and the exploitation of existing intellectual property with remakes and sequels.

“The non-blockbuster market is losing dollars and to a certain extent that’s going to TV,” analyst Creutz told industry publication Deadline in March.

Hollywood is likely to repeat its response to the advent of television in the 1950s and 1960s when movie studios went big and produced Bible epics and spectacular musicals.

“You might see a situation where the budgets become more and more barbell over time where maybe you’re going to make 15 movies and seven will have budgets of $100 million-plus and eight will have budgets of $20 million and under,” Creutz said. “You hope that one or two of the $20 million movies break out, but if it doesn’t you don’t really hurt yourself and you keep your product rolling and maybe other movies do better in later windows. And you pray to God that those seven big movies do well.”

Impact17 looks at human side of digital marketing

Mercer Chief Marketing Officer Jeanniey Mullen, Kiip founder Brian Wong and IMA Chairman Sinan Kanatsiz were among the presenters at Impact17. - PHOTO: KAYLA YOUNG

In an age dominated by digital devices, entrepreneurs at Cayman’s third annual Impact conference sought to take a step back from smartphones and reconnect with the human element of marketing.

A packed schedule of local and international speakers engaged a full ballroom at the Kimpton Seafire Resort late last month, as part of a three-day conference centered around digital innovation.

The Impact17 program, put on by the Internet Marketing Association and Cayman Enterprise City, featured more than 20 speakers.

IMA Chairman Sinan Kanatsiz encouraged attendees to open up and consider a wide range of possibilities to address business challenges in the digital age.

“Some of the best innovation in the world is going to happen on our stage and we don’t know yet what is going to happen,” he said at the forum on April 27.

While the day’s lineup hailed from across the digital realm, the day’s major takeaway was on building human bonds and moving focus to the offline world. Speakers expressed a need to gain control over the digital world and give consumers power to direct their experiences.

Evite CEO Victor Cho opened afternoon discussion with a challenge for the audience: to turn and look each other directly in the eyes. While the experience may have made some feel uncomfortable, he said such interactions promote oxytocin, the so-called “love chemical,” and encourages long-lasting bonds.

“Face-to-face interaction makes a huge difference in your life in terms of health,” he said.

His company promotes the hashtag #devicefreedinner as a way to encourage people to put their phones away and focus on their friends and family. He said leaving a phone on the table during dinner is the equivalent of setting out a loaded gun.

“If you’re boring, I’ll just shoot you in the head,” he joked.

Mercer Chief Marketing Officer Jeanniey Mullen shared insight on consumers’ desire to take control of their digital devices and regain power over their day-to-day lives.

While technology has provided many convenient tools to the public, she said, it has also created expectations in work and family life.

“Digital disruption has started to give us rules we need to follow. We are no longer available to work from a certain point to another,” she said.

She encouraged women entrepreneurs to be part of the conversation to redesign the digital world and make it work better for users.

“We’re creating a new world and we’re designing our own place in that world,” she said.

Kiip founder Brian Wong emphasized the need for digital innovation that connects with real human needs. His company has set up a rewards system for users that interact with ads in an attempt to incentivize consumers.

“Go back to human emotion. I think we often forget with the internet that at the end of the day, you are addressing people’s needs and making them feel good,” he said.

Saffron Consultants Vice President Keith Miller equated the current global environment to the disorder of a Jackson Pollock painting. To rise above the confusion, he encouraged digital entrepreneurs to take a step back and focus on real human needs.

“It’s less about data and technology and more about moving forward on what we really feel and think,” he said.

He contrasted successful, socially focused campaigns by Audi and Heineken with failed attempts like Pepsi’s recent commercial featuring Kendall Jenner. Mr. Miller said the difference stems from authenticity, and creating a purposeful, relevant message.

Tamara Gaffney, principal analyst for Adobe Digital Insights, encouraged businesses to focus on creating worthwhile information that will stand out in the saturated internet market. As users swtich to mobile and spend less time on individual websites, she said mass-produced content no longer works. Websites must earn public attention.

“Our attention spans are fast. We are very loyal until we’re not,” she said.

The conference concluded with a catamaran ride for guests Thursday evening, April 27, and a networking brunch Friday, April 28, at Abacus Restaurant.

Other international IMA conferences are held in Dublin and Singapore.

Home-growing a compliance profession

Lisa Bowyer

You are only as good as your people. No matter the country or company, competent, diligent and happy people make for success. Compliance personnel are no exception. Unfortunately, the role of the compliance officer is commonly underestimated and understated. It is so much more than an administrative role or simply processing KYC documents. It is rather like playing goalkeeper in a ball game. Human nature is ultimately the problem as most people don’t like change and don’t like being told something that they don’t want to hear.

The compliance officer role may be prescribed by a job description, regulator or the courts, but at the extreme end of the spectrum the CO is a gatekeeper whose role is to stop and prevent wrongdoing and be the first line of defense against fraud, market abuse, and misconduct. Quite a tall order.

In the Cayman Islands and other smaller financial centers, particularly those with a buoyant market predominantly comprised of small to medium sized entities, the compliance role has suffered stunted growth. In many cases SMEs have not been able to warrant a full-time compliance officer, resorting instead to outsourcing or sacrificing competence and independence by assigning the role to someone who also performs other functions.

This presents certain challenges considering the CO responsibilities and role.

‘Tone at the Top’

“Tone at the Top” is a rather catchy phrase, but don’t let that distract you from its importance. The compliance officer is appointed so the board can delegate its responsibility for compliance, but that is easily forgotten such that board members often ask CO’s, “Remind me, why are you here?” Senior management sometimes worries about personal liability and criminal allegations, but still it can be difficult to convince them of the risks, and while it is important to be able to bring issues to the board, CO’s can easily and quickly make enemies of senior management, putting their future careers at risk.

The board’s understanding and interest in the compliance system varies considerably from company to company. The CO with the right skills can help improve the board’s understanding and interest and how a strong compliance culture will improve competitiveness and reduce risk which should be quantified as a cost. But those skills are in short supply, and it might be rare for the board to act on CO recommendations.

Compliance manuals are an art and a science, but even the best example will not be enough to prevent or even mitigate risk. Without authority or teeth to enforce compliance, the manual or written controls will be ineffective.

The CO is often the internal adviser on questions that may extend beyond the job description. This can be an interesting aspect of the role, but the CO needs to be able to discern when they are being framed as the scapegoat for future problems. Aside from encouraging staff to trust the CO and communicate with them, contrary to most people’s perception, CO’s need to be in the business field. In short, the CO needs business acumen to add value. Only then can the CO make a positive contribution to protecting the company.

 The best compliance officers

The best CO’s are akin to consultative business advisers that translate legal obligation into business solutions effectively and efficiently as part of a change management strategy to protect the reputation of the company.

Are CO’s introverts or extroverts? This can be significant as their personality may determine their effectiveness and staying power. The role can be very isolating; people run when they see a CO coming and generally are guarded in their conversations with them. There is a strong temptation for COs to keep themselves locked away in a dark room, but that will not cut it. CO’s need to be visible and involved. However, while becoming pals with the account managers and business leaders improves accessibility and the CO’s contribution, there is a need to maintain independence and skepticism – a very difficult balance to achieve and only possible for those systematic persons of the highest integrity.

Who will train the CO’s?

Who will deliver the company’s compliance training? While there are advantages to periodically bringing in outside educators and experts to supplement or support the CO’s messages, generally there is no place like home when it comes to compliance training. Frequent short and effective training sessions are perfect to communicate and embed the message. Knowing that the compliance message is continually updated and consistently applied can be a game changer for the compliance culture of the firm. But how many people have the skills to deliver informative and enjoyable training?

The risk assessment is the foundation of the compliance system, yet some CO’s may have no relevant experience and may be excluded from the process (because “compliance risk” is considered to be a subset or not included at all in the overall (enterprise) risk management of the firm, and yet the risk assessment may be only way to illustrate how the spend will reduce risks and overall cost.

If the CO is the primary contact between the company and the regulator, clearly professionalism and the ability to respond quickly and appropriately will be important. In recent proposed amendments to the anti-money legislation in Cayman, the compliance officer is described as a “Liaison Official,” which suggests that the CO will be required to act in the best interests of the company while balancing certain responsibilities to the regulator. Sometimes the regulatory requirements are not crystal clear and it is then easier to be more guarded.

In conclusion then, CO’s only need to have skills of professionalism, commercialism, leadership, communication, passion, customer focus and accountability, comfortable with managing change, problem solving, decision making, planning and organizing. What’s the problem?

The problem is that persons with all these attributes are a rare find. Much of the above can only be acquired by experience, like how a car accident tends to make people more careful drivers. It seems then that given increasing regulatory risk, the CO role is vital and challenging, and consequently competent CO’s remain in high demand and short supply.

RE/MAX Cayman Islands marks 25 years, and some ‘firsts’

Kim Lund and James Bovell at the Breast Cancer Gala in 2016.

When Kim Lund introduced RE/MAX to the Cayman Islands 25 years ago, the real estate company did not have a presence outside of North America.

Despite Cayman’s small size and population, Lund convinced the company to take a chance on the rapidly developing market.

The risk proved worthwhile. The Cayman office, launched in 1992, would become the first of many international locations for RE/MAX.

The company now has more than 7,000 offices in more than 100 countries.

In Cayman, where the market was in its developing stages, Lund found great growth potential. By 1997 and 1998, he ranked as the No. 1 RE/MAX agent in the world.

The one-man show quickly expanded and RE/MAX Cayman Islands now includes 16 agents and 12 support staff.

“Cayman has always been an incredible place to live, work and for tourists to visit. However, we didn’t have the critical mass to really attract a lot of attention internationally,” Lund said.

“With development over the last 25 years to where we are now, we are getting a lot more awareness from the international market.”

In the endeavor’s first year, he took on Edna Ebanks as his first agent. She is still with the business today. Lund says much of the company’s success has stemmed from its ability to attract and maintain high-quality agents like Ebanks.

The company’s beginning days also brought in agent James Bovell, who started at RE/MAX early in his real estate career.

Four years after joining the company, Bovell became co-owner. That year, 1998, proved to be a challenging time for RE/MAX. The company lost its office manager and wife, Brenda Tibbetts-Lund, to breast cancer.

This loss would be one of many challenges that put RE/MAX to the test over the years. In 2004, the business and the Cayman Islands suffered extensive damages from Hurricane Ivan. Four feet of flooding destroyed the company’s computers and filing cabinets. Bovell recalls staff taking wet files home to hang out to dry and then iron page by page, before re-filing.

The following year forced the company to focus on recovery, both internally and with clients in the community. Business dropped by 37 percent that year, and agents wouldn’t close a sale for six months, Bovell recalled.

Ultimately, he believes the rebuilding process made RE/MAX stronger.

“Ivan to me was one of those things that created an opportunity to be tested,” Bovell said.

“It was a shining moment to work together and rebuild.”

The global financial crisis in 2008 dealt another unexpected blow to the company. This period brought low capital appreciation and sales became difficult, Lund said.

Despite these challenging years, RE/MAX pulled through once again.

“We’ve now come out of that and are in a totally different cycle where we have good capital appreciation for different properties, and more demand than supply,” Lund said.

He now has significant interest from baby boomers looking to retire and settle in Cayman, particularly along Seven Mile Beach. He has seen interest grow as well beyond the main tourist spots.

“The other striking thing over the last 25 years is that the growth has gone all over the island now. It’s everywhere now, whereas 25 years ago it was predominantly in the capital and in the tourism centers or towns,” Lund said.

“It’s always going to be weighted where more of the conveniences are located, which are George Town, Seven Mile Beach, Cayman Kai and East End. However, all of the in-between areas now have homes or developments scattered across.”

As development continues and companies like Dart drive construction projects, Lund expects the company to continue growing. New restaurants, road improvements and housing developments have all made Grand Cayman a better place to the live, he said.

“We are no longer the ‘land that time forgot’ and people are becoming more and more aware of what we have to offer,” he said.

Brexit: Article 50 triggers start of long, difficult journey

Andrew Baron, Butterfield

Financial markets are considered good discounting mechanisms, but they don’t always get the probabilities exactly right. One of these skewed probability moments is currently playing out in markets. We believe that financial markets are pricing too rosy a scenario for Brexit, despite the increasing agreement that this is a voyage into untested and uncharted waters.

Regardless of whether Theresa May wins a greater “mandate” with her decision to call a general election prior to negotiations, the triggering of Article 50 by the U.K. was simply the beginning of a very long and difficult journey, and associated with that journey there could be an equally long road of market volatility and low growth.

There are those who still believe that the negotiation is with a singular body, the EU, but they clearly have not been paying attention to recent history; this is a negotiation with 27 sovereign states, all of whom have different political realities at home and cosseted domestic industries to protect. Take, for example, the EU’s trade negotiations with Canada on the recently signed CETA pact. Canada may be a country of vast surface area, but it has a GDP only a bit bigger than that of Spain. It took the EU and Canada five years to negotiate that bilateral trade agreement, another three to get it ratified by the EU Parliament and even then, it was nearly scuppered at the last minute by a regional legislative body in Belgium (the Walloons… and no, we are not making that up).

To think that negotiation between the U.K., the fifth largest economy in the world, and the EU, the second largest, is going to yield a disproportionate economic benefit to citizens of the smaller of the two is not credible, in our view, but we can virtually guarantee it will not be negotiated quickly.

Our point here is not to predict a doomsday scenario. We have no tangible reason to believe that exiting the EU is going to cause economic Armageddon and we certainly have not positioned our client portfolios for it. However, there is a much more mundane, much more plausible scenario in which U.K. growth is structurally impaired for a number of years. In fact, the Bank of England recently produced something called an “exploratory scenario” that takes currently observable macroeconomic trends and either continues their trajectory or only makes them slightly worse. A scenario where growth takes a massive hit from Brexit might make good headlines but has a low probability.

The Bank of England scenario is interesting to us precisely because it posits a higher probability outcome: stagnation. It highlights several features of the macro picture in the U.K. that make us think there is little wiggle room for the Brexit negotiators to get it wrong. Specifically, three things fall into view as most important to us. First, base rates are near zero and the Bank of England is already engaged in quantitative easing at a rapid pace. This lowers the flexibility of monetary policy to respond to any lower growth that comes from Brexit. Second, business investment as a percentage of U.K. GDP is near its lowest level since 1960 and did not quickly or sufficiently recover from the Global Financial Crisis, a phenomenon also seen across the other G-7 economies. Visibility on the U.K.’s ability to attract fixed investment will remain especially low over the exit negotiation period and there is little scope for investment to fall without becoming a drag on GDP.

Finally, productivity levels in the U.K. are amongst the worst in the developed world (along with Europe and the U.S., to be fair). It is difficult to see how productivity would improve under the shadow of Brexit uncertainty, so again there is sufficient scope for disappointment due to low or falling productivity.

We sincerely hope, as President of the European Council Donald Tusk said on the day of the Article 50 signing, that the U.K. and the EU can work “constructively” and become “close partners,” but we are not prepared, at present, to increase risk for clients in a country with an uncertain future, and we are positioned for increased volatility. The protracted negotiations also influence the value of the U.K. currency, and therefore it is likely that Sterling’s fortunes will be affected largely by the ebb and flow of news emanating from Brexit talks. Barring any near-term, material shocks to the U.K. economy, it could be argued that, in the very short term, the pound may enjoy a period of relative stability until a clearer picture emerges as to how these negotiations are proceeding. Since the start of 2017, Sterling has recovered some ground versus the U.S. dollar and is broadly unchanged against the euro. However, downside risks continue to dominate for the time being.

The views expressed are the opinions of the writer, and while believed reliable may differ from the views of Butterfield Bank (Cayman) Ltd. The Bank accepts no liability for errors or actions taken on the basis of this information.

OECD tax chief: Cayman must get the narrative right to continue its success

Pascal Saint-Amans

Cayman will remain a successful offshore financial center if it changes the message it has sent out to the world over the past decades, according to Pascal Saint-Amans, director of the Centre for Tax Policy and Administration at the OECD.

“You need to get the narrative right, and the narrative will be right if it is based on substance,” he told delegates at a tax transparency conference hosted by the Cayman Islands Ministry of Financial Services in April.

Cayman needs to explain what is happening in the jurisdiction, but, he added, “you need to understand the outside perspective that is full of suspicion about how there can be so much business in such a small jurisdiction without any substance.”

Politicians and industry representatives should stop with the narrative used 20 years ago that offshore centers lower the cost of capital by allowing tax avoidance.

Yes, tax avoidance reduces the cost of capital, but it also deprives countries of taxes that they are entitled to, he noted. Moreover, this type of argument has a “certain smell,” Saint-Amans said. It was going to work and Cayman did not need it.

The head of tax at the OECD believes Cayman already has a good narrative if it focuses on properly dealing with any past misconduct and if there is a good strategy for making beneficial ownership data available and accessible.

Legacy issues exist even in the most advanced jurisdictions, and the U.S. Department of Justice together with public pressure from campaigners and whistleblowers should make the business community focus on past conduct, Saint-Amans said.

The next big thing ahead will be the issue of beneficial ownership, he predicted, but acknowledged the public availability of information on who truly owns Cayman-based companies and other entities raises privacy concerns.

“It is true, there is an issue of privacy and that is why privacy is at top of the OECD priority list.” The same applies to the automatic exchange of tax information.

The big challenges ahead in terms of tax information exchange are all about implementation.

The OECD will design terms of reference and a methodology for the assessment of the compliance with the standard of automatic exchange of information.

While it is easy to assess compliance with the exchange of information on request by simply asking the partners whether they are satisfied with the information they received, this is not the case with automatic exchange.

Partner countries can assess the information they get, but there may well be information that they are not receiving, Saint-Amans said, because part of the industry will withhold information from the government. That is where you have the challenge.”

Even a very compliant government could face the risk of some operators not being compliant.

The countries that want more transparency will need success stories to demonstrate that the system works, the OECD tax chief said, and claimed that this was also in the interest of offshore centers to stop further leaks of client data.

“It is like water running through the pipes. If it is blocked because there is too much secrecy, you will have leaks,” he said.

The objective of the conference, titled “Tax Transparency in the Global Financial Services Ecosystem,” was to put the global tax system under a microscope and to challenge assumptions about its nature and functioning.

Speaking at the conference, Minister of Financial Services Wayne Panton defended government’s engagement with proponents of tax transparency, stating it has made Cayman stronger.

“The Cayman Islands financial services industry overall is in a strong position – perhaps our strongest position ever – and we have achieved this while complying with global regulatory standards that are consistently improving tax transparency, for the benefit of all countries.”

Late May means anything is possible for HR professionals

Krystle DeSilva

When Chris Bailey’s “Anything is Possible” conference kicks off on May 26 at the Kimpton Seafire, a handful of speakers will pose some probing questions – and 200 listeners will weigh innovative answers.

The event at Cayman’s newest resort is Bailey’s fourth human resources gathering – and his first since joining PwC last year as director of human capital consulting.

The eight-speaker roster features a range of women and men prepared to lift from its traditionally worn pathways the often-staid subject of human resources and succession planning. Bailey, president of the Cayman Islands Society of Human Resource Professionals and master of ceremonies at the daylong event, says the challenges are more pressing than ever, and companies’ responses are equally critical.

While not scheduled to deliver an address himself, Bailey nonetheless promises “a few surprises” at the formal opening.

He laments a growing corporate culture of “instant gratification,” warning that no shortcuts substitute for “time, commitment and passion.”

“My aim with this theme is to remind people that if you still have those things, then anything really is possible.”

For example, speaker Bryant McBride, former National Hockey League director of new business development, will tell how he woke up as he “went under.” The idea that “anything is possible” started on July 29, 1984, three weeks into his freshman year at the U.S. Military Academy at West Point, as he was wheeled into an operating room.

The tale is hard to hear. “I was playing soccer. I pushed the ball back to the goalie. I destroyed my knee. I knew it was destroyed as I fell. They pulled me off the field on a stretcher and called my parents.

“I was wondering what had just happened,” he said. “The last thing I heard before the anesthesia kicked in was an army officer telling my parents that I was going into surgery and that they should not bother to come as there was nothing that they could do to help.”

The operation was the next morning – and discharge within hours. As he sat on a curb waiting for a wheelchair, “I saw a four-star general walking toward me. I tried to get up to salute, but couldn’t.”

The general ordered McBride: “‘Get up! I don’t know who or where you think you are.’ He chewed me out. He had disgust on his face. I was devastated.”

He returned to his room and passed out from the pain and 90-degree heat.

“When I woke up, it was 7 a.m. I looked out the window and saw my classmates in the field. They were ordered to run back to the dorm, clean up, make their beds, put on a full pack and be back in 17 minutes.

“I realized I was out of the pipeline, but was one of 12 people in my squad. I thought if I can make all the beds, we’ll save time and we can win.”

The job took an hour, “in excruciating pain,” but he finished. The group achieved the 17-minute deadline and McBride’s story became legend. His 1,400 classmates elected him the academy’s first African-American class president that year.

The story illustrates his call for “boat burners,” the pivot of his hourlong “Building Your Dream Team” talk. The concept, he says, originated in the Roman invasion of Britain. As the warriors scaled the Dover cliffs, he says, they “had to make a statement, so they pulled their boats onto the beach and burned them,” demonstrating “we’re not going back; we’re here to stay.”

“Boat burners,” he says, “is a term we use in an entrepreneurial team, “meaning only 100 percent commitment is acceptable. “I only want boat burners on any team. It’s an attitude, a mentality, when approaching a task or mission.

“Boat burners are a special breed – they are the most-critical members of any team – the ‘glue.’ Teams without boat burners rarely win – teams stocked with boat burners rarely fail.”

He says he could not have known at the time of his injury – three days, groggy with pain and perspiration – “that I would receive insights and lessons that would serve as a daily reference point throughout my entrepreneurial career.

“I hope I can provide insight and delve into topics that will help us all think critically about facing down great challenges, building great teams to do so and quite simply how to use practical, proven tactics to succeed,” McBride says.

Today, McBride operates Burst, a video service similar to YouTube, without the objectionable content. The site supplies TV stations in 50 U.S. markets with, for example, weather videos shot on mobile devices, showing ground-level conditions as a tornado batters a neighborhood.

Family and sports are his focus. “Everyone has a camera in their pocket and you take videos, feeding them to Burst, but it’s good and useful” and, unlike broader social media, “it’s not murder and violence.”

Commitment is key

Commitment figures high on Bailey’s list as well. Recounting relatively humble origins in Britain’s Birmingham, and a handful of subsequent accomplishments, the emcee says he could not have guessed at the distance traveled, “but, hey, anything is possible if you commit.

“At the end of the day, our conference, regardless of theme, aims to educate and inspire, whilst having some fun.” Even a modest impact will serve a critical purpose, he says.

He expects between 150 and 200 delegates – “HR professionals and directors from all industries on island” – and plenty from around the region, “mainly Cayman, Bermuda, Jamaica, but we have had some delegates from North America.”

Among the Bermudans is Krystle DeSilva, associate vice president and human resources business partner at Hamilton-based insurance broker and risk manager Marsh, a subsidiary of New York’s Marsh & McLennan Companies.

DeSilva will discuss “Lessons from the Bermuda HR Association,” surveying potential synergies and “similarities that Bermuda has with Grand Cayman … along with other similarly smaller jurisdictions. Our HR professionals face common challenges and opportunities. I believe we have much to learn from one another,” she says.

DeSilva wants to rebalance the tasks of HR, involving it “with business decisions, imparting knowledge and influencing strategies.”

Traditionally, HR focuses on “everyday operational and transactional work,” meaning “personnel assistance and functions,” and “routine transactions like data entry.”

She acknowledges those are critical for any company, but says they make it harder for HR departments to embrace a more-productive role, especially in the face of economically driven imperatives to streamline and “do more with less.”

“Strategic guidance and influence has taken a back seat,” DeSilva says, but “it’s clear that this is the opportune time to make a shift, to find a balance between operational and strategic.

“By offering guidance, we have the ability to influence our company’s culture, performance, reputation and overall success.”

‘Anything is possible’

DeSilva points to the “C-Suite” – chief executive, administrative, financial, technical and operations officers – and, underlining the conference theme, calls HR managers “equal partners.”

“Anything is possible for HR. We must make and utilize opportunities with our C-suite leaders, creating dialogue, advising of upcoming trends, providing local data and benchmarking information, creating employee-specific initiatives and ensuring that strategic goals and performance tie in with company objectives,” she says.

Like McBride and Bailey, genuinely earnest about the task, DeSilva says “HR officers are able to have an impact on any company, on our employees, managers, and business leaders, on an organization and its direction, everyone with a company.

“We can influence every area of an organization and its success. The business world is at our fingertips, and we just have to grasp it,” she says.

If the task is daunting, McBride nonetheless points to “four years of college hockey … and 26 marathons” on his repaired knee, and Bailey remains undeterred, alluding, if obliquely, to the West Pointer’s immediate post-operation experience.

“The theme for doing an Ironman event, is also ‘Anything is Possible,’” he says. “It encourages you not to give up, to keep going. If you fall down get back up. If your goal changes, make a new goal; just don’t stop believing you can do something.”

Local HR professionals are frequently passionate about expanding the traditional limits of their roles, he says, seeking to boost their companies. But perennial resistance to increased functions makes an already hard path even harder, as “we strive for a seat at the table to represent great human capital strategies such as succession planning.

“Succession planning needs to be at the heart of any good HR strategic plan,” Bailey says, but worries that Cayman’s top talent is too often frustrated by the limited vision DeSilva describes in the “C-Suite.”

The best practitioners are readily “attracted away both domestically and internationally” to a broader world stage, “and maybe you’re not doing enough to keep [them],” Bailey says.

However, succession planning and “do more with less” pose their own set of dangers to even the most-ambitious companies, most-informed HR managers and best-intentioned owners, tempting them to single-minded, but isolated, efforts at change.

Missouri-born change-guru and motivational speaker Andy Masters is the author of five books on sales and service, leadership and personal development – and one of only a few “certified speaking professionals,” a designation established in 1980 by the National Speakers Association.

He kicks off the speakers’ program with an hourlong “HR Lessons from Hollywood,” and promises a “unique program,” illustrating his talk with clips from “The Devil Wears Prada,” “The Iron Lady,” “Apollo 13,” “Frozen” and “Star Wars.”

Masters also promises the latest research from Harvard Business Review, Deloitte and Glassdoor “to provoke real organizational change,” and “immediate ‘take-home’ action items to help HR develop millennials and future leaders in today’s new economy.”

Echoing Bailey and DeSilva, Masters says “HR leaders must develop and empower their organizations,” defeating ‘do more with less’ and crises of succession planning.”

“Do-more-with-less,” he says, “leads many to fall into [a] ‘do-it-all-myself’ trap,” creating a “control freak” corporate culture.

Managers “wear multiple hats,” and owners start to drown “because of their obsession to have a hand in all facets of the business, every day,” he says.

Seeking remedies, companies promote their best performers to management and their management to wider leadership. Seeking to prove their competence in those new roles, they decline to delegate, feeding the “do-it-all-myself” cycle.

“Overworked, stressed-out micro-managers” create a “high-stress, high-burnout, high-turnover, low-quality and low-morale” environment, Masters says, exacerbated by needless costs as high-salaried officers do the work of lower-salaried employees.

“Leaders who don’t effectively delegate” not only distract time and attention from more-important projects and responsibilities, Masters says, but also demonstrate a “lack of leadership,” which in turn “squelches employee development, negatively impacts succession planning and even causes a direct ‘negative ROI’ impact,” a counter-productive outcome as human resources are used ineffectively.

“A leader isn’t the person who takes on all responsibilities,” Masters says. “A leader is someone who empowers and inspires others to achieve the goals of the organization as a team.”

Calling it “a crisis,” if “easily resolvable,” he calls for a hard look at corporate cultures in which “leaders can see the forest through the trees … where leaders understand the big picture of the organization, set high goals and have tangible plans to achieve those goals … where leaders are masters of developing, empowering and delegating … where leaders hire talented people and provide them with the resources, support, coaching and inspiration to flourish.”

Training and development are critical to any organization, which must offer “a plan – 100 percent supported by each manager – for each of those talented employees.”

“This creates an upward distribution of responsibilities, where talented employees are encouraged to take on more, accelerating their development, while freeing up valuable time for the leader to focus on top objectives. This environment leads to higher morale, lower turnover, higher achievement and improved succession planning.”

Succession planning

While Bailey does not speak directly to Masters’s admonitions, he nevertheless embraces succession planning as both a fundamental need and critical HR “deliverable,” outlining a six-point plan.

“The approach has been designed ‘fit for purpose’ for many companies,” he says. “It builds upon PwC’s approach to succession planning and is tailored to address unique talent-supply challenges.”

Bailey starts with “define,” involving basic scrutiny of the purposes of any planning program, its scope and executive support within the company.

The second stage, “assess,” he says, triggers “data and document collection [to] determine the readiness and organizational context to customize our recommended succession-planning approach.”

“Construct,” he says, is “when the creation of the strategies, the communication, and writing takes place.” A broad-based effort, it surveys “regional, industry, and economic parameters unique to the company.”

Building blocks in place, the “test/validate” stage may take up to a year “to make tweaks and test the appetite for development and progression of those deemed to be part of the talent pool,” Bailey says.

Only at that point, does the extended hard work of “implement” begin, he says, as “the program is fully rolled out, and communicated in a transparent form” throughout the company.

Finally, the “evaluate” phase is ongoing, a kind of permanent evolution in which managers monitor the initiatives, tracking, documenting and reporting outcomes to C-Suite executives and the board of directors, Bailey says.

He acknowledges the succession-planning scenario is an ideal, but sketches it in the context of “anything is possible.”

“If we make an impact in just a few delegates, that will still permeate through the workforce with new ideals, inputs and practices,’ Bailey says.

“I would be happy to chat with any company looking at implementing a fit-for-purpose succession plan,” he says.

Israeli tech-sector stocks have a lot to offer

Juergen Buettner

The country of Israel has developed into a small, but fine stronghold of high-tech. Israeli-owned companies in the sector have had a good run on the stock market for more than a year now. Quite rightly, as details prove.

While U.S. corporations dominate not only the world’s stock exchanges, but also the technology sector, other nations have made notable contributions in the tech sector as well.

The 10 most valuable companies in the world came from the United States at the end of last year, according to a survey by Ernst & Young. Five technology companies ranked in the top seven, including Apple, Alphabet, Microsoft, Amazon and Facebook.

Israel, meanwhile, despite its small geographical size, 8.5 million inhabitants and difficult geopolitical situation, has nevertheless succeeded in establishing a high-tech sector with a first-class reputation.

Strong entrepreneurial mentality and lively startup scene

Israel’s reputation in the sector is not generally known, however, because its industry representatives are more likely to act as suppliers rather than have direct contact with consumers. The country, which is less than 1/400th the size of the United States, developed the Intel processors, operating systems Windows NT and XP, the USB stick and the ICQ program. In addition, 12 Nobel Prize winners have Israeli roots.

Israel is second in the World Economic Forum’s ranking of the most innovative countries. Only Switzerland is regarded as more innovative. Further, Israel spends more on research and development as a share of its domestic resources than any other developed country – 4.25 percent of GDP, according to the OECD. That compares with 2.79 percent in the U.S. and 2.4 percent on average for OECD-countries.

The information and communication technology industry in Israel has a share of more than 20 percent in the value-added chain, the second highest share among all OECD members after South Korea. According to a study by the German External Economic Center in Bavaria, around 1,400 high-tech startups and 18 new venture capital funds were set up in Israel in 2015. In total, 70 venture capital funds hope to find the “next big thing” to invest in.

In addition, 320 international corporations have set up their research and development centers in Israel.

Popular takeover targets

Politics has also contributed to this success story. Responsible lawmakers created early institutional structures and business-friendly legislation, as well as support programs for innovative startups, the Bavarian Foreign Economic Center reports. As a result, Israel is also very successful in information and communication technology, medicine and pharmaceuticals, agro-technology, cybersecurity and the defense industry. The proximity to the military industry and to first-class research facilities has been a key advantage in Israel’s becoming a leader in technology.

Israeli technology companies are also well positioned due to the fact that they are popular takeover targets. Recently, Mobileye, camera technology specialists, and Advanced Vision Technologies, provider of optical online inspection systems for the print industry, had takeover offers from Intel and U.S. conglomerate Danaher.

According to consulting agency PwC Israel, the majority of the takeover activity in the past two years was related to information technology and business software companies. Cukierman Investment House expects the strong foreign investment in Israeli high tech to continue in 2017. Particularly lively activity is expected from Chinese companies whose interest is primarily in medical technology and modern water and agricultural technology, the Israeli investment company said.

TASE-BlueStar Israel Global Technology Index closes in on record high

Despite all the success, listed Israeli technology stocks have not always been fast-sellers in the past 13 years, as seen on the TASE-BlueStar Israel Global Technology Index, which contains 56 stocks with connection to Israel listed on the stock exchanges in Tel Aviv, London, Nasdaq and New York. Launched at the end of 2003 with 100 points, the index dropped to 62.47 points by Nov. 20, 2008. Subsequently, helped by the bull market on the world stock exchanges that started in March 2009, it rose to 220.35 points by July 22, 2015. Then there was a temporary setback to 155.59 points, but since Feb. 12, 2016, the index has been rising, nearly reaching the old high. A new record would be considered a pro-cyclical buy signal from a technical point of view.

It is also worth noting that, until now, listed Israeli tech companies were generally not included in leading stock indices. For example, the S&P Global 1200 Info Tech Index does not contain any such stock, and the Nasdaq 100 index has only one: cybersecurity firm Check Point Software Technologies.

A comparatively simple way to invest in this theme is provided by the BlueStar TA-BIGITech Israel Tech ETF (Ticker: ITEQ). As its name indicates, the Nasdaq-listed ITEQ ETF seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the aforementioned TASE-BlueStar Israel Global Technology Index. As of March 31, the ETF has achieved 19 percent gains during the past 12 months. But remember: Past performance is no guarantee of future returns. And although this investment idea sounds promising in theory, it is always advisable to hedge positions with a stop-loss order. Finally, unexpected negative developments cannot be completely ruled out.

Greening Cayman and growing the economy

Premier Alden McLaughlin throws a tire on the shredder.

Six trucks carry the tires to the conveyor belt, which lifts them high above an industrial hopper, dropping them into a shredder that reduces each one to two-inch rubber chips in five seconds.

Despite an astonishing capacity to process between seven and eight tons of steel-belted radials – and others – each hour, Island Recycling and its Guernsey Recycling Group partner are likely to need nearly a year to process the half-million tires collected at the George Town landfill during more than a decade.

The shredding started on March 21, marked by Premier Alden McLaughlin donning work gloves and heaving the first tires onto the conveyor and into the maw of the high-powered machine, imported from Missouri.

The shredder’s discharge is dubbed “tire-derived aggregate,” destined for local use as an all-purpose fill for construction, drainage works, road-building, erosion control, landfill cover, “all kinds of possibilities,” says Mark Rowlands, assistant director for solid waste at the Department of Environmental Health.

Already, he said, home builder Davenport Development and planners at Frank Sound’s mixed-use residential-recreation Ironwood community have agreed to take “TDA” for their projects, and names government’s National Roads Authority as a prime candidate for the material.

Rowlands is enthusiastic, not just about the apparently endless – and practical – uses of TDA nor the aesthetics of clearing years-old environmental blight, but also, chiefly, about the economics it represents: “Every material has embedded energy,” he says, calling it “the key to the whole developmental life-cycle.”

TDA simply redirects and repurposes the energy embedded in half-a-million vehicle tires, he says. Instead of burning the scrap and wasting its vast embedded energy in thick coils of toxic, oily smoke, the shredder leaves it intact, recycling it into alternate uses.

McLaughlin spoke to the economic value of the effort: “I am very pleased that we have begun work today on shredding these tires and that the waste can be used for construction projects on-island. This is a major moment as we consolidate our commitment to resolving the landfill issue that has challenged many different administrations in the past.”

Other issues at the landfill

Tires, however, are not, of themselves the most significant problem at the landfill, which receives between 60,000 and 80,000 tons of solid waste every year. In the 12 months between March 2014 and April 2015 alone, the landfill gained 75,000 tons of refuse.

A September 2016 report by London-based engineering and project management consultants Amec Foster Wheeler – and partner KPMG – said if nothing were done, the annual intake of solid waste at the landfill would rise to between 100,000 and 250,000 tons during the next 50 years.

Rowlands, however, is doing something about it under the unwieldy acronym of “ISWMS,” (pronounced “IZ-wims”), the Integrated Solid Waste Management Scheme.

“We are shooting for the end of April to identify the preferred candidate to work out a waste-to-energy compost system and processing of recyclables,” he says.

The Amec-KPMG Sept. 19 Outline Business Case recommended a public-private partnership to execute ISWMS, citing governmental “scarcity of funding, lack of budgetary commitments or lack of expertise.”

Rowlands says government has “two strong bidders” to manage the project, but declines to name them.

Projecting a $10 million capital investment, however, Rowlands says the winner could take another year to launch the plan, estimated to take 25 years and operating costs of $538 million.

“We’ll work out a schedule of implementation once the contract starts,” he says.

Underlining the slow – if steady – pace of remediation, the business case calls for a waste-to-energy facility with a 53,000-ton capacity, operational only in 2019/2020; a facility to recover and bale recyclable materials, with an 11,400-ton capacity, operational in 2019/2020, (DEH already operates a small materials recovery facility at the landfill); a 3,600-ton waste-transfer station from Cayman Brac, also ready in 2019/2020; a 300-ton waste-transfer station from Little Cayman, also operational in 2019/2020; and, according to one government press release, “the potential introduction of curbside dry recyclable collections with a materials recovery facility post-2020.”

The report also envisions public recycling depots with a 1,300-ton capacity. Last June, DEH took over extant stations at seven supermarkets after local reprocessing company Junk – owned by former MLA and Minister of education Roslton Anglin – said it could not afford to continue.

Since launching the effort, DEH reports growing contributions at the stations, recording deposits last year of 192.6 tons of solid waste. For the second half of the year, DEH registered 20.34 tons of plastic, 42.74 tons of mixed paper, 19.78 tons of cans and 109.77 tons of glass and ceramics.

Through mid-February 2017 alone, DEH has collected 9.5 tons of plastic, 13.79 tons of mixed paper, 2.72 tons of cans and 28.3 tons of glass and ceramics.

Waste-to-energy efforts

Estimates are that ISWMS composting, expanded recycling and innovative waste-to-energy facilities could reduce landfill waste from 60,000 tons each year to approximately 10,000 tons, while waste-to-energy operations could generate up to 540 kilowatt hours of energy per ton.

Current recycling efforts, however, are preliminary to the larger ISWMS project, which anticipates island-wide curbside recycling stations. At present, the immediate goal is to minimize additions to the George Town Landfill. DEH has gained a modest boost from private industry.

For example, according to Gene Thompson, director of Health City Cayman Islands, waste-reduction initiatives have diverted 108,000 pounds of HCCI waste from the landfill, 68 percent of the facility’s output. Of that total, 46,635 pounds were recycled, and HCCI treated its own medical waste on-site in East End.

Additionally, through careful building management and diversification of heating, ventilation and air-conditioning systems, HCCI saved nearly 4.3 million kilowatt hours, translating to nearly 300,000 gallons of diesel fuel and 7.1 million pounds of carbon.

Water conservation and re-use for irrigation, cleaning and other non-potable activities has saved 7.2 million gallons and diverted 4.5 million gallons of effluent, he says.

Camana Bay, for its part, collects 200 pounds of aluminum daily at its own recycling stations, and gathers cardboard from its tenants, shipping it off-island through Foster’s Food Fair.

Dart Realty also collects glass and ceramics, feeding nearly 2,000 pounds per day (2 cubic yards) to its crusher – the only one in Cayman. DEH pulverizes all its glass at Camana Bay, which uses it “for a variety of purposes, especially construction. It has been incorporated into pavers, the road surface on new roundabouts and into decorative and functional items such as plant pots,” according to a statement.

At the same time, Camana Bay’s facilities team crushes fluorescent bulbs “in negative air in order to prevent mercury exposure to staff. The resulting crushed glass, phosphor, mercury and aluminum is all recyclable by specialist companies in the United States,” says the statement.

Dart’s Kimpton Seafire Resort and Spa, which opened in November, uses 7,500 LED bulbs and has used the material from the older crushed bulbs to adorn the walking and bicycle paths that wind through the hotel property.

National energy policy

Camana Bay’s enthusiasm for LED lighting also contributes to government’s other ambitious “green” initiative, an effort to create a long-term national energy policy.

A consultation document published in February seeks a path through 2037 “to reduce reliance on high-cost, imported fossil fuels,” which pose “a risk to the competitiveness of the Caymanian economy and the standard of living of residents and therefore an inhibitor to socioeconomic development.”

It follows a draft 2013 NEP and the 2016 creation of an NEP Review Committee. According to its introduction, the February document “sets the stage for the achievement of the territory’s energy goals and takes into account the imperative to reduce greenhouse gas emissions, thereby lowering the carbon footprint of the Cayman Islands.”

The plan “focuses on exploiting renewable energy, promotes energy efficiency and conservation measures and supports energy security by reducing the reliance on imported, fossil-based fuels.”

The 30-page document examines “lowering the carbon footprint of the Cayman Islands,” seeking to generate 70 percent of local electricity through renewable sources by 2037, and to limit 2020 greenhouse gas emissions to 2014 levels, reducing them 10 percent by 2025 and another 20 percent by 2037.

“More than 99 percent of energy demand in the Cayman Islands is met by oil products, largely diesel and gasoline,” the report begins. The Caribbean Utilities Company imports approximately 31 million gallons of sulfurous diesel fuel each year to generate commercial and residential electricity.

Authors divide the study into four sections: two pages reviewing energy use and policymaking; nine pages explaining four energy-efficiency goals; 14 pages providing strategic details for seven energy sectors – including transport, land use and buildings, water, climate change and the environment – and two pages describing implementation and monitoring. Two appendices complete the document.

Strategies include a broad range of public-education programs through schools, legislation and government-funded renewable-energy projects, including technological innovation.

Government will require local utilities to purchase renewable energy from third-party providers; regulators will help develop financing mechanisms to create “green financial incentives” for household-owned generating systems; new tariff structures will encourage energy efficiency; wind energy will be boosted by reviewing airport exclusion zones and restrictions created by East End’s Doppler Radar system; and regular reviews will weigh use of both liquefied and compressed natural gas.

The document calls for increased use of electric and hybrid vehicles, and commits government to reducing its own 1,100-vehicle fleet between 7 percent and 10 percent in the first five years of the policy.

It also commits to better and expanded public transport, using electric and hybrid vehicles, while developing a comprehensive network of bicycle lanes.

Building codes will set standards for ready incorporation and retrofitting of renewable energy systems into buildings, and demanding minimal standards for lighting, insulation, and cooling and ventilation equipment.

Among other ideas are water conservation and recycling; prudent disposal of waste oil; improved pedestrian facilities; traffic management and employee telecommuting; and a review of the 40-acre limit on Planned Area Developments, encouraging construction of commercial centers in each district, decongesting roads and central George Town.

James Whittaker, founder of solar designer and system installer Greentech, and chairman of the nonprofit Cayman Renewable Energy Association, said the 70 percent renewable-generation goal was a minimum target, amenable to more aggressive action.

A CREA implementation committee will consider more ambitious targets, he said, and quicker achievement of the survey’s 2037 peak is next, but would “keep the NEP on track” in the meantime.

Addressing the report and its admonitions about economic growth, Whittaker observed that “Ernst and Young and the Caribbean Development Bank suggest there are tens of millions of dollars to be spent in the next decade,” creating viable renewable-energy systems.

“If Cayman can set itself up as a regional hub,” he says, “we can grow this industry, become a pillar of the economy – and that means the money stays here and the intellectual property stays here,” rather than merely providing local labor and advice to projects elsewhere, then returning home to wait for the next telephone call.

Instead, he says, Cayman could create its own institutions, its own expertise, its own cadre of professionally accomplished people, “and we can build solar farms, grow our own resources and grow our competence.”

Solar, geothermal, LEEDS and the rise of the electric vehicle

Cayman's John Felder delivered the first electric car to Cuba earlier this year. Guyana's ambassador to Cuba Halim Masjeed took delivery of the Nissan Leaf.

The ceremony was less than “historic,” but marked a minor milestone as Cuba’s first electric car was handed over in Havana on March 17 to its Guyana Embassy owners by Cayman Automotive’s John Felder.

Felder’s U.S.-based Premier Automotive Export subsidiary of Cayman Automotive shipped the US-built, four-door Nissan Leaf to Havana in late February, abiding by the terms of the four-year license issued by the U.S. Department of Commerce‘s Bureau of Industry and Security authorizing Felder to ship American-built cars to the island state. Nissan builds eight models, including its electric-powered Leaf, in Tennessee and Mississippi.

The commerce department license was the first for a U.S. car company in more than 50 years, coming in the wake of Washington’s recognition of the Havana government in December 2014, and boosting Felder’s profile both regionally and locally.

He plans to send two more EVs to the Guyana Embassy and hopes to send them directly to the South American nation in the near future. Meanwhile, he has discussed EVs with eight more Cuba-based embassies and has provided a leasing quote to the Mexicans.

Cayman impact

It is in Cayman, however, that he has had his greatest impact through his George Town-based Cayman Automotive, trading largely in U.S., Japanese and Chinese trucks and cars since 2005.

In 2009, he became Cayman’s sole electric-vehicle dealer, selling the first “EV” to Camana Bay and installing almost a dozen-and-a-half charging stations across Grand Cayman, where he has put 52 electric cars on the roads. Another 15 gas-electric hybrids also ply the streets.

Camana Bay’s two-position charging station – outside Bay Market – is partially fueled by solar panels, but form only a tiny part of the development’s 11 Town Centre rooftop arrays.

The latest adorns the four-story, 86,000-square-foot office-and-retail block at One Nexus Way. Scheduled to open in the autumn, it is a twin to the adjacent 18 Forum Lane, which opened in January 2016.

The 100 kilowatt array atop the new building – like that next door – is linked to Caribbean Utilities Company’s Consumer Owned Renewable Energy program by which CORE customers sell to CUC all their solar- or wind-generated electricity, then buy it back at discounted rates as needed.

Nexus Way supplies its own hot water and boasts a 50,000-gallon rainwater cistern. Both it and its Forum Lane neighbor are certified “gold” by the U.S.-based Green Building Council under its “Leadership in Energy and Environmental Design” program, created in 1998 to promote efficient use of resources, particularly energy and water. The council issues LEED ratings on four levels: certified, silver, gold and platinum.

Energy efficiency

According to the camanabay.com website, One Nexus Way “will be one of the most energy-efficient commercial buildings of the region.”

Forum Lane, in fact, was the first mixed-use commercial building in the Caribbean to achieve LEED gold; Nexus Way will attract a similar rating; Camana Bay’s 68,000-square-foot, five-story 94 Solaris Avenue gained a LEED “certified” rating at its May 2012 opening.

In November, Dart Realty opened Cayman’s newest – and LEED silver – luxury hotel the 266-room, 62-residence Kimpton Seafire Resort and Spa.

Geothermal air conditioning cools residences and rooms, while a 143,000 watt, 469-panel CORE-linked rooftop solar array supplies most hotel needs.

Savings between 50 percent and 80 percent of standard lighting costs are achieved with 7,500 LED bulbs, while two 30,000-liter cisterns collect rainwater, augmented by a ground-level reverse-osmosis desalinazation system.

Camana Bay has no monopoly on LEED certification and solar arrays, however. A plethora of private homes, commercial buildings and government offices bear LEED ratings and solar installations.

REMAX Partner Michael Joseph lists 16 LEED homes in Cayman, nine either completed or under construction, and seven more in design.

Another six commercial structures, he says, are LEED certified, including the 150,000-square-foot, $85 million Government Administration Building, which opened in March 2012 with Cayman’s first LEED designation – silver – and Mary Street’s Arch & Godfrey construction-company headquarters, which earned the island’s first commercial “platinum” award last year.

LEED or not, most energy-efficient homes have been built by Endless Energy’s Jim Knapp and Greentech’s James Whittaker, also chairman of the Cayman Islands Renewable Energy Association.

Naul Bodden’s NCB Group, while not formally working to LEED mandates, has pursued comparable standards, building a dozen residential and commercial projects employing solar generation, often augmented by bill-busting geothermal cooling systems that last as long as two decades – and, saliently, keep heavy equipment out of the George Town landfill.

Knapp’s own home was the first in the Cayman Islands to go “off-grid,” generating enough power through its 80 panels and 72 storage batteries to enable him to sever connections with CUC and its national transmission and distribution network.

He has designed installations for homes in South Sound and Parkland Close, and took NCB’s Cayman Technology Centre off grid, the first in the Caribbean and the second in the Western Hemisphere – after a building in Seattle, Washington.

“It has 1,427 solar panels for the four buildings, 33,000 square feet, and 400 kilowatts of zinc-bromide battery storage,” says John van Ryswyk, owner of GeoCayman, NCB’s geothermal contractor. The center, he says, demands “about half” the 1.98 megawatts to 2.2 megawatts generated daily by the solar system, saving CTC’s Security Centre anchor tenant – occupying 16,000 square feet – $15,000 in monthly electric bills between solar generation and geothermal cooling.

NCB recently employed a “sustainability coordinator,” Steven Schiffbauer, who says the two systems have achieved efficiencies that mean “we are now past the point of viability, and are now profitable.”

Van Ryswyk rejects criticism that subterranean geothermal systems can only achieve cooling commensurate with Cayman’s 75-degree ground temperature, pointing to NCB’s Jacques Scott warehouse refrigerators.

“Heat always goes to cool,” he says. “You only need a temperature differential.”

“Geo” systems essentially work by removing warm air and sending it through a series of underground pipes set in an “s” configuration. Their interface with Cayman’s high water table and porous limestone substrate quickly wicks away heat, returning cool air to the building.

NCB’s Crystal Harbour developments include Cypress Pointe’s 19 residences – with Cayman’s first home-geothermal system – and Cypress Pointe North’s 38 residences, each with geothermal and between 62 solar panels and 88 solar panels.

The 26-townhouse Solara, adjacent to Cypress Pointe, and South Sound’s 24-condo Tides also incorporate solar and geo along with PEX piping –flexible polyurethane tubing and conduit replacing traditional, and highly toxic, polyvinyl chloride plumbing – and insulated concrete forms, an interlocking system of walls, floors and roofs creating a sort of sealed box that keeps out heat and preserves cooling.

ICF construction is integral to energy efficiency, says Whittaker, who designed Savannah’s “Sailfish,” the first LEED-certified home in the world, built in 2011 after GBC’s 2010 selection of Cayman, Saudi Arabia, India and China for its international pilot program for residential structures.

“It was a coup that we got ahead. We started right away building Sailfish,” Whittaker says.

He also designed Bella Verde, Dart Realty’s LEED-gold home in Salt Creek. Construction started in 2014 on the 6,920-square-foot, five-bedroom, two-level home, achieving energy savings of nearly 70 percent compared to similar, more-traditional houses.

In 2015, Bella Verde won the Governor’s Award for Sustainability, and subsequently sold just prior to completion

ICF, Whittaker says, is essential to a “good sustainable design,” which he calls “80 percent of the battle.” The right “box” – roofs, walls, windows and doors – yields almost zero energy consumption; is 95 percent free of indoor – and carcinogenic – “volatile organic compounds” such as pastes, glues, plaster, stucco and adhesives; largely eliminates ventilation to the outside – particularly near roads; filters water to U.S. Environmental Protection Agency standards, particularly for chlorine content; and eliminates PVC pipes as far as possible.

No electricity bills

He also retrofitted George Town’s Arch & Godfrey office, which, since its 2016 LEED-platinum certification, has “never paid an electricity bill.”

“In fact,” he says, “negative $15 was his [Managing Director Garth Arch’s] last bill,” meaning CUC has paid the company for its CORE-generated power.

“Garth’s house,” Mr. Whittaker said, “is at zero electricity now,” compared with an annual bill as high as $10,000 for a conventional home.

According to the company’s www.arch-godfrey.com website, the building started as a 100-year-old Caymanian wooden cottage … completely restored [using] all original materials … Features include the highest-efficiency solar system by SunPower, high energy-efficiency ratings, natural lighting, native landscaping and structural integrity to withstand Category 5 hurricanes.”

On April 10, local solar generation will hit a landmark as CUC and its North Carolina-based Entropy Investment Management partner turn on the first of five sections of Bodden Town’s 21,690-panel, 5 megawatt utility-scale “farm,” Cayman’s first.

Proceeding one week at a time, planners will finish commissioning the $6 million farm at the end of the month, pumping clean power into Cayman’s T&D grid, capping six years of sometimes-tortuous effort.

The Electricity Regulatory Authority and CUC initially sought 13 MW of renewable energy in August 2011, only naming two U.S.-based winners 26 months later.

The Chicago company subsequently dropped out, triggering a renewed selection process, while the Pittsburgh company sold its interest to Entropy, which formed local affiliate Entropy Cayman Solar Ltd.

Price negotiations dragged until Oct. 30, 2015, followed by U.S. financing problems that delayed the start of construction from Oct. 2016 until late-February 2017.

Built by local contractors Clan Construction and Mega Systems – with a small role for both Knapp and Whittaker – and managed by Gene Thompson, director of the Thompson Development Group and East End’s Health City Cayman Islands, and Ryan Smith, HCCI construction and facilities manager, the 22-acre Bodden Town array is at last largely complete.

CUC has finished its interconnection facility, enabling grid access to Entropy’s 5 MW of solar power, which it will sell to CUC at 17 cents per kilowatt hour. CUC will add its own base rate – approximately 10 cents per kWh – to Entropy, bringing consumer costs to 27 cents, comparable to diesel-generated rates of 25 cents.

Meanwhile, Thompson and Ryan are building a four-acre HCCI solar array, scheduled to start “by the end of the summer, maybe September,” Ryan says. In a quid pro quo with Entropy, the two are working with the U.S. company’s managing partner David March.

“It’s in the design stage right now, and we’re doing legislation and contracts,” Ryan said, estimating “another two months to complete the load profile and final design.

“We need a building permit and that probably takes two-and-a-half months, so we’re pushing [to finish] by the end of the year.”

The array will produce 0.75 MW, cost $1 million to build and require “seven years to pay back.” It will not be linked to CORE, Thompson says, hinting at a looming dispute with CUC.

“All the power goes straight into the hospital,” he says, indicating, however, the 0.75 MW may not slake the hospital’s thirst for power, requiring the utility to play a role. Air conditioning, for example, is among any hospital’s chief expense and HCCI’s salt-water-based cooling system remains some years distant.

Thompson declined to elaborate, but the complexities were recently compounded when CUC announced CORE had reached its 6 MW cap, leaving unclear the future of the scheme. Its 331 connected customers – and another 186 still deploying generation systems – will generate 5.88 MW, leaving little room for addition.

Last week, CUC said it had “declared” a renewable-energy portfolio of 17 MW, with 6 MW for CORE and another 5 MW for Entropy.

“The remainder of the portfolio and how it is assigned, is under discussion with OffReg,” Cayman’s new Utility Regulation and Competition Office, a spokesman said.

“CUC expects that with the results of its Integrated Resource Plan in the next few months, it will be in a position to deploy strategies and programs to increase the portfolio substantially from 17 MW.”

On Sept. 1, the company announced an 18-week “IRP,” a consultant-led study described by Vice President for Customer Services and Technology Sacha Tibbetts as an effort “to analyze all energy resources that are viable and [to] consider their cost, reliability, environmental impact and other aspects,” yielding “a recommended portfolio of energy resources for the market.”

The 30-year forecast would ensure “all energy options were explored” as CUC decided what the grid could accommodate “in a safe, reliable and efficient manner,” positioning the company “to better understand the needs of the community” ensuring it had “the right energy resource mix for the future,” according to a Sept. 1 statement.

CUC said last week, however, that Virginia-based Pace Global Energy Services had missed the mid-January deadline. A spokeswoman was unable to predict when the study would finish.

“The consultants are still working,” she said. Since September, they had “participated in two public consultations and plan to have a third one before they present their findings to CUC.”

“As soon as I have the dates,” said, “I will let you know.”

The Rolls-Royce of reminders for Cayman’s regulated entities

Dickson and Peedom

On Jan. 17, 2017, Brian Leveson, QC, approved the entry by Rolls-Royce and the Serious Fraud Office into the largest deferred prosecution agreement of its kind. In what is a timely reminder for all regulated entities – including those in the Cayman Islands – Rolls-Royce’s cooperation with the regulator was considered to be an important factor in determining that the DPA was appropriate.

From a local perspective, the judgment is influential, because it highlights the importance of the provisions in the enforcement manual issued by the Cayman Islands Monetary Authority which address the level of cooperation by a licensee and the fact this is a key consideration when CIMA is determining what action it should take.

Background

In 2012, postings on Rolls-Royce’s website about its business dealings in China and Indonesia came to the attention of the Serious Fraud Office. It caused the SFO to seek information from Rolls-Royce about its dealings with seven countries and ultimately led to the biggest single investigation conducted by the SFO.

Once it had been contacted by the SFO, Rolls-Royce immediately commenced its own investigation, which led to an internal report on the findings into these and other issues, which the English court described as “the most serious breaches of the criminal law in the areas of bribery and corruption (some of which implicated senior management, and on the face of it, controlling minds of the company).”

However, the court considered that entry into a deferred prosecution agreement – rather than a criminal prosecution – was appropriate for a number of reasons, including, but not limited to: the change in membership of Rolls-Royce’s board since the investigation had commenced; the impact a prosecution might have on the company and its stakeholders, including its 50,000 employees, shareholders and suppliers; and the saving of significant time and money which would otherwise form part of any prosecution.

Another important factor was that a deferred prosecution agreement “will likely incentivize the exposure and self-reporting of wrong doing by organizations in similar situations.” The point about “self-reporting” then led to an analysis of the “extraordinary cooperation” by Rolls-Royce with the Serious Fraud Office’s own investigation.

The consequence of entry into the deferred prosecution agreement is that criminal proceedings, which might otherwise be instituted, are suspended on condition that Rolls-Royce complies with strict measures imposed under the DPA, including the payment of a very significant financial penalty, the disgorgement of profits arising from the company’s misconduct, and the implementation of a compliance program which would avoid similar breaches occurring in the future.

The benefits of cooperation

In approving the DPA, the court noted that the “full and extensive nature of [Rolls-Royce’s] cooperation has led to the acquisition, and application of digital review methods to over 30 million documents.”

It separately noted the provision by the company of documents relating to its internal investigations, cooperation with independent counsel in the resolution of privilege claims, the provision of recorded interviews and findings on a rolling basis and liaising with the SFO and agreeing on how to approach any media enquiries. While Rolls-Royce’s conduct did not amount to self-reporting, the court was prepared to accede to the SFO’s submission that it should be treated as such, because of the level of cooperation exercised by Rolls-Royce as soon as the SFO’s investigation commenced.

In practical terms, the company’s level of cooperation resulted in the court applying a 50 percent discount to the financial penalty that was to be imposed on Rolls-Royce, which, applying the discount, reduced the penalty to 239,082,645 pounds(about US$300 million). Together with a condition that it disgorge all profits received as a consequence of its criminal conduct, this amounted to a total financial penalty of 497,252,645 pounds.

Rolls-Royce was also ordered to pay the SFO’s costs of approximately 13 million pounds on an indemnity basis. However, the economic benefit of its cooperation with the SFO cannot be overstated.

CIMA’s enforcement manual

The manual refers to the effectiveness of CIMA’s regulatory regime depending “to a significant extent on the maintenance of an open and cooperative relationship between the Authority and those whom it regulates.”

In considering what action to take, CIMA will take into account: “The willingness and ability of the licensee to cooperate with and assist the Authority in terms of its investigations and recommendations. This includes how quickly, effectively and completely the licensee brought the contravention to the Authority; the degree and timeliness of cooperation in meeting the requests of the Authority for information, documents etc.; any remedial actions the licensee has already taken or intends to take in rectifying the situation; and any action that has been taken to ensure that such a contravention does not arise in the future.”

Part 16 of CIMA’s enforcement manual addresses the prosecution of offenses and assessment of fines and penalties. The criteria for assessment includes considerable importance being attached to, among other things, “licensees making timely submission of reports and relevant documents.”

Although we are not aware of any recent decisions by CIMA which highlight the importance of cooperating with it in any regulatory investigation, CIMA’s enforcement manual makes plain the importance such conduct plays in assessing what action it should take.

Conclusion

The judgment and CIMA’s enforcement manual demonstrates that cooperation with the regulator will be a mitigating factor when assessing what financial penalty, if any, should be imposed. The judgment is also a stark reminder of the importance of being full and frank with the regulator once a regulatory breach has been identified, and the benefits of self-reporting once breaches are discovered.

As Sir Brian Leveson said, “A cynic (or irresponsible company) might look at the costs which Rolls-Royce have incurred … and wonder whether it would be more sensible to keep quiet and hope that its conduct does not fall under the eye of the authorities … that is to fail to understand that such an approach carries with it cataclysmic risks, which for Rolls-Royce would almost inevitably spell a far greater disaster.”

Cooperation with the regulator is clearly the more prudent approach once any shortcomings are identified.

Chamber president turns focus to education

Kyle Broadhurst

Education will be a central priority for new Cayman Islands Chamber of Commerce president Kyle Broadhurst.

The attorney succeeded 2016 president Paul Pearson in February.

While Broadhurst will serve a quick year in the role, he hopes to use his term to solidify educational collaboration between the chamber and government.

“The long-term vision would be to go to have a school system that’s producing students that are among the best in the world. What we should be aiming for is the absolute best,” he said.

“We’re dealing with a situation where we are a very small island, small population. We have a very high GDP per person. We should be shooting for the best.”

The Chamber has launched a series of focus groups and information sessions with government, schools and nonprofits aimed at identifying long-term needs. Broadhurst described a vision for the Chamber to become a permanent, vocal advocate for education and vocational training.

“One of the things I would like to see happen during the year I am at the helm is for the Chamber to form a definitive policy for how it’s going to do this in the future,” Broadhurst said.

“This is not a one or two-year thing that needs to be done. This is generational and it needs to be maintained. So it’s a never-ending effort.”

He encouraged youth to think creatively about their career goals. He pointed to the wide spectrum of professional needs in the Cayman Islands, from medicine to tourism.

“Chamber members want to see suitable, trained individuals that are capable of coming in and being part of their workforce or to start new businesses of their own so that our Chamber members can do business with them,” he said.

Public education initiatives

The Chamber will also step up public education efforts this year with a series of animated videos about economic development.

The 10-video series will launch April 5 at Regal Cinemas in Camana Bay.

“They are intended to be able to provide really digestible information, basically some simple economic information about how the economy works, what the role of the private sector is, what the role of government is, how that all interplays with each other,” Broadhurst said.

“Essentially the concept here is to start inserting information into the debate about economic growth, making sure the facts about what it is and what it isn’t are known.”

Candidate forums

Ahead of the May 2017 election, the Chamber will host candidate forums. It has planned 19, one in each constituency. The Cayman Brac forum will be broadcast on Rooster 101.9. All other forums will be broadcast on television.

Broadhurst said a Chamber survey indicated the most important election issues for its members include education, crime, economic growth, waste management and labor.

For more information, visit http://www.caymanchamber.ky/decision2017.html.

Cayman’s rental prices attractive compared to other financial centers

Rental prices in Cayman are on the rise and considered expensive by most, but an international comparison shows they are still moderate compared to other international financial centers.

Research by RENTCafé, a U.S. apartment search website, places Cayman behind 18 of the top 30 international financial centers in terms of apartment rental costs.

The study, which compares average rents for one-bedroom apartments in the world’s top financial hubs, features New York City as the most expensive place to live, with an average rent of $3,680, about twice the cost of a similar apartment in London.

One-bedroom apartments on Grand Cayman average $1,680 per month, according to data collected by RENTCafé.

Casablanca has the most affordable rental market of the surveyed financial centers, with average rent of $820, about half the cost in Cayman and four times less than the cost of an apartment in New York City.

The top three most expensive rental market examined by the report are in the United States, with San Francisco and Boston trailing New York.

In Asia, Hong Kong and Singapore are the most expensive places to rent, in fourth and seventh place, respectively, with average monthly rents of $2,740 and $2,050.

In addition to the Swiss high-end markets of Geneva (5) and Zurich (6), Cayman also trails the Chinese centers of Beijing and Shanghai, which are in 14th and 15th place on the list.

Naturally, the different rental costs are predominantly a function of average salaries and in some cases a reflection of different levels of infrastructure available in the various centers.

The most expensive U.S. cities fall well behind the top three cities in terms of infrastructure – Singapore, Frankfurt and Munich – as well as most major European cities, a March 2017 survey by human resources consulting firm Mercer found.

San Francisco (29) is the highest-ranking U.S. city, followed by Boston (35) and New York (44). Frankfurt and Munich are at the bottom of the list when it comes to rental costs, with average rents significantly lower than in Cayman at $1,350 and $1,050 per month.

Infrastructure and quality of life

Slagin Parakatil, principal at Mercer, said a city’s infrastructure, or rather the lack thereof, can considerably affect the quality of life on a daily basis.

“Cities that rank high in the city infrastructure list provide a combination of top-notch local and international airport facilities, varied and extended coverage through their local transportation networks, and innovative solutions such as smart technology and alternative energy,” Parakatil said.

“Most cities now align variety, reliability, technology, and sustainability when designing infrastructure for the future.”

Mercer incorporated the infrastructure ranking into a quality of living survey that takes accounts of infrastructure, rental cost, health and education services, recreation and the natural environment. In the survey, Austria’s capital, Vienna, ranked first for the eighth consecutive year and other European cities dominate the top 10.

Zurich is in second place, with Munich (4), Dusseldorf (6), Frankfurt (7), Geneva (8), Copenhagen (9), and Basel in 10th place. The only non-European cities in the top 10 are Auckland (3) and Vancouver (5).

London ranks sixth for infrastructure and 40th for quality of living.

Cayman was not included in the Mercer survey, but Nassau in the Bahamas ranked 113th out of 231 cities in terms of quality of living. In 2013, an HSBC expat survey showed Cayman as the fourth most popular country based on economic and quality of life factors.

RENTCafé derived the list of financial centers from Z/Yen’s Global Financial Centers Index and collected the average rents for one-bedroom apartments between 600 square feet and 999 square feet (55-85 square meters) in each of these 30 cities from several housing market data sources. They included Yardi Matrix for the U.S., Point2Homes for Canada and Global Property Guide for most international markets, with the exception of London (GOV.UK), Tokyo and Osaka (Utinokati), Hong Kong (HK Rating and Valuation Department) and Dubai (Bayut).

Brexit and the Cayman Islands – preparing for impact

The current consensus on the possible impact of Brexit on the Cayman Islands and indeed the Caribbean is simply that it all depends on the final Brexit deal negotiated between the U.K. and the EU. But there are a number of reasonable implications and we need to prepare for them.

A so called “hard Brexit” is by all accounts the more likely scenario if we are to believe the most recent reports, suggesting that when the ink dries on the U.K.’s deal to exit deal the EU, there will be immediate consequences for everyone. “Hard” also implies that the negotiations will be tough, and that means not only tough in terms of legal, trade and regulatory considerations, but also in terms of political ramifications.

Everyone expects there to be at least some reasonable transitional periods to allow a smooth transition even in the hard Brexit scenario.

How might this impact the Cayman Islands? The easy way out is to say we simply do not know at this stage, and of course it depends on the results of the negotiations. But to leave it there means the Cayman Islands is unprepared.

Market access

Banks and other financial services institutions in the EU are already considering what Brexit would mean for their existing access to EU market and their clients. In the case of the Cayman Islands, our financial services sector relies primarily on North America, as that is where the majority of our client base resides.

EU President Donald Tusk holds the letter invoking Article 50 of the Lisbon Treaty from the U.K. Prime Minister as he speaks during a news conference at the European Council in Brussels on March 29, 2017. MUST CREDIT: Bloomberg photo by Jasper Juinen.

But we also have clients in many other parts of the world, including in the EU. Anecdotal evidence suggests this may account for somewhere between 15 percent and 20 percent of our clients. This may not appear to be significant, but it’s certainly likely to be a material source of revenue for many institutions operating from the Cayman Islands.

Operationally this may mean that some institutions would need to set up a physical presence in the EU in order to continue to have such access. A cost benefit analysis of that prospect could easily lead to some institutions making the decision to pull out of the EU market entirely. For others it would mean additional investment to set up within the EU. Either way it has financial implications.

Regulatory implications

From a regulatory perspective, it is widely accepted that the discussions will evolve around whether non-EU countries have a regulatory regime that is deemed “equivalent” to that of the EU, as a prerequisite to continue having access to EU clients.

That means that the Cayman Islands government may well be faced with further calls to amend its wider regulatory framework in order to meet any conditions if any aspect of our regulatory regime is not deemed to be equivalent. This implies more cost not only to the government, but also to the various institutions, as most regulatory enhancements lead to some actual costs incurred at the operational level in terms of new systems or staffing resources.

‘Tax haven politics’

A hard Brexit can only be preceded by tough discussions, which will involve politics. The Cayman Islands and other IFCs related to the U.K. have been under constant pressure (and that was putting it lightly) for years from the OECD and major onshore centers to make changes to our regimes. And while some of the requested changes relate to legitimate global standards, many are aimed at stemming the flow of legitimate business that we derive from areas such as the EU.

It should come as no surprise to us if a negotiation between the U.K. and the EU leads to centers such as the Cayman Islands being offered as pawns on the table. The EU may wish for the U.K. to pressure its territories to make further changes to our regime that we might not wish to make at this time or at all. That request may be attached as a quid pro quo for a separate benefit that the U.K. wishes to gain from the EU. We should be prepared to argue our case with objective evidence if these requests start to filter through.

Where does that leave us?

In addition to market access, regulatory pressures and political influence on the nature of our services to clients, the Cayman Islands should also be aware that generally our attachment to the U.K. means there are potentially numerous other general implications such as our basic EU-related travel privileges that may also come into play.

Brexit is still uncertain, but there are some very clear potential impacts, most of which are negative. If nothing else, we should be considering and putting contingencies plans in place both at the government level as well as operationally for individual financial services institutions.

In the case of Cayman Islands-based financial services institutions, this may mean seeking out possible partnerships in the EU, which is a cheaper alternative to setting up a physical presence. FIs can also look at ways to reduce the cost of the Cayman Islands operations in order to redirect investment to setting up additional operations in the EU.

In the case of the government, it means considering existing EU regulations that affect the financial services industry and how Brexit might impact them. The EU Savings Directive and the AIFMD are just two examples of such initiatives.

Paul Byles is owner and director of FTS, which provides regulatory, economic and management consulting services. He has worked in the financial services industry for 25 years and is a former director of a big four consulting firm and a former Head of Policy at the Cayman Islands Monetary Authority. He is also former chairman of the financial services council, the advisory body to the Cayman Islands government.

Why hedge funds underperform

The bull market in stocks recently celebrated its eighth birthday. But the current upswing in share prices is already quite old by historical market standards. Although bull markets usually do not die of old age alone, nobody knows for sure for how much longer this one will survive. But whether its death comes tomorrow or in several years, the performance so far is impressive.

This applies in particular to the U.S. stock market. The S&P 500 Index has risen 254 percent since March 2009. Beside this, we are currently witnessing the second longest run without a 10 percent correction on a monthly basis. “A true secular bull market continues to unfold,” says Mensur Pocinci, head of technical analysis at Credit Suisse.

Active strategies continue to lag

Normally, the interim result is reason enough to celebrate, but not all market participants are in the party mood. Rather, many speak of the most hated bull market of all times. The latter can be explained by the many crises in recent years, which helped to keep the mood of many market participants in check.

But that is not why the average hedge fund investor is probably not as satisfied with the past eight years as investors who just put their money in an S&P 500 Index-ETF. Their sour disposition can simply be explained by the fact that they were left behind like other leaders of the last decade, such as gold, emerging market equities and commodities.

Using Pocinci’s performance data as a benchmark, they have, in fact, every reason to be sour. According to him, the Hedge Fund Research Index (HFRI) achieved on a global basis since March 9, 2009, a total return of just 2.5 percent per year. The yearly average gains of the HFRI Equity Hedge and of the HFRI Macro were even worse, with 2.3 percent and 1.5 percent, respectively. That means they could not compete at all with the increase of 19 percent per annum, which the S&P 500 Index locked in at the same time.

Copycats destroy the performance

This striking result raises the question of how to explain the huge difference in performance. In that context, Pocinci asks himself whether it could be that a large part of the secular bull market in U.S. equities was supported by endowment envy. He is referring to the following observation: When the historic performance of Harvard and Yale funds became public in 2006, it did not take too long for many endowments and other investors to copy the asset allocation of Harvard and Yale.

According to Pocinci, this development did not come as a surprise, if one compares the performance of the S&P 500 to alternative investments from 1999 until 2006. Back then, the HFRI Equity Hedge gained 11 percent per annum, while both the HFRI Global and the HFRI Macro gained 9 percent. However, the S&P 500 Index came up with an average yearly increase of only 3 percent.

Equities and alternatives swapped places

The balance of forces between 1999 to 2006 was therefore exactly the opposite of what happened between 2009 and 2017. Based on that, Pocinci comes to the following conclusion: “After reading the book and accepting the new asset allocation as the solution to all questions, U.S. endowments walked the talk and moved heavily away from U.S. equities into alternatives. One could say it was equities and alternatives that swapped places as equities moved from 48 percent to 35 percent and alternatives from 35 percent to 53 percent.”

According to Pocinci, it was only logical that Harvard and Yale were unable to repeat their outperformance against all endowments and Ivy League universities. But it was also not surprising that the overall strategy lagged substantially the buy-and-hold returns. This finding should remind investors how essential it is to have a proprietary investment process and how important it is to avoid doing what the crowd does. The result also should remind every investor of the importance of the costs connected with an investment vehicle on the final performance. In that respect, it has to be considered that the average hedge fund charges a 1.50 percent management fee and a 17.5 percent performance fee – a big burden in the attempt to beat the overall market.

Investors still doubt the secular bull market in U.S. equities

Against the backdrop of these elementary investment rules, the outcome of a 2016 survey is unbelievable from Pocinci’s point of view, since it showed that endowments, foundations and other institutions plan to dramatically reduce their allocation to U.S. equities over the next three years. Instead, they intend to invest more money in alternative investment products.

That is a planned behavior that somehow gels with the fact that the equity allocation of U.S. pension funds does not stand far from secular lows similar to those in 1974 and 2009. Behavioral patterns like that can typically be observed at the start, not the end, of a secular bull market. Pocinci interprets all this as an indication that the secular bull market in the S&P 500 Index is set to continue. If that forecast should prove to be right, it remains to be seen whether hedge funds will be able to catch up in the performance contest with the leading U.S. stock market indices like the S&P 500.

If it were up to investing legend Warren Buffet, the answer is already clear. The self-made billionaire recently slammed hedge funds again in an annual letter to shareholders published by his investment company Berkshire Hathaway. Based on the harsh criticism mentioned in there, he is obviously more than ready to renew his bet that a basket of hedge funds will also fail to keep pace with the S&P 500 Index fund.

It will be interesting to follow, whether the hedge fund industry can fight back and prove Buffet wrong.

UK criminal offense for facilitating tax fraud affects Cayman service providers

Jennifer Haslett, the Corporate Crime and International Engagement Lead at the U.K.’s HM Revenue and Customs, speaking at a Cayman Finance tax event in March.

Financial services providers in the Cayman Islands may well be within the scope of new corporate criminal offenses for the facilitation of tax crimes both in the U.K. and in other countries.

At an event organized by Cayman Finance in March, officials from HM Revenue and Customs presented details on two new criminal offenses which are going to be introduced by the U.K. Criminal Finances Bill. The bill is currently going through the committee stage in the House of Lords.

Once the bill is enacted, any business with U.K. clients or with an office in the U.K. could face criminal liability for tax crimes committed by its representatives.

Officials at the event said the Swiss data leaks demonstrated to HRMC that in cases when professionals were deliberately helping clients commit tax fraud, U.K. criminal law makes it difficult to prosecute the corporate entities they work for, if they make a deliberate effort to offer illicit services or turn a blind eye to the actions of their employees.

To reach a conviction of such an organization under common law, prosecutors must prove that senior members have been actively involved in the financial crime.

This is a disadvantage to smaller organizations whose management will be more hands-on and involved in wider decision-making than the senior management of large multinational corporations.

The two offenses also aim to close certain loopholes under current law. HMRC officials said they concluded from the data of various taxpayer disclosure facilities that professionals who were involved in deliberately providing illicit services were attempting to hide in the least transparent jurisdictions.

“They were seeking to hide in the gaps between domestic criminal law systems and they were quite effective with that,” said Jennifer Haslett, Corporate Crime and International Engagement Lead at HMRC.

This meant that to be effective, the new types of corporate offense needed to apply globally.

The U.K. Criminal Finances Bill introduces one corporate criminal offense for cases of an individual criminally facilitating a U.K. tax loss and another that applies to an individual criminally facilitating a tax loss outside of the U.K.

The domestic tax offense

The domestic offense can touch on any entity, anywhere in the world, that is providing services to an individual or corporate U.K. taxpayer.

“The key message is your business does not need to be based in the U.K., it does not need to be headquartered in the U.K., it does not even need to have an office in the U.K. to be in the scope of this offense,” Haslett said.

The new corporate tax offenses take effect only if a taxpayer has committed criminal tax evasion and a professional has deliberately and dishonestly facilitated the tax evasion. This is already a criminal offense under existing laws, Haslett emphasized. The only new element is that the organization that the facilitator was providing services for when committing the fraud can now be criminally liable as well.

An important element is that it is not just employees that can attract liability for a company, but also agents and individuals employed by another organization.

This targets service providers who may choose to contract out services that are illicit to business partners. “You cannot subcontract out of liability anymore under this offense,” Haslett noted.

For instance, if a Cayman service provider has a client with a U.K. tax liability and someone provides services on behalf of the Cayman service provider from anywhere in the world and deliberately helps the client to commit tax fraud, the Cayman Islands business will be automatically and strictly liable in the U.K.

Under the proposed law, HRMC does not need to prove intent, only that the corporation failed to stop the representative from committing the criminal act.

The corporation can put forward the defense that it had put in place reasonable procedures to prevent fraud by its staff.

What constitutes reasonable procedures will be different for every organization, and HMRC suggests companies follow a principles-based approach.

Service providers should carry out a risk assessment of how their services could be used to facilitate financial crime, put in place procedures and communicate to staff what is expected from them, together with training, monitoring and regular reviews.

These are not necessarily new things, Haslett said. “I would imagine that a firm operating in the financial services sector in the Cayman Islands, when you do a risk assessment, you will find at least nine-tenths of your risks are already addressed, are things you are already doing.”

Examining the agency relationships is the most likely gap, she said, “but not necessarily a big gap.”

Overseas tax offense

The overseas tax offense is a completely new way of using international criminal law to tackle financial crime. Haslett explained that to create a level playing field it is not enough for HMRC to protect its own revenue. “We have to ensure that businesses operating in the U.K. or individuals visiting the U.K. are held to the same standard as British businesses headquartered in the U.K.”

The overseas offense, therefore, applies if there is a tax loss in an overseas jurisdiction that was criminally facilitated from within the U.K., or if the facilitating services have been provided on behalf of an organization that is carrying out a business activity in the U.K.: for instance, if an employee of a Cayman company working in the Miami office helps facilitate criminal tax evasion for a U.S. client in the United States. If the Cayman company also has a business presence in the U.K., or if the facilitation happened in the U.K. during a business trip, the Cayman organization is within the scope of this offense. “You could face investigation and prosecution in the U.K. because one of your people facilitated tax loss in the United States.”

The offense can apply only if the country suffering the tax loss has U.K.-equivalent criminal offenses both in terms of the tax fraud and the facilitation of the tax fraud. This is the case in most countries with personalized tax systems.

However, Haslett explained, the overseas corporate fraud offense is not designed for countries that faced a tax loss and can take action. It is rather designed as a failsafe if a country is unable or unwilling to take action.

“It is only if there is a failure of justice that we will take action,” she said.

Financial centers targeted in sophisticated phishing scams

J. Peter Bruzzese speaks about cyber security technology at the National Gallery.

Recent email scams directed at Cayman Islands government and law enforcement point to a general rise in sophisticated phishing efforts, warns eShore managing director Polly Pickering.

While many businesses still feel immune to such attacks, Pickering encourages professionals to learn from high-profile cases like the Panama Papers before hackers hit at home.

“Any organization is only as strong as its weakest user,” Pickering said during an eShore event at the National Gallery last month.

Although technology can prevent many cyberattacks, it cannot prevent well-meaning employees from following bad links or downloading infected attachments.

EShore digital marketing specialist Dan Whiteside said 91 percent of phishing attacks start with email, pointing to the need for dual security between staff and technology.

He encouraged companies to strengthen their human line of defense, as well as invest in preventive technology to avoid total reliance on employees.

PhishMe regional sales director Jeffrey Fleischer used prairie dogs as an example of how businesses can improve cybersecurity. Just as the burrowing rodents collectively communicate threats with the rest of the colony, Fleischer said employees should begin flagging scams for their work team.

Rather than deleting an obvious phishing email and moving on, Fleischer encouraged users to flag such messages for their IT team. This way the scams become part of common knowledge and can improve the organization’s overall security.

“We need to condition employees to be vigilant and report suspicious activity,” he said.

He suggested businesses develop a response plan and create an “abuse box” where employees can report suspicious activity.

J. Peter Bruzzese, author of “Conversational Geek,” described the rise in ransomware and “whaling” attacks directed at high-level staff.

As hackers evaluate potential victims, Bruzzese said, they look for gaps in protection to find an easy in.

“Bad guys put you on short list when you don’t have security protection. If I see you are putting some effort in for security, I don’t want to deal with that,” he said.

He described cybersecurity tools as similar to Icarus’s wings, crafted by his father Daedalus to escape Crete. While the wings were functional, they were also subject to user error: flying too high or too low. When businesses ignore best practices online, they also risk the failure of their tools.

Bruzzese encouraged multiple lines of defense, starting with staff training. To protect data stored in digital clouds, he suggested a security tool like Mimecast.

As hackers become more interested in financial gain, places like the Cayman Islands will need to become more vigilant, added Benji Asquith, senior technical specialist for eShore.

“There’s a sense of flying under the radar. That is quickly pivoting and we’re starting to realize that financial centers like the Cayman Islands are becoming more of a target,” Asquith said.

“It’s completely financially motivated nowadays. When you look at 10 to 15 years ago, hacking someone was about bragging rights and you got a lot more high school kids doing it for the glory. But now it’s a professional operation. It’s a business, and the bad guys are following the money.”

Since many businesses do not publicly discuss when they’ve been hacked, he warned that targeted phishing efforts could be more widespread than they appear.

Asquith advised that many hackers will use a side door to access data. They may target a small consulting company to access a large business.

“Think about the data that’s on your systems. No one is necessarily coming after your data, but they’re coming after your clients’ data. If I want to target a law firm, I’m going to look for those peripheral, easiest ways in. Maybe I actually target the two-man accounting firm that’s going to have all of your data anyway,” he said.

He encouraged businesses to avoid complacency.

“A lot of people think they’re OK. But hope is not a strategy,” he said.

A pre-emptive versus a data-driven Federal Reserve

Brendalee Scott-Novak, Butterfield

Immediately following the Federal Open Market Committee’s (FOMC) decision on March 15 to raise the Fed funds rate to 0.75 percent to 1 percent, bond and equity markets rose in spectacular fashion. Currency markets quickly joined in the fanfare, sending the U.S. dollar sharply lower. In what is considered a “Goldilocks” environment for risk assets, the simple message from Chairwoman Janet Yellen is “the economy is doing very well.”

Since the credit crisis, the FOMC has worked tirelessly to convince markets that all policy decisions will be highly data dependent. Delivering a 25 basis point move in December, coupled with another 25 basis point hike 12 weeks later, the Fed is sending a clear message that the U.S. economy is on a solid path to growth.

The March move marks the third increase in rates since adoption of the zero interest rate policy, suggesting rates are still quite truncated near the lower bound of the interest rate spectrum. With Core PCE (Personal and Consumption Expenditure) hovering around 1.7 percent and the diffusion index of major inflation components remaining very much in negative territory, inflation, while inching up a bit, is not at levels to be concerned. Analogous to these factors, there is little evidence of significant wage pressures on the horizon.

This then begs the question, if prospects for the U.S. economy appear to be as well anchored as the Fed advocates, what accounted for the dovish sentiments in the FOMC reports?

The recent tightening actions and optimism from the chairwoman seem to run counter to those sentiments. For the two previous hikes, the FOMC unanimously voted to support the 25 basis point moves. The most recent hike, however, saw one voting member dissenting in favor of maintaining the existing target range. In addition, the forecast for the natural rate of unemployment was trimmed by one-10th of a percentage point, suggesting that slack remains even as employment improves and prime-age working Americans re-enter the labor force. With further revision still on the table, the labor market may have much more room to run before wage pressures (the greatest contributor to inflation) becomes a real concern.

Janet Yellen, chair of the U.S. Federal Reserve, during a House Financial Services Committee hearing in Washington on Feb. 15, 2017. MUST CREDIT: Bloomberg photo by Aaron P. Bernstein.

Perhaps the strongest dovish sentiment in the reports was the change in the committee’s statement surrounding its inflation target. While the Fed lifted its Core PCE forecast by one-10th of a percent to 1.9 percent for 2017, the change in rhetoric from monitoring “expected progress toward its inflation goal” to “inflation developments relative to its symmetric inflation goal” was significant. Unlike the European Central Bank, where the mandate calls for a 2 percent inflation ceiling, the Federal Reserve’s dual mandate of maximum employment and price stability targets a 2 percent medium-term inflation rate.

As Minneapolis Fed President Neel Kashkari recently argued, having a target rate is very different from having an inflation ceiling. With an inflation ceiling, policy response is warranted to keep inflation below that target level. With a symmetric inflation goal, however, many have interpreted this to mean the committee may now allow inflation to drift above the 2 percent target rate with equal concern, for example, if inflation undershoots at 1.7 percent or overshoots at 2.3 percent. Consequently, with inflation firmly anchored at 1.7 percent for the past seven months, possible trimming of the natural rate of employment and little or no wage pressures in the near term, what warranted the recent increase in rates?

Yes, the hawks point to steady progress in the economy and cite the robustness and resilience of financial markets. Economic forecasts have also been optimistic, with Gross Domestic Product revised upward to 2.1 percent for 2018, inflation expectations close to 12-month highs and the median projections for the Fed funds rate climbing to 3 percent for 2019. But the question still remains, do higher projections warrant an increase in rates? Or, should the Fed commit to policy actions based on evidence inherent in the economic data?

Rightly or wrongly, the Fed is operating in uncharted territory following its quantitative easing program and, admittedly, it is difficult to ascertain how markets will react when balance sheet normalization begins. It is also true that the FOMC has more policy tools at its disposal to fight higher inflation versus inflation coming up short, and is therefore more prepared in the former scenario than the latter. Given this well-known bias, however, it may be prudent to just be patient and allow inflation to climb beyond its 2 percent target versus pre-empting the data and risk falling short.

Statistics and Data Sources: Bloomberg LP., BCA Research, Federal Reserve
The views expressed are the opinions of the writer and while believed reliable may differ from the views of Butterfield Bank (Cayman) Ltd. The Bank accepts no liability for errors or actions taken on the basis of this information.

Telecommunication: Flow Caribbean president looks to upgrade infrastructure

Garfield Thompson

As broadband providers seek to step up speed and service, Flow’s Caribbean president, Garfield Sinclair, has his eye on renovating island infrastructure.

He considers the Cayman Islands one of his top Caribbean markets, alongside Jamaica, Barbados and Trinidad. Despite the islands’ small population, their GDP has made them a priority for upgrading high-speed, LTE service.

“I’ve included Cayman in the big markets. We like to think of Cayman as the Monaco of the Caribbean,” he said during a trip to Grand Cayman.

“You contribute well above your weight in GDP per capita and one of the highest GDPs per capita in the world. Obviously, there is a big sect of offshore professionals and a financial services sector that punches well above its weight from a size standpoint.”

Sinclair stepped into his current position in January during a major transition period for the company. Cable & Wireless Communications, traded locally as Flow, was acquired by one of the world’s largest broadband providers, Liberty Global, in May 2016.

Sinclair said the purchase vastly expanded CWC’s procurement power, allowing the company to step up wireless equipment updates and expand cable programming.

“The first set of influences you felt was in the planning process. Liberty spends a great deal of time on establishing three and five-year plans,” Sinclair said.

While telecommunications can change rapidly, Sinclair said, Liberty’s robust planning process should result in better, English-language programming for the Caribbean.

Regarding mobile connectivity, Sinclair said Cayman is a main priority area for improved LTE service.

“Ultimately we want the investment to be supported by the capability on the island to repay that investment as we can’t have an LTE network that’s Caribbean wide yet,” he said.

“Certainly where it’s warranted, that’s where we’re doing it. Cayman obviously warrants an LTE network mobile-wise so that’s what we’re doing here.”

Rather than abandon old copper infrastructure for fiber, Sinclair said Flow is hoping to salvage and upgrade its copper network. Fiber technology has been implemented in Cayman to complement copper lines, but not to replace them, he said.

The company is implementing multiservice access nodes (MSAN) to boost the speed of its copper network and enable better streaming service. Sinclair estimated some areas could reach speeds of 50 megabits to 100 megabits per second.

“There was a thought that copper was dead or dying and you were not going to be able to utilize it very much in the future, but there are very exciting things happening right now with technology. One of them is this MSAN, VDSL2 technology,” Sinclair said.

“Essentially it enables us to give extended life to the copper network and primarily allows for tremendous broadband speeds for the copper network.”

As more people access internet through their cellphones, Sinclair said, broadband connectivity has grown in importance.

“Mobile infrastructure is getting even more robust with the advent of what we have here in Cayman, which is LTE. LTE is very fast, very reliable and in its own first-world jurisdictions, you are seeing fixed broadband capacity being delivered over LTE networks,” he said.

Regarding worldwide staff cuts by Digicel, Sinclair said he is not worried about the implications for Flow.

“When I see activity like that happening at Digicel, to me it just signals the need to constantly fine-tune your operating model for what is an invariably changing landscape, literally day to day and week to week,” he said.

“I don’t take any comfort from or get too worried about operating model changes. Those guys know what they’re doing, so I’ll leave them alone to do what they’re doing. We’re focused on making sure we’re fit for purpose and to the extent we can, future proof our operating model.”

UK Lord Chief Justice: Commercial courts must meet business needs

Lord John Thomas of Cwmgiedd responds to a question from the audience after his talk in the Annual Distinguished Lecture Series at the Cayman Islands courts. On the left is Justice Nick Segal.

In an increasingly competitive market for dispute resolution across jurisdictions, commercial courts still need to work together to uphold the rule of law and support international economic cooperation and prosperity. To do so requires the courts to meet the needs of the business community, said Lord John Thomas of Cwmgiedd, the Lord Chief Justice of England and Wales in a guest lecture at the Grand Court of the Cayman Islands.

In his March 2 talk, which formed part of the courts’ Judicial Education Committee, the most senior judge in England and Wales outlined what commercial courts need to do to stay relevant and to deliver what businesses need from the court system.

“Commercial courts must ensure that they … remain aware of changing business needs and market practices, that they innovate and continue to provide accessible, flexible, economical, efficient justice,” Lord Thomas said. “It is not a case of saying that the needs of business are king. It is more a case of saying that the quality of justice is king; and that is what each commercial court should aim to guarantee businesses.”

For businesses, the two main factors when considering litigation are time and cost, in addition to the certainty of law. While the Lord Chief Justice acknowledged that courts had not “always been designed or operated with the needs of business foremost,” he outlined best practices and innovations in the U.K. and other international jurisdictions that are helping courts to remain “centers of excellence” in an increasingly competitive “market in justice.”

Courts should be vigilant against the long-standing challenges of “cost, complexity and delay,” adopt new approaches to disclosure and discovery and realize the potential of IT, he said.

To remain responsive to business needs, he recommended listening and responding to complaints when they arise, and introducing user liaison committees, “which are indispensable means of communication between the commercial judges, court administration, commercial lawyers and business leaders, both domestic and international.”

The judiciary must have “wide-ranging dialogue to check that the views of all – particularly those who are averse to committees (or do not have the time) – are properly communicated,” he said.

Technology also plays a key role, and the development of an online court/tribunal is progressing in England and Wales, for example. In addition, the London Commercial Court and a few other courts have embraced digitalizing court processes and records. Beginning in April 2017, all claims, applications and documents must be filed online.

It is similarly anticipated that “judges will lead the way” in paper-free trials, as it is already happening in the Crown Court of England and Wales, the Lord Chief Justice said.

In relation to often time-consuming and expensive disclosure procedures, he referenced innovations such as using automated search mechanisms rather than cadres of junior lawyers or paralegals. This new automated approach is being combined with efforts to devise more flexible approaches to disclosure.

In other areas of more business-friendly procedural flexibility, Lord Thomas mentioned the London Commercial Court’s approach of adapting processes to fit the needs of cases. Courts have also introduced more business-oriented, shorter trial procedures that ensure that a single judge is responsible for the management of a case from start to finish.

Other strategies enabling courts to adapt to the needs of business include ensuring the right fit of expertise of judges to the requirements of disputes, and the “development of the law to meet the changes in the way that business is conducted.” This involves preemptively seeking resolution to issues in cases where there is no applicable precedent, even before a legal problem arises.

Overall, said Lord Thomas, “there can be no doubt that what a commercial court needs are judges of the highest caliber who understand the needs of business.” This requires high quality judicial education and seminars through which the business community brings the judiciary up to date.

The provision of modern IT amenities and the availability of legal assistants and of advocates of the highest caliber are other support needs of judges.

“A commercial court, like that in London and here in the Cayman Islands, which can demonstrate its adherence to such standards, is one whose judgments are capable of enforcement across frontiers. It is a court which has real utility to the international business community,” the Lord Chief Justice concluded.

However, he conceded that one area that still needs work is enforcement, where the development of an effective, widely respected enforcement mechanism for commercial disputes is long overdue.

The execution of judgments in other jurisdictions will form part of discussions in a forthcoming forum of international commercial courts in London, he said. The aim of the forum will be to standardize international mechanisms by which judgments for plaintiffs who win cases in Cayman, for instance, can be enforced against defendants’ assets in another jurisdiction.

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