(CNS): Commerce Minister Joey Hew has said that amendments to the Local Companies Control Law, which were made to comply with the latest regulatory developments in the financial world and to keep Cayman from a European blacklist, will not undermine local traders. The amendments will remove the ban on exempted offshore companies from doing business in the Cayman market, but Hew, who presented the bill, said that any offshore entity which decides it wants to trade locally will still need a local partner or to go through the process of acquiring the necessary licence.
Speaking in the Legislative Assembly late Monday, Hew was at pains to reassure the local business community that any exempt companies choosing to take advantage of the change in the rules will still need to go through the full process that any foreign company wanting to do business here without a Cayman partner would need to do.
With concerns that there could be a massive influx of competition from foreign-owned companies that will threatened the livelihoods of Caymanian business owners, Hew stressed the fact that all of the usual safeguards will still apply. If the exempt companies wanting to trade locally take advantage of the new equitable trading environment, which is a requirement from the OECD as well as the EU, he said they would still need to fulfill the strict criteria relating to the local companies control regime.
The change to the legislation is largely to remove the restriction on offshore companies carrying on business in the Cayman Islands to address the different treatment between exempted companies, which are currently prohibited from carrying on business here, and ordinary companies, which may carry on business locally.
The LCC law was originally drafted to protect Cayman business from overseas. Therefore, Hew said, careful consideration will be given to applications to ensure that they comply with all the laws to ensure that if an exempted company does choose to do business here, they do not get an advantage.
So, in future, if offshore firms want to trade in the local market, if they do not have a Cayman partner they will be subject to the usual considerations of competition, economic, social and environmental impacts of the business, the expertise they have and number of work permits required and the effect on existing local business in the given field.
“I can assure local businesses that the law will still protect Caymanians. We are not giving exempted companies carte blanche to do business here,” he said, as he noted that the amendments to the legislation were about removing the ban on exempted firms trading locally to meet the OECD’s Forum on unfair tax practices requirements. “We are still committed to keeping a level playing field,” he said, indicating that foreign companies wouldn’t be given an advantage over local businesses.
He said no matter what is required of the Cayman Islands to meet the international demands on the financial sector, Cayman would retain the right to decide who trades locally.
However, concerns have been raised by the opposition and the small business community that the Trade and Business Licensing Board, which oversees the application process for local company control licences, has been derelict in its duties and has already given out way to many licences to foreign companies, as there are now 252 current LCC licences.
Hew accepted that the regime has grown over the last forty years from a handful of major companies that Cayman needed to develop its economy, such as CUC, Cable and Wireless and the fuel companies. He revealed that around 130 of the existing 252 licences are held by property owners and most of the rest are developers and project managers. He said there were around two dozen financial firms and 17 hotels.
The minister also acknowledged that it may be time for government to take a closer look at who is holding LCC licenses and why but in the meantime he said the new amendments to the law would still see Caymanian businesses protect from overseas competitors. He said the amendments don’t change the duties of the board to protect local trade and carefully consider new applications.
There are, however, other concerns that the minister cannot be certain about. Many people in the offshore industry and members of the opposition are still questioning whether or not the new regime requiring exempted companies to have an economic presence here will actually lead to them needing a Cayman partner or an LCC licence to meet that substance test.
Premier Alden McLaughlin and Financial Services Minister Tara Rivers both admitted several times during the debates on the bills relating to this significant change to the offshore sector that the definition of ‘economic substance’ has still not been fully articulated.
Questions remain as to whether an office, a receptionist and the filing of local accounts in furtherance of their offshore business will be enough to satisfy the test or if they will need a local trading licence as evidence of business operations here.