The Cayman Islands Monetary Authority is proposing to develop a searchable, public database of licensed and registered entities to facilitate the due diligence process for investors. The database would provide, as a minimum, the name of an entity’s’ directors and its registered office.
In a document circulated in the financial services industry for consultation, the authority has asked the industry for feedback whether such information would be relevant and appropriate and if further information, for example an entity’s related service providers such as auditors, custodians, fund administrators or insurance managers, would be beneficial.
Institutional investors have in recent years demanded more transparency in hedge funds and called for a database to facilitate their due diligence efforts. In its private sector consultation paper, the monetary authority notes the worldwide enhancement of corporate governance standards, an area in which deficiencies contributed to the financial crisis.
At the Cayman Alternative Investment Summit in November, institutional investors reminded the authority of a letter sent two years ago asking for the implementation of such a database. Daniel Summerfield, co-head of Responsible Investment at Universities Superannuation Scheme, the second largest private sector pension fund in the United Kingdom, said it would enable investors to their job more effectively.
Mr. Summerfield also said that some Cayman directors blamed the Confidential Relationship Preservation Law for not disclosing the number of directorships they hold. He said a database compiled by the monetary authority would work around this issue.
CIMA has now commissioned a survey to assess the views in the industry on the regulatory corporate governance framework, including whether it would be advantageous to recommend a legislative amendment requiring the number of directorships held by a director to be stipulated in an entity’s founding documents, such as the offering memorandum of a regulated fund.
In the consultation paper, the monetary authority argues that limiting the number of directorships a director can hold may be beneficial but it would be challenging to design. For instance, where a director sits on the board of connected entities many decisions will apply to all the interconnected entities, leaving the director with more capacity than a director who holds the same number of directorships but with unrelated entities.
Another concern expressed by the regulator is that a limit would only apply to regulated entities and not take into account board positions of a director in unregulated entities.
Rather than limiting directors to a specific number of board positions, the fundamental question is “whether a person is able to adequately his/her mind to all the directorships s/he holds”, CIMA wrote.
In this context, the monetary authority proposes to amend the Companies Management Law with an approval process for directors or entities that professionally provide director services for six or more entities.
“The intention is to better define and regulate directorship services by allowing the authority to assess and approve persons acting as directors as a profession. This approval process is to receive assurance that the persons being offered and acting in this capacity have a sound professional background and are sufficiently competent and experienced to act as directors,” CIMA said.
In addition, all directors of regulated entities who are not approved via the Companies Management Law will have to register with the authority and provide information on their role, experience, specific sector knowledge and information on any regulatory, legal or judicial enforcement action against them.
Other changes to the corporate governance regime of Cayman entities proposed by the monetary authority include the update of the Statement of Guidance for Corporate Governance with key principles and standards expected of corporate entities, their management and their board of directors. The authority also aims to extend the application of the statement of guidance not only to licensees but to all registered entities.
CIMA said it refrained from implementing a rule or code setting out compulsory standards for the industry, given that Cayman is considered a “sophisticated financial services jurisdiction with suitably qualified participants and service providers”.
“Our research indicates an appropriate awareness of corporate governance expectations and a suitable application of these standards in day-to-day operations,” the monetary authority wrote.
The consultation period ends 18 March.