REMARKS TO THE CAYMAN ISLANDS DIRECTORS ASSOCIATION LUNCH
19th June 2008
by
Timothy Ridley
I am honoured to be invited to address this new Association today. I congratulate all
those who have worked so hard and expeditiously to bring about its creation and hope
it is a first step to great achievements in the future.
My remarks today are personal and do not necessarily represent the official views of
the Cayman Islands Monetary Authority (CIMA). But as a general comment, CIMA
welcomes the establishment of professional associations that can contribute to the
development, enhancement and improved standing of the financial services industry,
and thus the Cayman Islands as a whole, through the adoption of and adherence to
best practices, ongoing education and constructive engagement with CIMA and by
increasing the pool of locally based fit and proper persons (the key determinator for
our regulatory laws) qualified to serve as directors of regulated entities.
I will not repeat the remarks I made at the AIMA sponsored discussions in April, as I
suspect that many of you were there. Nevertheless, in suggesting some specific things
CIDA can do, I may touch on issues raised in those remarks.
As an overall matter, I urge CIDA to be as effective, expansive and inclusive as
possible and to be mindful of broader community interests. You should avoid being
seen as a self interested “jobs for the boys” organisation. So encourage the widest
possible membership, if necessary by having categories of membership that cater for
both the experienced and inexperienced, while balancing this against the need not to
be seen as having no or low standards. And, dare I say it, you may wish to consider
“overseas” memberships in due course.
Now to specific suggestions.
First, CIDA should establish strong best practices for its members through codes of
conduct, conflicts of interest codes, ethics codes and the like. There are many useful
precedents already existing, although I recognise that some tailoring to the jurisdiction
may be needed.
Second, CIDA should establish educational and awareness programmes at all levels,
both theoretical and practical. I see CIDA as having a key role in developing such
programmes (possibly say with the Chamber of Commerce, UCCI and other
professional associations) for people already serving as directors and also for those
who may so serve in the future.
Third, CIDA should become actively involved in the CIMA consultation process on
proposed Rules and Statements of Guidance etc. This is a vital part of CIMA’s goal to
ensure that our regulatory regime is appropriate and up to date. It is most important
that the procedure works smoothly. That requires those consulted to respond in a
timely and considered manner. The response from the industry has often been patchy
and not timely. Some Associations are both constructive and timely; a few, not. I trust
that CIDA will fall into the former category on matters that concern it.
Fourth, we need to expand the qualified director pool in Cayman. There are simply
too few today. And this is but one example of the human resources challenge we face
in the Cayman Islands. This lack may lead to individuals arguably holding too many
directorships and thus not being able to meet their responsibilities to those entities,
facing (or ignoring or not dealing with) inevitable conflicts or simply not being
qualified (and I use the term in its broadest sense) or experienced enough to carry out
their functions as required. I see CIDA providing resources to alleviate these
problems through education and training.
Fifth, it is also important that CIDA reaches out into all areas where the performance
of directors requires improvement. That means not only the offshore sector, which
typically receives most scrutiny, but also local companies and statutory authorities.
Bearing in mind the comments made in the recent Commission of Enquiry Report
about the weaknesses in the governance and board performance of certain statutory
authorities and Government owned companies, the much publicized problems with
compliance with the Health Insurance and Pensions Law by certain private sector
corporate employees and the likely difficulties with compliance with the ESO
National Accounts Survey, it is evident that help is needed. Good governance is good
governance everywhere. So I see CIDA as having a valuable role to play in the local
sector.
Sixth, in the offshore arena, CIDA should reach out to directors and potential
directors in all sectors and not overly focus on “independent” directors in the fund
industry. As Cayman expands, we have a need for good local directors in all areas. An
example is the reinsurance industry. This is a potential business sector to which the
Government has recently made a strong and welcome political commitment. If we are
to develop as a credible domicile for open market reinsurers (many of which will be
publicly quoted) and to encourage substantive decision making, real economic
activity and expanded employment in Cayman, we need locally based persons of the
necessary calibre and credentials to serve as directors as those reinsurers. Those
directors need not necessarily be people with an insurance or reinsurance background
as boards should have broad multidisciplinary skills. And they should not just be
lawyers and accountants. There is every reason why a strong local business
entrepreneur in Cayman could be an excellent candidate to go on the board. But he
would find it helpful to better understand Sabanes Oxley and the many duties and
risks of directors of public companies. That is where CIDA can come in.
Seventh, I encourage CIDA to support the Cayman Islands Financial Services
Association (CIFSA) in both its international and domestic education and awareness
programmes. I recognize many of you do so already wearing a different hat. But more
support is needed. We are all only too cognizant of the threats to our industry. It is
encumbent on all participants to support the CIFSA efforts to make sure we are able
to continue our past successes.
Lastly, CIDA can be a useful contact point for those seeking persons to serve as
directors. I am not suggesting that CIDA become an employment agency, but
maintaining a list of those members qualified and willing to serve with resumes and
contact details would be extremely useful to those setting up in Cayman. Needless to
say, it would also be a significant benefit to CIDA members.
I would like to sound some words of caution to you. Those who serve as directors are
in the front line when it comes to risk and potential liability. You will be well aware
of your legal responsibilities under Cayman law. Recent proceedings here against the
directors of hedge funds underscore the local risks. But given the cross border
activities of the companies on whose boards you serve, your liability does not stop at
Owen Roberts airport. So it is encumbent on you to ascertain what the pitfalls may be
in other relevant jurisdictions and to act accordingly. The recent actions by the US
with respect to the officers of foreign internet gambling companies, BAe and UBS,
and the fate of the NatWest Three send a clear message that what goes on overseas
does not stay overseas as far as the US is concerned. This together with the increasing
stridency from Washington about “offshore”, amendments to the Tax Code, greater
pressure for better tax collection and a possible Democratic victory in November,
mean we may be in for a renewed period of subpoenas being served on Cayman based
persons while in the US. You should also listen and watch closely what is being said
and done in the EU and UK with respect to “offshore”. At home, you should review
carefully the proposed Proceeds of Crime Law and the Anti Corruption Law (ACL)
that are likely to be enacted during the current session of the Legislative Assembly.
Noteworthy is that the ACL will make bribery of foreign public officials a crime.
The global standards required and expected of directors are increasing. Cayman is
very much impacted by this development as most of our investors and service
providers are global and we are subject to the close scrutiny of foreign governments,
overseas regulators and law enforcement and international standard setters. The
performance of the directors of Cayman companies, both local and offshore, is critical
to the credibility and reputation of the Cayman Islands. I look forward to CIDA’s
active participation in ensuring this performance more than meets the requirements
and expectations of the international and local communities.