The private sector consultation by the Cayman Islands Monetary Authority (CIMA) in January and the concurrent corporate governance industry survey is an attempt by the Cayman Island’s authorities to address some of the criticisms directed at those who accept appointments as directors of Cayman domiciled funds.
Many other jurisdictions appear to have updated their governance codes, guidance and related laws following the financial crisis. CIMA’s proposals which are long overdue are summarised below:
- To extend the Statement of Guidance on Corporate Governance to all registrants regulated by CIMA. There are no surprises in the guidance. They cover the responsibilities of the board, director’s duties, documentation, relations with CIMA, risk management and strategic objectives and the use of sub-committees
- The creation of a public database operated and controlled by CIMA which will provide the names of the directors of the regulated entity and its registered address
- Application of the Companies Management Law to extend to all who offer, provide or arrange others to act as directors, or to persons who themselves act as directors and do so for six or more entities and for profit or reward.
- All directors who are not already approved as directors of licensees or via the professional director route will be required to register with CIMA
The corporate governance survey that has been commissioned seeks views on limiting the number of directorships held,
CIMA has also indicated that it intends to consult on corporate directorships in the future.
It will be interesting to see the responses from the various associations on the island that have been consulted.
Fund governance will always be difficult until investors get involved in the appointment decisions and make clear what they really want from fund governance. There is a reluctance on the part of many investors to get involved in the governance processes for a variety of reasons. To a large extent the Cayman industry has developed simply as a response to investor demand to ‘pile em high and sell em cheap.’ Despite that there are many experienced and reputable directors operating on the island. Experienced directors will reasonably wish to be remunerated for the time they spend on a fund. Limiting the number of directorships will inevitably push the price of a directorship up. What the reasonable expectations of a professional director are, will influence the pricing based on supply and demand and whether they can invest in systems and processes that allow them to remain on top of the issues they need to consider on each appointment they accept.
The public database may just begin to start influencing the thought process by shedding light on the extent to which there is a real problem – it may even result in the market self regulating away from those with excessive appointments – but we are still a million miles away from any major sea change in governance processes. Until then, there will still be some who will face the accusation of being ‘on the beach’ directors.
The consultation runs to the 18th of March 2013.
©Jaitly LLP