BACK ON AN EVEN KEEL: A REGULATORY PERSPECTIVE


Hedge funds no doubt


welcomed the news of increased returns during early 2012 after what was generally viewed as a


rough 2011. Cindy Scotland looks at the role the Cayman Islands Monetary Authority plays in keeping the islands competitive. Fund authorisations, and the total number of authorised


funds, remained in overall decline across jurisdictions in 2011. Nevertheless, many investors, particularly institutional investors, still consider hedge funds to be their best option for the above- average returns they need. They are, however, more discriminating about the funds and jurisdictions in which they invest.


The Cayman Islands continues to be the leading domicile for hedge


fund formations. High on the list of reasons for its continued favoured status is the quality of professional expertise available. Cayman’s ranking as the top service provider jurisdiction by 53 percent of the more than 1,000 hedge funds, fund of hedge funds, and investors participating in Hedge Funds Review magazine’s Service Provider Rankings survey in late 2011, underscored this fact.


In addition to provider expertise, the reasons that investors who do


business with Cayman give for the jurisdiction’s attractiveness include its infrastructure, its legal and judicial system based on English common law, and its regulatory stability. The latter was also identified in Global Financial Centres Index 10 (September 2011) as one of the main concerns which influence global perceptions of a financial centre’s competitiveness.


The Cayman Islands Monetary Authority (CIMA) plays a vital role in


Cayman’s regulatory stability. CIMA’s raison d’etre is to regulate and supervise the financial services industry, manage the jurisdiction’s currency, facilitate cooperation with and assistance to international regulatory authorities and to advise the Cayman Islands Government on regulatory, cooperative and monetary matters.


20 CAYMAN FUNDS | 2012


In carrying out these functions, the authority must be guided by its


statutory obligations. This extensive set of requirements can be summed up as follows: to act in the best economic interests of the Cayman Islands; to be proportionate, efficient, transparent and fair; to promote and maintain a financial system that is sound, that guards against financial crime, that is internationally compliant while being innovative and competitive; and to endeavour to promote and enhance market confidence, consumer protection and the reputation of the Cayman Islands as a financial centre.


Balancing these responsibilities has always required CIMA to be


judicious, given the broad scope of the obligations and the various groups that we serve. Today, this balance is even more challenging and more important, as the international economic and political landscape in which the jurisdiction operates continues to undergo significant change.


At the heart of it is the necessity for CIMA to maintain regulatory


stability. One of the questions that CIMA, like regulators in most other jurisdictions with significant financial industries, has had to grapple with is: How do we allocate our limited resources to meet the day- to-day demands of regulation and supervision while carrying out the proactive research, assessment and dialogue needed to understand and develop appropriate policy responses to international regulatory changes and market conditions? And how do we stretch those same resources to implement those initiatives, doing what we need to do to minimise the risk of a repeat of the financial crisis?


A key component continues to be collaboration with other regulators and involvement in international regulatory and standard-setting bodies.


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