The ripple effect of the global market crisis will impact Cayman’s financial sector but the regulatory body that protects that industry is stronger than ever, said the former head of the Cayman Islands Monetary Authority (CIMA) last week.
“We indeed live in interesting and worrisome times, and the relationship between the financial services industry and CIMA has perhaps never been more important,” said Tim Ridley, former CIMA chairman.
“I think it is fair to say that the current stresses in the global financial markets will result in problems to the industry here over and above those that are already identifiable. What those problems, the unknown unknowns, may be we do not yet know.
“And there will be lessons that the industry, CIMA and the Government should learn for the future, and also opportunities. That is the way of crises.”
Speaking at a recent regulatory seminar organised by FTS, a newly formed consultancy and training agency based in Cayman, Mr Ridley indicated that while many of CIMA’s regulatory functions intended to protect the industry from abuse function well, improvements are needed.
“While CIMA has quite extensive enforcement powers under the regulatory laws, some of which it has never to date used, it is often overlooked that CIMA, unlike the US Securities and Exchange Commission, does not have the power to conduct criminal investigation or bring prosecutions.
“Those are the responsibility and prerogative of the Royal Cayman Islands Police Service [RCIPS] and the Attorney General’s Office. So, for example, if CIMA concludes that someone who is unlicensed is possibly carrying on business in breach of the provisions of the Securities and Investments Law for which there is a criminal penalty, it must refer the matter to the Financial Crimes Unit of the RCIPS, a body that is very under resourced.
“So when the media reaches for the button that says ‘Where was CIMA?’, they should first understand the system and maybe push a different button.”
Mr Ridley explained that the industry has become better at “exercising good judgement” when it comes to its reporting obligations on issues such as money laundering, but the mantra should still be: “If in doubt report it”. He also pointed out it is not CIMA’s job to push forward any new laws or regulations.
“CIMA is unfortunately not in a position to expedite the introduction of legislation and regulation to meet industry (or CIMA) needs, as that rests with the Government, not CIMA,” he said.
However, Mr Ridley went on to say that CIMA has begun issuing rules and levying fines though he acknowledged the paltry penalties do more to damage Cayman’s reputation overseas than to punish the offenders.
“The maximum penalty that CIMA can levy for breach of a rule is $1,000, clearly hopelessly inadequate, and this must change in the future as it reflects poorly on the credibility of the jurisdiction and its commitment to enforcement in appropriate circumstances,” he said.
He added that another problem lies with actual enforcement of the payment of fees and late penalties.
“Again, CIMA does not have the standing or power to bring proceedings for payment. Fees, although collected by CIMA, are in fact due and payable under the various regulatory Laws to the Financial Secretary, i.e. the Cayman Islands Government.
“CIMA is a separate statutory body and thus does not have the necessary authority to act. This is most inefficient, results in loss of revenue to the Islands and should be changed so that CIMA can pursue delinquents,” Mr Ridley said.
On Monday, 20 October, the Cayman Islands Financial Services Association and Portfolio of Finance will hold a luncheon to elaborate on how the current global financial situation is affecting Cayman and address accusations that the jurisdiction has had some hand in the market failures.