Insights from Camana Bay’s financial services community
Sidebar: Caymana Bay
As the global economy continues to try and shake off the ill effects of the financial crisis and put in place a stable foundation for future economic growth, governments in the US and the EU – as well as global standard-setters such as the Financial Stability Board and the Organisation for Economic Cooperation and Development – are undertaking extensive work on new measures and approaches to financial regulation.
And while the specifics of these regulatory measures are largely still being hammered out within individual nations and at the G20 level, a ‘new normal’ will certainly emerge.
Robert Duggan, a partner with Mourant Ozannes, a leading offshore law firm that will shortly relocate its Cayman Islands offices to Camana Bay, offered some insights on the complex and ever-changing face of global financial regulation and what it means to the Cayman Islands financial services sector.
Striking a balance
“The question of ‘too much or too little’ [regulation] draws opposing answers depending on one’s vantage point and relationship with the financial markets,” said Duggan. “Joe Plumber may consider regulation too lax whereas Joe Trader may feel suffocated by it.”
Duggan explained that regulators and legislators the world over have a difficult balance to strike, suggesting that this equilibrium needs to allow expert players to access markets in a manner that matches their sophistication, while protecting unsophisticated players from the dangers and complications of their direct involvement in those markets.
“The danger will be an attempt to impose on financial markets a ‘one-size-fits-all regime’ that works to protect the vulnerable but becomes a straitjacket for others,” he said.
As examples, Duggan cites two in-market legislative proposals in the works – the Dodd-Frank Act in the US and the Alternative Investment Funds Manager Directive in the EU – which he anticipates may have some far-reaching implications in terms of how the financial services sector will operate in the Cayman Islands and around the world.
“Both pose their own challenges to the Cayman Islands financial services sector, though the Cayman Islands Monetary Authority and the private sector are fully engaged with measures needed to respond and improve our offering in a rapidly changing environment,” said Duggan.
However, Duggan goes one step further in his analysis, suggesting that beyond technical requirements presented by such measures as Dodd-Frank and the AIFMD, the political and sentimental challenges faced by the Cayman Islands’ financial sector need to be addressed in the long term.
“We must continue to engage our ‘users’ and the markets more broadly, and nurture our relationships with them for in doing so, we will be better-placed to address regulator questions which are asked of us,” he said. As industry professionals work to extend the Cayman Islands’ leadership positions in such areas as offshore investment funds and financing structures, Duggan sees the ‘building blocks’ to support a deeper engagement with the international community inherently in place.
“We have a professional services community and a local workforce which is technically and commercially astute and can bring substance to offshore structures residing here, which in turn will abate some of the negative commentary about the Cayman Islands,” he said.
At the same time, Duggan acknowledges the challenges before the Cayman Islands, which may detract from the jurisdiction’s status as the ‘fittest’in any Darwinian assessment, identifying specifically matters of corporate governance as being issues which Cayman’s regulatory regime must swiftly, yet thoroughly, address.
At the end of the day, the markets themselves will determine the final outcomes. But with the Cayman Islands financial sector’s long-standing credentials of facilitating efficient movement of capital around the world, providing a nimble yet stable business environment, and an established reputation in global finance circles, Cayman has the foundation in place to secure its future in the ‘new normal’ of financial regulation.