CIMA Chairman Reviews Cayman's International Standing

by Amanda Banks, Tax-News.com, London

05 June 2006

In a speech to Cayman Islands bankers last week, Mr Timothy Ridley, Chairman of the Cayman Islands Monetary Authority, compared the jurisdiction's regulatory environment favourably with those of many other locations, both onshore and offshore.

Said Mr Ridley:

'The Cayman Islands made an informed decision some years ago that they wished to be a recognised, accepted and active participant in global financial markets This requires the Islands’ regulatory regime to meet and to be perceived to meet internationally accepted standards. Equally, it is essential that the Cayman Islands maintain their competitive position in these markets. This requires striking the right balance between appropriate regulation and the free market.'

Although Mr Ridley worried that some international bodies were reluctant to make public their good opinion of Cayman's regulatory structure, in order not to break global ranks, he acknowledged progress towards better international recognition:

'There is also evidence that the Cayman Islands’ performance is being publicly recognised overseas. During the US Congressional hearing of the House International Relations Committee’s Sub-Committee on Oversight and Investigations, testimony was given by Mr. Robb Evans, CEO of an asset recovery agency that over the last 15 years has been enlisted by US state and federal agencies to recover and return stolen money pursuant to cases of fraud. He commended the Cayman Islands behaviour as an example of the type of multilateral cooperation needed to effectively fight the global problem of money laundering and stated:-

“Legitimate offshore international centers such as the Cayman Islands, now have robust anti-money laundering programs and cooperate fully to recover illegal funds that find their way into their jurisdictions. Fringe financial centers have a more spotty record.” '

Commenting on the FATF's 'uncooperative jurisdictions' work, Mr Ridley highlighted the continuing lack of the fabled level playing field:

'Unfortunately, the lack of a level playing field continues to be an issue with FATF. This can be illustrated by its review of Australia. The 2005 report concluded that Australia was compliant with only 12 of the 40 FATF anti-money laundering recommendations. It was largely compliant with nine, partially compliant with 10 and not compliant with nine. Australia has never been on a list of non-cooperative territories. On the contrary, it is a leading member of FSF, FATF and other organizations that continue to criticise offshore financial centres for non-compliance with international standards.

'The U.S. Government Accountability Office (GAO) recently reported that US states require so little information on company ownership that criminals can set up firms to launder money, evade taxes and fund terrorist operations without fear of prosecution. The GAO was told by state officials that local laws will not be easy to change due to competitive pressures. FATF’s review of the US is currently underway. It will be interesting to see how any shortcomings identified there will be received.'

Reviewing internatal developments in hedge fund regulation, including new US registration requirements, Mr Ridley concluded that there was as yet no major impact on Cayman's massive hedge fund sector:

'We are watching for two possible impacts. One is that US fund managers may decide to make increased use of the lock-up period to avoid registration with the SEC. Use of lock-ups might make registration with CIMA unnecessary for these funds, as they may (but not necessarily) be considered as closed ended. Fewer registrations, of course, would impact negatively on Government revenue. However, to-date we have not seen this occurring. Indeed, the 7,468 funds active at the end of the first quarter of this year mark an increase over the last quarter’s 7,106.'

The Chairman noted that US states were becoming a real competitive threat in the captive insurance sector:

'In the insurance sector, we are observing an emerging trend of captive insurance company formations within the US. A number of states are increasingly positioning themselves as individual captive domiciles. For example, the number of captives licensed in South Carolina grew from five in 2001 to 106 last year. New Jersey is the latest to launch itself as a captive domicile, joining places like Vermont, Arizona and Hawaii.

'While Cayman is ahead of its individual US state competitors and is second only to Bermuda worldwide in total number of domiciled captives, going forward, we are likely to see much more aggressive marketing and competition from these US states as they attempt to entice off-shore captives back onshore and to get new entities to set up within the US rather than look outside.'

Concluded Mr Ridley: 'The principal challenge for the Cayman Islands and CIMA internationally continues to be engagement with standard setters and regulators to ensure the legal and regulatory regime in Cayman is properly understood, recognised and accepted. Locally, the challenge is to set the legal and regulatory regime at the right level to ensure that we encourage high quality business and are competitive. We look forward to meeting these challenges in partnership with the Government and the private sector.'

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