The
Cayman Islands are poised to break with decades of secrecy by opening
thousands of companies and hedge funds domiciled on the offshore
Caribbean territory to greater scrutiny.
The
British overseas territory, which wants to shed its reputation for
clandestine financial activity, is introducing sweeping reforms that
will make public the names of thousands of previously hidden companies
and their directors.
In
proposals sent to Cayman-based hedge fund businesses and seen by
the Financial Times, the islands’ powerful monetary authority, CIMA, has
outlined plans to create a public database of funds domiciled on the
island for the first time. The database will also list funds’ directors,
pending an ongoing consultation process due to close in mid-March.
CIMA,
which did not respond to a request for comment, also plans to require
directors to undergo a vetting process to ensure they are qualified to
act as fiduciaries for investors.
“In the
24 months subsequent to the onset of the financial crisis, the BVI
Financial Services Commission, the Central Bank of Ireland, the Jersey
Financial Services Commission, the Bahamas Financial Services Board and
the Isle of Man Supervision Commission all updated their corporate
governance codes, laws and/or regulations,” CIMA said in one document.
The move
comes amid a barrage of international criticism for the diminutive tax
haven’s minimal disclosure requirements and tough corporate privacy laws
in recent years. The Caymans have borne the brunt of attacks on
offshore centers from angry US and EU politicians as they struggled to
keep pace with fast-moving new global regulations. They even featured in
rancorous debates over the tax affairs of US presidential candidate
Mitt Romney.
Most of
the pressure for change, however, was applied by hedge fund investors
rather than politicians. Many of the world’s largest pension funds have
until now had no way of verifying details of the Cayman funds they
invest with or their directors.
“We have
been screaming for more transparency for some time now,” said Vincent
Vandenbroucke, head of operational due diligence at Hermes BPK, which
makes hedge fund investments on behalf of some of the UK’s biggest
pension funds. “It’s no longer acceptable for [offshore] directors to
act as rubber stamps.”
In 2011,
the Financial Times exposed how certain directors in the Caymans were
each sitting on the boards of hundreds of hedge funds.
“It’s a
significant step forward,” said Peter Heaps, managing director at Carne,
a firm which provides directors for Caymanian funds. “At the moment,
from anywhere in the world, irrespective of knowledge or experience, you
can act as a director of a Cayman entity.”
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