legislation that was so extensively consulted upon; the government
wanted to make absolutely sure that it had the input that it needed to
make sound decisions.
I also want to stress the importance of information, which we use
to explain our business. When the EU asks questions about the funds
for example it is a regulated sector and we know the answers. But if
they ask about private equity and other areas, we don’t always have
specifics. It is important to have that type of information so we are
able to explain our regime, when changes are called for.
Smith: A key question I get is: do you understand the risk? With funds
we can say we understand the risks because when we look across
our fund population, X percent do this sort of activity and most of
them are structured this way, etc. The standard setters like statistics,
they like hard numbers, that kind of very granular reporting.
If you don’t have the information, the conclusion is that you don’t
know and therefore the activities undertaken are risky and there are a
lot of black holes in your industry. So yes, the more we know and the
more we understand, the better able we are to respond to the various
requests for information.
Murray: Coming back to the fines, the regulatory regime in the
Cayman Islands does not allow the egregious behaviour to accumulate
to such a level where a million dollar fine is needed.
Smith: Yes, ideally that’s what we want.
What are the plans for how
Cayman might treat unregistered
funds going forward?
Smith: The changes in the AML framework require that they have
AML officers in place and through a lot of service providers we know
32 CAYMAN FUNDS | 2019
we’re seeing where that’s being done. CIMA’s not currently collecting
information specific to every unregulated fund to check if they have
made these appointments. It is a process. It is hard to say how many
unregistered funds there are.
In any regulatory regime there are going to be true exemptions,
entities that don’t need to fall under the regulatory framework.
Trying to regulate everything would never be an advisable approach.
The more important thing is to understand the risk and the more
information you have about a fund structure, the better.
McLaughlin: For the unregulated business, having to appoint an
AML officer will help them to focus their efforts and perhaps make
them a little less risky because now that they have somebody that’s
overseeing their due diligence.
Rossiter: We have to be very wary of the statement that no regulation
equates to nothing happening. Look at the service providers that
are associated with these entities—they are covering all of these
regulatory roles. There needs to be a happy balance for effective
regulation, it should be prudent and pragmatic.
Just because you’ve got regulations in place doesn’t necessarily mean
that it’s either going to be better or worse. There needs to be a reason
for the regulations and clients are happy as long as you can explain
why the regulations exist, as the managers are regulated wherever
they are located.
Murray: It should be light and it should be appropriate and not
Leadbetter: Everything costs more. If you’re getting your service
providers to run extra reports or you have to appoint outside service
providers, there is a cost associated which drives up expense
ratios. If funds are underperforming this can result in increased
pressure on fees.
“We are continuing our
discussions with the EU to
ascertain the outcome of
their assessment of Cayman’s