In a keynote speech at a conference at Blackstone Chambers in London, Premier Alden McLaughlin last week noted that Cayman leads the way with its adherence to relevant international standards. It is not the absence of rules but the introduction of sensible and balanced regulation that has ensured business growth in the islands, he said.
Cayman, therefore, “seeks to operate based on proportionality in regulation, such that before a measure is introduced, we like to be satisfied that is necessary; appropriate given the nature of the financial services business in the Cayman Islands; and proportional to the identified risks. In short, the regulatory impact and its benefits outweigh the costs.”
It is questionable whether government’s rushed passing of three bills in the Legislative Assembly last week meets these criteria.
The Companies Amendment No. 2 Bill, Companies Management Amendment No. 2 Bill 2016, and the Limited Liabilities Companies Amendment Bill 2016 define beneficial ownership and allow the creation of a corporate ownership registry that would be accessible by foreign law enforcement and tax authorities.
Opposition leader McKeeva Bush, for one, was irked by the lack of proper consideration and the speed at which the bills were passed into law.
Moreover, if the aim is to have necessary, appropriate and proportional legislation, the creation of beneficial ownership registries does indeed raise a number of issues.
First, transparency around the beneficial owners of corporate vehicles in the form of centralized registers is not a global standard.
The U.K. requested all overseas territories to establish centralized beneficial ownership registries not because they are widely adopted but because it wants them to be. There is scant evidence that they are needed or that Cayman’s existing system of assisting overseas law enforcement is insufficient.
The number of information requests under the current system is low. On average, Cayman shares beneficial ownership data with U.K. authorities 12 times per year; even lower is the number of prosecutions based on those requests.
It is thus doubtful that the proposed centralized beneficial ownership platform is necessary or that it is appropriate.
Neither the United States, nor all of Europe, has adopted the transparency plan that Cayman has now signed into law (nor are they likely to). Cayman, as a “first mover,” is now competing for international investment on a playing field that is no longer level.
Cayman’s existing system of service providers collecting and maintaining beneficial ownership information and releasing it on request remains in place. Yet, the new system adds costs and security concerns for both the service providers and the government. As far as proportionality is concerned, even the European Data Protection Supervisor recently concluded that proposed amendments to the EU Anti-Money Laundering Directive on beneficial ownership “show a lack of proportionality, with significant and unnecessary risks for the individual rights to privacy and data protection.”
The planned corporate ownership platform is at best a compromise between the U.K. pushing for wider public access to reveal the true owners of companies and the Cayman government defending the privacy rights on which Cayman’s financial services are built.
The compromise deal with the U.K. means that from June this year, British authorities will have expedited access to information on who truly owns Cayman-registered companies and other entities through a centralized platform.
This may prevent general access by the public to registries of beneficial ownership for the time being, but “the regulatory impact and its benefits” hardly “outweigh the costs.”