Ridley reflects on CIMA

Read our article in the Cayman Financial Review Magazine, eversion

Main Story:
Cayman’s regulatory framework
 

Before Tim Ridley became a director and then chairman of the
Cayman Islands Monetary Authority, he was a partner of Cayman’s leading law
firm, Maples & Calder. With experience as both the regulator and the
regulated, Ridley has a unique perspective of Cayman’s sole regulating body.

Ridley had a six-year term on the CIMA Board of Directors,
which included the chairmanship from 2004 to 2008. He believes Cayman’s
regulatory body provides an important service to the financial services
industry and the Cayman Islands itself.

“CIMA helps the industry significantly through a sound and
sensible regulatory and supervisory regime,” he says.

“This regime has over
time achieved international recognition, as has CIMA itself. That in turn gives
investors, international agencies … and foreign regulators… reassurance
that Cayman has a well-regulated financial services industry and an effective
regulator. This is essential for Cayman to be competitive as a financial
services centre.

Were Cayman’s regulatory and supervisory regime to be
considered subpar, this would prejudice the ability of the industry to attract
the high-quality business it desires.”

Ridley thinks CIMA has “by and large done well” since it
came into existence in 1997, despite various limitations. He notes that CIMA is
just “a creature of statute” that shouldn’t be confused with the government.
“CIMA is the regulator tasked to carry out the laws and regulations put in
place by the Cayman Islands Government,” he says.

“CIMA does not have the power
unilaterally to enact legislation or even to issue regulations.”

CIMA also has to get its funding from the government.

“It
must be remembered that CIMA has to submit an annual budget to the Cayman
Islands government,” he says.

“It must fight for its funding like all other
government departments and most statutory authorities. It does not simply keep
the revenue that it raises through licence and registration fees. Those fees go
straight to the government treasury.”

This arrangement creates “inevitable tension” between CIMA,
which wants to be properly resourced to carry out its mandate, and the
government, which wants to maximise revenue.

“CIMA should receive the licence
fees and other revenue paid by the industry and should then remit the net
income to the Cayman Islands government, say on a quarterly basis,” he says.

“This would better ensure that CIMA is properly funded to carry out its
functions. The appropriate oversight of the CIMA budget by [government] could
still be maintained to prevent unnecessary expenditure by CIMA.”

Lessons learnt 

Even though CIMA was a supposedly autonomous authority when
it was first established, many of its decisions were made by Cabinet. The
government took steps to relinquish the decision-making role in CIMA in early
2000s, but that didn’t mean it necessarily listened to CIMA’s recommendations.

“In the past, the Cayman Islands Government – not CIMA – can be criticised for
not ensuring that the regulatory and supervisory regime in Cayman was keeping
pace with international demands, and for frequently not listening to CIMA,” he
says, adding that the private sector must also share the blame because it
pressures the government to “drag its feet” when it comes to passing
legislation necessary to keep up with international standards.

“For the most
part, [the government] has learnt the hard lessons of such foot-dragging –
Cayman’s name appeared on blacklists and was the chosen poster child of critics
of offshore financial centres,” he says.

With lessons now learnt, Ridley sees the Cayman Islands
government now allowing CIMA to be much more proactive in its approach.

“CIMA,
with much more support from the Cayman Islands government, is now engaging far
better with foreign regulators and international standard setters… and
helping to frame the agenda and outcomes,” he says.

“This has been, and is, a
slow and painstaking process, but is showing the fruits of the efforts. There
is far less adverse criticism of Cayman from the standard setters, and a much
greater willingness from [the government] to devote the time and resources to
keep Cayman ahead of the curve.”

Room for improvement 

There areas in which CIMA can improve, including in the way
it deals with complaints and information requests, Ridley says.

“There are
occasions where the ‘tick the box’ / ‘the rule book applies’ mentality is
evident at CIMA and where response time is not as good as it should be,” he
says.

“What is often needed is a better exercise of good judgment and common
sense by staff, combined with better guidance from management to help staff
exercise that good judgment and common sense. But since no one ever fired a
regulator for saying ‘no’, it is not easy to get the right balance.”

The area where Ridley has the most concern is on speedy and
effective enforcement.

“CIMA has limited enforcement powers under the various
regulatory laws,” he says.

“The administrative fines it can levy are still low
– a maximum of US$6,000. Secondly, it has no power to bring criminal
prosecutions; CIMA can only refer such matters to the RCIPS and the Attorney
General’s Office. Thirdly, lack of resources – both human and financial – is
always a problem for CIMA. Enforcement typically involves cross border elements
that are time consuming and often expensive in terms of legal and other
assistance. But even taking these limitations into account, I do think CIMA
could be more proactive and effective in its enforcement operations.”

Ridley also thinks CIMA should be given the power to impose
far higher administrative fines. “Even at the recently increased maximum of
US$6,000, the fines are an insufficient punishment or deterrent for the
determined defaulter.”

Keeping ahead 

Though he believes Cayman is in good basic shape on the regulatory
front, Ridley says another crisis “is pretty well inevitable” at some point.
“But Cayman really has no ability to impact that outcome,” he says.

“The seeds
will be sown in the onshore jurisdictions and we will all suffer the harvest.
As far as the other regulatory laws are concerned, we need to make sure that
they are in line with international standards. The insurance, mutual funds laws
and securities laws are in good basic shape I think, but international
standards are in a state of constant flux so nothing can be taken for granted
and constant updating and tweaking will be needed.”

He also has concerns about the
Confidential Relationships (Preservation) Law, which the government has been
talking about reviewing and revising.

“This Law has been a red rag to our
critics for years, albeit unfairly in my view,” he says.

“Data protection and
confidentiality of private information are perfectly legitimate, but not
absolute entitlements in all circumstances. Cayman needs to do a better job of
constructing a regime that provides transparency on the one hand and protects
private information on the other in a logical and understandable way. We could
defuse a great deal of criticism if we did.”

Ridley, Tim

Tim Ridley
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Timothy Ridley
Timothy Ridley qualified as a solicitor in England and is an attorney-at-law in the Cayman Islands. He provides legal consulting and advisory services and acts as an expert witness in Cayman Islands legal and regulatory matters. He holds directorships in various private companies engaged in a broad range of activities, including fund administration. Prior thereto, he was for many years a senior partner of the leading Cayman Islands law firm and from 1995 until 2000 led the Asia practice in Hong Kong. He specialized in a broad range of international financial transactions.

Tim has wide regulatory and governance experience. Currently he is a member of the Disciplinary Tribunal Committee of the Cayman Islands Society of Professional Accountants (CISPA) and a member of the Board of Advisors of the Foundation for Fund Governance. He served on the Boards of the Cayman Islands Health Services Authority (2002-2005) and the Cayman Islands Monetary Authority (2002-2008, Chairman 2004-2008). He has also served on various consultative committees that advise the Cayman Islands Government on matters relating to the financial services and local industries.

Tim has taught law at the University of Southampton and at Trinity College, Cambridge and writes and speaks widely on Cayman Islands legal, financial and regulatory issues. He is a member of numerous international professional associations and has served on the editorial boards of leading publications, including the Harvard International Law Journal. Most recently he was chairman of the editorial advisory board of the Cayman Financial Review.

He is a graduate of Cambridge University (BA, Senior Scholar, Trinity College) and Harvard Law School (LL.M, Kennedy Memorial Scholar).

In recognition of his services to the financial services industry and the local community in the Cayman Islands, he was appointed an Officer of the British Empire (OBE) in 1996.


Timothy Ridley
Attorney-at-Law
E. timrid100@gmail.com