Exporting regulatory protocol

Here's  a  prediction.  If  you  take  a  look  at macro-economic  trends  since  the  1980s,  the distinctive  pattern  favours  stronger  and increasingly  freer  capital  markets. 

It's  an overarching  trend  that has  its  first  great expression  in  the  fall  of  communism  but  that has  continued  to  reshape  global  markets  and global  thinking  ever  since.  Even in  areas  of the  world  such  as  the  Middle  East  (and especially  Dubai)  it  is  now  abundantly  clear that  the  intersection  of  the  rule  of  law  and capitalism  produces  positive  results  for  all concerned.

One of the great challenges of this decade is to develop regulatory systems that will define and enforce standards for control and compliance in a way that assures investors that the game is fair, but it must be done in a way that supports capital growth too.

It  certainly  appears  that  the  regulatory environment  of  the  Cayman  Islands  is  well on  its  way  toward  being  a  global  model  of collaboration  and  balance. With  so  much  tradition,  the  Cayman culture  can  embrace  virtually  every  variety  of financial  instrument  as  well  as  apprehend and  deter  abuse.  For  example,  anti-money laundering  standards  in  the  Cayman  Islands predate  those  of  most  leading  onshore jurisdictions,  including  the  United  States.

The  mutual  funds  legislation  is  effective but  not  intrusive  and  it  is  geared  toward sophisticated  investors  and  the  institutional funds  market.  Cayman's  success  as  a  hedge fund  jurisdiction  likewise  owes  much  to  the spirit  of  cooperation  and  partnership between  the  financial  industry  and successive  governments.

The  most  recent  example  of  this private/public  partnership  is  especially important.  Earlier  this  year,  the  newly  elected government  listened  keenly  to  suggestions
by  hedge  fund  industry  representatives  for fine-tuning  the  statutory  framework.

Government  officials  and  industry representatives  were  equally  motivated  to underscore  the  probity  and  trustworthiness of  this  particular  financial  sector.  Among  the most  important  proposals  discussed:

  • Foreign  funds  administered  in  Cayman should  no  longer  be  required  to  be regulated  by  the  Cayman  Islands Monetary  Authority  (CIMA),  since  they  are already  regulated  in  the  jurisdiction  where they  are  domiciled,  while  the  Cayman administrators  that  service  them  are already  closely  regulated  by  CIMA.  This change  would  enhance  the  inflow  of business  to  administrators  here.
  • Categories such as public funds and professional funds would be introduced, a cosmetic but descriptive change that should allow people to understand more easily
    what kind of funds they are dealing with. The government has also demonstrated its willingness to help the industry in recruitment from abroad.

Here, the Cayman government is showing particular wisdom and flexibility. The regulations governing work permits are flexible enough to allow firms to recruit the professionals they need to service the work coming in. Obviously the government is keen to promote and make the most of the talent available locally. However, there is also recognition that local resources are not sufficient to service the market. Some fund administrators are becoming more global in their outlook, which offers them a way to solve the kind of problems with recruitment that they might experience anywhere.

The  Cayman  regulatory  system  may  be  a model  for  other  financial  markets  on  paper. Increasingly  sophisticated  administrative staffs  will  come  here  to  learn  and,  sooner  or later,  disseminate  what  they've  learned  to  all major  capital  markets. 

By  Jonathan  Tonge  and  Mark  P.  Lewis - Walkers

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