CAYMAN 2012 - HFMWeek

CAYMAN 2012
FINANCIAL SERVICES
SOME COMMENTATORS
SAY IF THE SYSTEM IS
NOT BROKEN, THEN NO
ATTEMPT SHOULD BE
MADE TO FIX IT
”
For the aforementioned reasons and due to stakeholder
concerns, the purported mass model is inappropriate for
Cayman directorship service providers. Instead, the more
thorough, corporate governance rich approach adopted
by Alric Lindsay is the appropriate method to follow. If
such a yardstick was adopted by all Cayman service providers,
it could lead to a further strengthening of the Cayman
Islands as a global hedge fund hub.
WORKING ON CAYMAN’S CURRENT IMAGE
Some commentators say if the system is not broken,
then no attempt should be made to fix it. However,
the summer 2011 judgment in the Cayman Weavering
case was a reminder to stakeholders of the importance
of having good corporate governance practices in place
and that directors may be subject to liability where they
fail to properly discharge their duties to a Cayman fund.
While the persons in that case were not Cayman resident
directors and it is unclear what director model was
employed by the directors, the lessons are still generally
applicable to all persons who act as directors on Cayman
funds.
The message is also being emphasised by Cayman regulators.
Speaking at the Campbells Fund Focus Conference
in November 2011, Langston Sibblies, QC JP, deputy
managing director and General Counsel for the Cayman
Islands Monetary Authority (CIMA) stated the following:
1. “CIMA has been conducting a detailed review of
the regulatory framework for corporate governance.”
2. “We have been examining areas such as: the ‘fit
and proper’ framework, how directors exercise
their responsibilities, the extent to which legislation
codifies these responsibilities and issues of
transparency.”
3. “We have...taken into account the recent enhancement
of international standards and requirements
that are being promoted.”
4. “It is anticipated that there will be some adjustments
to the regulatory framework as a result of
this work. We expect that these will begin to be
rolled out by 2012 after the necessary consultative
and government review process.”
5. “One of the initiatives in the pipeline relates to
CIMA’s Statement of Guidance (SOG) on Corporate
Governance. The SOG currently applies
to licensed entities including licensed funds. We
shortly expect to begin industry consultation on a
proposal to formally extend the SOG to registered
entities, which would include registered funds.”
Adding to this discourse, Yolanda McCoy, head of the
Investments and Securities Division at CIMA, highlighted
that “the role and responsibilities of the board of directors
and the number of directorships one person holds
are undoubtedly key issues for careful deliberation.” She
also indicated there were “other issues such as the fitness
and propriety framework… a director’s disqualification
regime… issues of transparency and public disclosure…
and enforcement action for non-compliance of a director’s
fiduciary and regulatory obligations must also be
examined...”
The statements by Cayman regulators cannot be ignored;
their focus on the strengthening of regulation and
corporate governance standards will inevitably lead to the
elimination of weak governance models practiced by some
directors. Those who do not wish to comply may be penalised
under the terms of new regulations or legislation.
A NEW REGIME
The introduction of tough penalties should lead Cayman
director service providers to adopt even more robust corporate
governance models. Evidence of the transition will
be the expansion of risk-based, ‘executive’ type approaches.
The move will require directors to know more about
the hedge funds on whose boards they sit and to increase
oversight of administrators, investment managers and
other service providers.
This new regime means the ‘mass model’ can no longer
be maintained. The risk is too high for a hedge fund and
for the jurisdiction in the event that the hedge fund fails
because a director is unable to understand or follow the
strategies of hundreds of funds on whose boards he sits.
The next sweeping change for regulators must therefore
be a reduction of the mass director appointments held by
some persons.
Upon inspection, investors will note that Alric Lindsay’s
superior model stands apart from other service providers.
It is built on international standards, it makes directors
accountable to the fund and regulators, directors are required
to make continuous adjustments to meet industry
best practices, transparency is promoted and, overall, the
model fosters investor protection. n
24 HFMWEEK.COM