The Cayman Islands Monetary Authority has reflected on a difficult 2008 for the jurisdiction's finance industry, which continues to grapple with the fall-out from the US sub-prime crisis, as well as exposure to Bernard Madoff’s alleged USD50bn hedge fund fraud.
Speaking at a recent industry symposium, CIMA’s Managing Director, Cindy Scotland, nevertheless urged optimism despite admitting that “it is not business as usual."
"We must expect the pressure on Cayman and other Offshore Centres to increase,” she warned. However, Scotland believes that with a bit of innovation, the Cayman Islands can emerge from the current financial maelstrom in a stronger position than before the global crisis erupted.
"The opportunity for Cayman is to use this time wisely (bearing in mind that time is not on our side) and position ourselves so that when the dust settles, this jurisdiction will remain a key player in the global financial markets but with new products and services," Scotland observed. She continued:
“It is also an opportune time to diversify and develop relationships with other regions. To that end, CIMA intends to continue our program of regular visits with other foreign regulators. This year it is our hope to visit China, Hong Kong and Singapore. Further details will be made known once we have finalized plans. These trips will come on the heel of a very successful trip to Brazil in December.”
“CIMA has been monitoring the events unfolding in the USA and the repercussions across the globe and has been assessing the potential impact on our jurisdiction. We have also taken a number of actions both in response to the current situation and in anticipation of further developments.”
“As part of an increased monitoring, we have required the seven retail banks to report additional financial details weekly (in addition to their usual quarterly reporting). To date the banks remain well capitalized and have been managing their liquidity. We have sought information from all banking licensees on their exposures to Washington Mutual, AIG, Lehman Brothers and Merrill Lynch - institutions which collapsed or had to be rescued in the latter part of last year. To date, we have had responses from 77% of the licensees. The sum of total reported exposures is relatively small.”
“We have also sought information from all banking licensees on their exposures to the Madoff fraud. A few banks have reported some indirect exposure. Information is still coming in.”
“On the funds side, to date, we have confirmed 34 regulated funds that have been directly impacted by the fraud. CIMA is actively corresponding with these funds to gain a fuller picture of the operational and financial impact. In addition, we are in the process of contacting all our licensed fund administrators requesting that they inform us of any impacts from the Madoff fraud on their operations and on their clients.”
“Meanwhile, a growing number of Cayman domiciled funds continue to invoke provisions of the Offering Document in hopes of managing the growing number of redemption requests."
Scotland said that as of January 19, CIMA had been notified that 23 regulated funds had suspended redemptions, 90 had suspended the net asset value (NAV) calculations and two had suspended subscriptions. "The numbers are growing," she added.
The globally dominant Cayman funds industry has also seen a contraction in growth. The number of new funds processed during the calendar year 2008 amounted to 1,650, an 18% decline from the 2,009 new funds processed during calendar year 2007. Terminations totaled 1,093 in 2008, or 29% more than the 773 terminations during calendar year 2007.
As at December 31 there were 9,870 regulated Cayman funds (comprising 9,231 registered funds; 510 administered funds and 129 licensed funds). This is slightly above the 9,413 funds being regulated at December 31, 2007.
In addition, in December 2008 there were 55 fund administrators (102 full, 49 restricted and 4 exempted); 26 securities investment business licensees, and 2,193 SIBL Excluded Persons.
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