The offshore update: BVI, Cayman & Bermuda

Date: 04 Oct 2023

Ashleigh John

Citywealth spoke to island experts for updates on these jurisdictions. We hear about trust trends, growth on the family office front, digital asset investment, and more.

Maxine Bodden Robinson, Director of IMG Trust Company in the Cayman Islands said: “There are a number of trends we are currently seeing in the private wealth and trust industry in the Cayman Islands. Some have been around for 2 decades, such as ESG, but what we are seeing is perhaps more depth or substance as families and UHNW individuals are getting to grips with what these trends mean to them and how they wish to structure their wealth for the present and ultimately, the next generation.”

“What this means is that there is a necessary change in many succession plans, and structures that were well-laid many decades ago.  The new generation are also wealth creators, but they have very different values.  It is about more than seeking a return on investment for them, and they also having a social and philanthropic conscience.  The next generation are well-educated and well-informed, and they want to make a difference in this world and genuinely leave the earth better than they found it.”

Maxine Bodden Robinson said that practitioners will need to work with settlors and beneficiaries to enable ideas to come to fruition. She continued: “We also need to look at the structures on our books and be proactive to the prospective issues because many structures will lack the flexibility to allow changing investment strategies, such as investments in ESG and impact investing.  It may mean a serious discussion with the settlor, if they are still around, and the beneficiaries as to whether an application to the court is prudent to bless a restructuring (before the fighting begins!).  Afterall, structuring should be dynamic, not static.”

“In Cayman we continue to see a continuing trend around the establishment of family offices and many of these are being led by the next generation.  These UHNW families and individuals are taking up residency, engaging advisors locally and are involved in the day to day.  These are not ‘traditional’ family offices.  This is the direct result of the increasing complexity of the needs, affairs and concerns of UHNW individuals.  Investment returns are no longer the only concerns.  Family personal values are paramount, and advisors and trustees have to ensure that they are attuned to this for the present generation as well future generations.  We are fiduciaries but we too are called to be stewards of our world.”

Trusts in the BVI

Matthew Howson, Counsel at Harneys, BVI & Cayman Private Client and Trusts, commented on the “innovative trend” seen in the BVI around purpose trusts and Decentralised Autonomous Organisations (DAOs). He said: “We are noticing an increase in clients exploring the use of BVI purpose trust structures in connection with DAOs, subject to the application of the Virtual Asset Service Providers Act 2022 (the VASP Act) to the trust’s proposed activities.. Naturally, the purposes set out in such trusts are often extremely bespoke as virtual asset related projects share very few, and often no, similarities with each other. Although the BVI has been an attractive jurisdiction for entities engaging in this type of business for some time due to the previous lack of regulation, the VASP Act has certainly brought about a noteworthy shift in the jurisdiction, as clients now wish to explore structuring options which will support a DAO while remaining in compliance with the new legislation.”

Matthew Howson also provided insight into the bespoke use of VISTA and Reserved Powers Trusts in the BVI: “We’re seeing a really rewarding development in education and understanding in newer jurisdictions with no history of trusts. Although the VISTA trust (a statutory form of reserved powers trust) has been a mainstay of the BVI offering in Asia, we see advisors there moving away from a cookie-cutter approach and requesting BVI bespoke reserved powers trusts instead where VISTA would not suit their needs. Vice versa, some groups of European clients have found VISTA fills a gap left by other trusts around, say, risky assets, or ESG concerns. And Latin American clients are increasingly tailoring the VISTA concept (as is permitted by the legislation), asking for trusts where VISTA will switch on or off at certain dates, or experimenting with Will trusts or non-discretionary trusts. None of this was happening until a few years ago and is really the result of a lot of education among advisors.”

Family offices and philanthropic structures

Henry Mander, Partner and Global Head of Trusts and Private Wealth at Harneys, noted that the quality people have come to expect from the Cayman Islands as an attractive locale for family offices may come at a price: “Although the quality of the education system is highly regarded, there is shortage of available spaces. For top private pre-schools and primary schools, parents put their children on a waitlist immediately after birth, making it difficult to get your child a space if you are new to the Island. The tuition fee for a private school can be as high as US$17,300 per child per year for nursery and US$29,000 per year per child for grades 9 to 12. However, a number of new schools have opened recently and more are being bult, so as to ease this burden.  Most goods are imported as there is no local production which makes it an incredibly expensive place to live in. To put things in perspective, a gallon of gas is US$8.00. There has also been a drastic increase in property prices since Covid, which was managed very well, partially due the appeal of the residency programs. As a result, the Islands have seen large increases in demand, but with a relatively limited inventory. High end property sales over US$3 Million have increased by 350% due to the influx of HNWs.”

The topic of philanthropic structures in the Cayman Islands was also worth a mention. Henry Mander said: “As the role of UHNW families in global social evolves and they consider their own place in society, there is a clear trend in the increased emphasis placed on charity and philanthropy in new structures or when older trusts are restricted, such on the death of members of the older generation. Due to the excellent infrastructure and relevant legislation, we are seeing great use of Private Trust Companies and Foundation Companies, and often a combination of the two, for establishing philanthropic arms of family offices in Cayman., These entities will often have physical office presences in Cayman and employ a range of staff on the ground so run charitable grant giving programmes for both international and domestic causes. The analysis on charitable impact and other ESG issues which the Big 4 accountants are able to provide, coupled with leading law firms, trust companies and banks mean that, with a solid team on the ground, these entities are run to the highest standards of governance and allow UHNW families to really champion the philanthropic causes which they have identified as important to them.”

Investment insights

Sara Hall, Partner at Walkers, provided a summary from the investment front in these jurisdictions: “What we are consistently seeing in terms of conversations and client instructions is that Bermuda, the British Virgin Islands and the Cayman Islands continue to be popular choices for our clients.”

“In practical terms, the jurisdictions have nuanced offerings which has an impact on the business each jurisdiction tends attract. The British Virgin Islands and Bermuda remain the go-to choices for digital asset businesses, including tokenized offerings, while the Cayman Islands continues to be the leading offshore jurisdiction for DAOs (which use a Cayman foundation). The Cayman Islands remains the preferred choice for institutional investment funds.”

 “As each jurisdiction has its own legislature and parliament, each can shape its laws to keep abreast of industry developments and industry feedback, particularly in the field of technological innovation. This has been an interesting topic to watch – on the one hand, jurisdictions which react quickly to developments and opportunities can gain have first-mover-advantage; on the other, we have seen there are benefits in waiting and adapting from lessons learned elsewhere. On the horizon are potentially changes to the beneficial ownership register in each jurisdiction, and these developments will be kept under close watch in the coming months.”

Steven Rees Davies, Partner at Carey Olsen in Bermuda and Chris Duncan, Counsel at Carey Olsen in the Cayman Islands provided further insight into what we are seeing in the digital asset sphere: “Over the past 6 to 12 months we have seen an increase in the sophistication of digital/virtual asset projects and in particular more real use cases for blockchain than we have seen in the previous few years. The tokenisation of real world assets (RWAs) and increased focus (again) on decentralised finance (DeFi) are two particularly hot topics in the region right now. Businesses have developed more advanced technology that is allowing for the creation of more robust systems to match the emerging regulatory requirements of those jurisdictions that have established sector focused legal and regulatory frameworks. There is a clear recognition across the sector that certainty and security come from those jurisdictions with sound regulatory regimes in place and so we are seeing a general trends towards regulated business. Pressure also exists from those looking to invest in the sector where evidence of proper regulation, legal certainty and effective corporate governance and risk management is now standard practice. This is also evident in the expectations of traditional onshore funds who are using offshore subsidiaries to facilitate investment into digital/virtual asset opportunities.”

A big thank you to all those who contributed to this feature.

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