Cook: We have to acknowledge that we need big data in general to
make better informed decisions. But there also needs to be some
level of control on the execution of trades such that data is used in line
with their strategy.
MacKay: The downside risk of technology is always the gap between
innovation and implementation. You’re fearful that you select your system,
you implement it, but by the time you implement it, it’s already out of date.
Let somebody else invest in the infrastructure and maintain it and evolve
it while you benefit from that through outsource arrangement. It will come
but managers will always balance up the risk and the cost aspects.
What about cryptocurrencies?
How might the funds industry get
involved in that?
Scott: Fintech in general is a huge opportunity for the jurisdiction. It’s
going to be transformative from a global financial services perspective.
I would separate the two elements—cryptocurrencies and blockchain
technology (distributed ledger technology).
In the cryptocurrency space, the greatest interest we’re going to see
is from fintech companies setting up in Cayman potentially looking
to issue initial coin offerings (ICOs) or build technology as part of a
blockchain or similar technology. We’re also seeing an acceleration
of fiat currencies being looked into from countries like the UK. It’s
possible that in the future, digital fiat currencies will be the mainstay
12 CAYMAN FUNDS | 2018
global currencies, and cryptocurrencies may move toward being
more a new derivative asset class.
That would then mean, for example, that our products in Cayman
will be investing into those as an asset class. What comes from that is
how you treat that asset class. From a jurisdiction perspective, we’re
attracting a lot of fintech companies to be setting up in Cayman.
From a financial services perspective, what we’re looking at is helping
solve some of the global barriers that are holding back the technology
from being implemented in financial services transactions globally.
There’s three areas, one is from a regulation/global policing authority’s
perspective where you have the natural issue with this type of technology
which is anonymity which creates a bearer instrument concept.
We’re working on solutions that could solve that with things like
certified digital ID that will work from a global perspective, which will
allow the technology to still be harnessed with all of its speed, peer
to peer, borderless aspects of it, but will create the soundness that’s
needed in terms of knowing what it is you’re dealing with and having
them certify it from the anti-money laundering perspective.
Another part of it that’s being solved is the digital fiat currencies; we
think that will then cause countries to be more willing to adopt the
technology because they’re not losing control of their ability to adjust
their money supply.
The third element is as fintech companies are becoming more
mature and are looking to be able to utilise the global platform, they’re
having challenges because on the surface, taxation authorities are
not comfortable, they have ways to be able to tax transactions and in
particular the core technology being anonymous.
We’re also working on solutions that taxation frameworks can be
built into a good sound environment to utilise the technology, but also
have taxation frameworks included. We see Cayman as being a centre
to solve some of these problems.
Smith: Most regulators will have a challenge with this new innovation
especially where anonymity exists on instruments, which as you know
is something regulators worked really hard to remove from the financial
industry through the prohibition of instruments such as bearer shares.
We, however, recognise that there are potentially advantages for the
industry and CIMA regularly fields queries in regards to many different
proposals relating to this area. There are also a few funds already
registered whose strategy is investing in fintech related technologies
or cryptocurrencies. For funds, this is just another product in which to
invest and that’s pretty straightforward.
CIMA has also had queries in relation to redemptions or subscriptions
using cryptocurrencies. However, this is something that we do not
currently allow as there remains the question of is a cryptocurrency
actually a currency
Another big question for a regulator would be in relation to valuation;
we have seen how the value of these cryptocurrencies fluctuate,
sometimes wildly, so the question would be how would you accurately
value such currencies in order to produce the fund’s NAV.
I believe that fintech, cryptocurrencies, ICOs, are here to stay. Therefore,
if we have entities in Cayman that are going to be conducting this activity,
either through investments or doing some aspect of supporting/enabling
such investment, we have to consider the regulatory aspect.
CIMA is doing its best to learn as much as possible and as quickly
as possible in order to be positioned where we can, hopefully, allow
certain aspects of such business to be conducted locally but also
ensuring that we understand the risks posed by each activity.
Thomas: Heather, you said you had 30 existing licensees in December
last year and yet you had 15 new applications. Do you know if those
are crypto-related businesses seeking licences?
“We have seen capacity rights
being extended where a fund
says it will close at X and
actually the investors just want
to invest more.” Ingrid Pierce