– public/private sector cooperation in action
Over the years, in fact for the whole period leading up to Cayman achieving its position as a leading offshore jurisdiction for institutional clients, one of our strongest selling points was that our private and public sectors worked together to draft bespoke legislation to meet the ever-changing needs of the financial market.
Landmark legislation such as the Companies Law (1961), the Mutual Funds Law (1993), the Exempted Limited Partnership Law (1991) and the Securities Investment Business Law (2001) were customarily drafted by members of the private sector, in close cooperation with government’s own specialists.
Cayman became famous in financial circles for its public/private sector legislative drafting skills. When I was a practicing lawyer I was frequently asked how it worked, and it was the object of much envy among our competitor jurisdictions. Our laws were renowned for being clear and concise and achieving their objectives.
Indeed, several other jurisdictions considered them good enough almost to copy verbatim; and imitation being the sincerest form of flattery, we were happy to let them do so. They were merely confirming what we already knew: that our private and public sectors were together generating the best, most up-to-date legislation in the offshore world, and that clients were flocking to Cayman to make use of it.
Nor was there any hint of amateurism about the operation. The cleverest minds on both sides of the divide were doing the drafting, and it was stress-tested time and again not only in the courts but by our onshore legal colleagues, who of course had to satisfy themselves that it met their specific needs not only from a legal standpoint but from onshore regulatory and tax angles too.
Time and again, draft legislation flew to and fro between Cayman, London, New York and the other financial and political hubs to make sure we enacted what they wanted. It’s no wonder the other jurisdictions copied us: they were getting a free ride on some heavy-duty expertise.
And what an effect those laws had! The Mutual Funds Law, combining a common sense approach to regulation with a deep knowledge of the market and the needs of the clients, began the flood of business that placed Cayman at the very top of the market worldwide (onshore or offshore) for the establishment of open-ended investment funds; and the Exempted Limited Partnership Law opened the floodgates for the establishment of limited partnerships structured exactly so as to meet the needs of the private equity market.
Millions of extra dollars have flowed into the exchequer of the Cayman Islands as a result. In fact it could be argued that, alongside the Companies Law, those two statutes were the most important revenue-raising measures ever to come to the floor of the Legislative Assembly.
But the years went by, and new challenges emerged in the offshore world. New structures arose, new needs materialised, and like any well-tuned engine the legislation crafted 20 or so years ago started to appear creaky and in need of an overhaul. Developments in the US private equity market (which depends so heavily on our exempted limited partnerships) meant that our ELP Law was starting to look out of date, and our Companies Law, which had had its last major private sector overhaul as long ago as 1988, was crying out for modernisation.
And all this was happening while the government and the Cayman Islands Monetary Authority were distracted by increasing external pressure from the likes of the OECD and FATF.
Meanwhile, the private sector had become a victim of its own success. It had less and less time to devote to legislative drafting as demand grew for new products. The Attorney General wisely added several new members to his legislative drafting department, but the last 15 years or so saw a marked increase in domestic, criminal and other legislation which, being more politically pressing, diverted the attention of those experts from the needs of the financial industry – the very industry that was underpinning Cayman’s economy. In short, we couldn’t keep up. So we fell behind.
After several years, the Cayman Islands Law Society and several other professional associations realised that not only was financial legislation becoming seriously out of date, challenged by that coming out of competitor jurisdictions, but insufficient coordinated effort was being made to identify the new fields in the offshore financial space that could be exploited by the introduction of fresh new legislation.
We suggested that government sponsor the reintroduction of the old system of financial legislation drafting, ie collaboration between the private and public sector – with the private sector identifying areas of particular need and taking a first cut at drafting the legislation to meet it. The private sector will always be best placed to undertake that role because of its relations with onshore professionals who can pinpoint precisely what needs to be drafted to achieve the effect that they seek.
It took a long time to persuade government but it has now been done. In May 2010 Premier McKeeva Bush announced the formation of the Financial Services Legislative Committee, chaired by me (I had recently retired, so I guess he thought I had nothing else to do) and comprising nominees from the majority of the commercial law firms on island and senior members of the Ministry of Finance, headed by Dax Basdeo. The FSLC was tasked with identifying both financial legislation in need of revision and updating and areas of the financial industry which could benefit from new legislation.
The FSLC has a dynamic all its own. Meetings are friendly, informal and business-like, and in the short time that it has been in existence, it has covered a huge amount of ground. The private sector members, being practicing lawyers, are desperate to see new and/or updated legislation in all areas and since the Attorney General has kindly lent us his financial drafting expert, Karen Stephen-Dalton, unprecedented private-public sector cooperation has followed and several new pieces of legislation are in the pipeline for enactment.
We have already seen the first major piece of legislation drafted by the FSLC passed by the Legislative Assembly: a first wave (the most urgent) of amendments to the Companies Law. We are now working on two further waves of tidying-up amendments, which will be completed shortly.
A brand new Exempted Limited Partnership Law has been completed, with new statutes addressing portfolio insurance companies, limited liability partnerships, limited liability companies, foundations and charities all at varying stages of development. For each new piece of legislation a sub-committee of the FSLC is formed, comprising experts on the subject in question and each featuring the dauntless Ms Stephen-Dalton. Initial drafts of all of those laws will be ready by the end of September.
Not only are we revising and drafting new laws, but we are also helping government with some of its own legislation. For example, we established a sub-committee to advise on the Dormant Accounts Law, and have been involved with the Cayman Islands Monetary Authority in connection with drafting new legislation relating to mutual funds.
The advantage here, of course, is that by the time the first draft of legislation is produced, it has already undergone months of scrutiny not only by government but by those members of the private sector most closely connected with the subject in question.
So far then, the FSLC has been a tremendous success. I claim no credit for this; it is the members who have made it so productive. Left to its own devices, it will transform Cayman’s financial legislative landscape. Laws that have become outdated will be renewed and brought right up to date, and new laws introduced to meet the needs of today’s market. Although established by the foresight of one politician, the FSLC is absolutely not a political body, nor was it ever intended to be.
Rather, it is a dynamic, hard-working group of professionals from the public and private sectors working together to make sure that Cayman maintains its position as one of the, if not the, foremost offshore jurisdictions in the world. It would be nice to think that the FSLC is here to stay, and that in 15 or 20 years’ time our successors will be revising and updating the legislation that we introduced, to similar effect.