The financial services industry in Cayman should not expect a wholesale repeal of adopted US financial and tax legislation even though the balance of power in the House of Representatives has changed, members of the Cayman Islands Bankers’ Association heard from keynote speaker Rob Herriott of Constellation Investment at an event on 24 February.
Mr. Herriott gave an overview of US government policy and politics with a focus on the Dodd-Frank Act, the Foreign Account Tax Compliance Act and the inner workings of the US political system and its processes.
While most legislation contains titles that “do something little”, he said, all of the 16 titles of the 850 page Dodd-Frank Wall Street Reform and Consumer Protection Act “do something big”. The sweeping and dramatic change to the financial industry, which includes among other things the introduction of a Financial Services Oversight Council in charge of managing systemic risks, attempts to end ‘too big to fail’, centralised swap clearing, hedge fund registration and a reform of derivatives regulation and credit rating agencies, will take a more distinct shape in the coming months, Mr. Heriott said.
So far legislators have put together broad definitions, environments and terminology, but detailed regulations will define the provisions more closely.
After explaining the difference between enactment, when the bill passes Congress and the president signs it, and implementation, which comes as a result of the regulatory process and regulations, Mr. Herriott presented a list of key dates when elements of the bill will be more closely defined by regulations, starting with whistleblower protection, securitisation risk retention and accredited investor/qualified agent in April 2011. This will be followed by the derivatives and credit rating agency reforms as well as hedge fund registration in July 2011 among others.
Given the current speculation about which parts of Dodd-Frank will be repealed, Mr. Herriott said he “would not put too much credence in wholesale repeal”.
The Republicans will certainly use their majority to act as a “back-stop”, he said. “They will try and repeal some of Dodd-Frank and potentially some of FATCA.” However, in contrast to a general appeal, Republicans will try to limit the burden of some of these bills by de-funding regulatory action in appropriation bills, he predicted.
“In my opinion you will not see a wholesale repeal of this at least not in the next two years,” he said.
“I would start preparing for some of these provisions to come into effect.”
Describing the potential for influencing political decision makers, he said that legislators in the US do not always have a good practical working knowledge of the industries that they are legislating. In the last Congress, for instance, only 16 of 97 members of Congress who sat on committees with jurisdiction of banking had a financial services, economic or tax background.
“You can understand why sometimes the practical application of this legislation does not match with reality,” he said, which underlines the amount of education work that has to be part of attempting to influence future legislation.
He noted that a negative image of the Cayman Islands is being perpetuated by Hollywood, politicians, interest groups and the media and that “the real story is not out there”.
While there are organisations, including CIBA and Cayman Finance, that are getting the message out, the positive statements about the Cayman Islands made by the Government Accountability Office and the IRS “should be on every Congressman’s desk”.
He further advocated engaging officials, decision makers as well as those business counterparts in the US, who are voters. Additionally, CIBA should enter into a dialogue with association counterparts in the US, he recommended.
“A lot of what you do here is going to affect their members as well.”