The regulation of directors in the Cayman Islands is not a major issue – the more complex question is how to regulate directors of Cayman funds that are based outside the Cayman Islands, a panel debating the regulation of directors said.
Yet, Cayman still had several gaps in terms of regulation, not least the lack of a dedicated code on fund governance, the lack of a director disqualification regime and of wider whistle-blowing legislation, they noted.
At the event organised by Eurex Exchange at The Ritz-Carlton, Grand Cayman on 9 February, DMS Management’s Ronan Guilfoyle argued that “as far as Cayman Islands directors go, I don’t think there is a major issue.”
“There has not been a major case against Cayman-based directors,” he said. “For the most part, we have got professional services firms here that do a great job and have very knowledgeable directors.”
Because the overwhelming majority of directors of Cayman funds are not based in Cayman, the question is how Cayman regulation can be effective for those directors, he said.
While Mr. Guilfoyle acknowledged the issue of regulating directors is complex and without an obvious solution that would satisfy everybody, DMS decided that part of the solution would be to incorporate a fund governance company regulated by CIMA.
The difference between this entity, DMS Fund Governance, and individual directors who are not regulated is that “it has a number of requirements, as having a mutual fund administrator’s licence with CIMA that it has to adhere to, the directors have to be approved as fit and proper, the company has to have a third-party audit, it has to have D&O insurance and a number of ongoing regulatory requirement, like a CIMA audit as well,” Mr. Guilfoyle said.
Given that different directors want different things, the new model, which will be in line with the authorised corporate director model that has been adopted in the UK by FSA-regulated funds, may be an option for investors who think directors should be regulated, he said.
Appleby partner Richard Addlestone said the Cayman Islands so far maintained “a big boy regime” where sophisticated investors have to do their own due diligence and “satisfy themselves whether they should be investing and if they don’t like what they see they will not invest”.
He asked whether we are at a point now where the industry is so mature and directors have such a key role that it demands directors to be members of a professional body with professional conduct requirements such as those for lawyers and accountants and be self-regulated.
“Given that so many pension funds are now forced to invest into these alternative products, it is the man on the street whose money is at risk in these entities,” Mr. Addlestone said, but avoided the conclusion whether this would make the regulation of directors necessary.
Jeremy Walton, litigation team leader at Appleby, said regulation is a three tier process consisting of a set of rules, the supervision and enforcement of those rules in real time and punitive actions or sanctions for cases in which the rules have been breached.
Different jurisdictions place different emphases on each of those three tiers, because they are dealing with different markets and different levels of risk, different constituencies with different interests and different civil service arrangements, he said.
Comparing Ireland to the Cayman Islands, Mr. Walton noted the Irish voluntary fund governance code, which requires participants to comply with the code or explain why they are not complying, is not necessarily a path Cayman should follow.
He pointed at the huge differences between the European and the US market, the UCITS and the hedge culture, the much higher number of funds to be regulated in Cayman and the much larger regulator in Ireland.
“It just comes down to the question of resources available to the regulator,” he said.
It may be that Cayman should do things differently and perhaps should have a mandatory code rather than a voluntary one, he said.
Mr. Walton said Cayman’s biggest gap is the lack of a Cayman-specific code setting any standards for fund governance, as well as that there is no director’s disqualification regime or any regulation of individuals.
“There is a huge difference in regulation between individuals and those who chose to incorporate and provide their services as a corporate entity,” he said.
The areas that should be considered for immediate improvement, Mr. Walton said, are whistle-blowing legislation, because unlike auditors and administrators independent directors in particular do not have the ability to do any whistle-blowing, and proper regulator to regulator cooperation.
Related Videos
