Pierce: It’s the managers in that space, the institutions which are
already regulated in their home jurisdictions, typically in the UK or in
the US, that are already used to a very high level of regulation. But
they don’t want necessarily want another layer in another jurisdiction,
unless there’s a very good reason for it.
If there is a reason and if it’s no more effort than what they’re already
doing and it’s not going to be hugely costly or cause aggravation,
then fine—but if they have to do something that they’re not already
required to do then they just don’t want to do it. It’s a fine balance.
Subiotto: Cayman has balanced it quite well so far. We don’t think
greater regulation will drive the industry away, it just needs to be
done sensibly, and in a way that doesn’t add an unnecessary layer
of regulation. When you look at what our clients have to deal with
outside Cayman, it’s not too bad. We can put a more positive spin on
the benefits of regulation.
Smith: In Cayman, in terms of a regulatory approach, we look at where
the entity is based and for an investment manager, for example, we
know there are comprehensive regulatory frameworks elsewhere.
So if they are regulated in the US, for example, we know that there
are certain requirements. Do we need to replicate that within our
regulatory framework?
What we’re finding more and more in terms of international
standards is that the standard setters are requiring that we have in
place certain requirements, regardless of whether these requirements
also exist elsewhere. They are saying if a fund is operating within your
jurisdiction, they are considered to be entities regulated by you, so
you then need to do your own assessment.
We do cooperate as regulators. CIMA has in place bilateral and
multilateral exchange of information frameworks, which enables us to
obtain the necessary information with regard to an entity’s operations
in other jurisdictions, so that cuts down the need for us to have exactly
the same thing replicated within our own regulatory framework.
We’re conscious of the cost to business when you have to do the
same thing over and over but then a lot of international standards seem
to suggest that if Cayman does not get exactly the same information,
as say the EU regulator has, then CIMA’s level of regulation is perhaps
not to the same standard.
But that is not true. In fact it creates regulatory arbitrage. We’re
continuing to hold firm in terms of we’re not looking to exactly
replicate requirements, as long as we feel comfortable that we can
get information as/when necessary from another regulator.
What about other regulatory
changes?
Farrington-McSweeney: The elephant in the room is that CIMA
now has increased enforcement actions power and so forth but we
have not yet seen a major action from CIMA. The Bermuda Monetary
Authority has issued some big fines and outsiders might see that as
a more proactive regulator as a result.
Smith: The debate is whether the best way to demonstrate control
is to name and shame. But if you want to change a behaviour fining
people doesn’t necessarily bring that. We prefer to intervene earlier
and never get to that stage.
We’ve seen a certain level of responsiveness to early intervention
and we are seeing changed behaviour demonstrated by a decreased
number of certain findings when we do onsite inspections.
Fines grab the headlines but what you are then seeing is when
things go really wrong. We try not to get to that stage.
Pierce: The good thing is you have more flexibility and power now.
Subiotto: But you need to be careful that it’s not viewed as a moneyraising
exercise. It depends how’s it used.
Cook: The reality is that everyone involved in the industry has a
genuine vested interest in making sure that everything runs smoothly
and no-one wants to be involved in any of those headline cases.
The issue isn’t with regulations—the only concern that I ever hear
raised is around lack of clarity around the compliance with this new
“Clients are happy as long as you can explain
why the regulations exist.” Tim Rossiter
CAYMAN FUNDS | 2019