How to work with your regulator

Cayman’s financial services industry never sits still when it comes to keeping up with and often leading the way on compliance and regulatory issues. Late last year training company FTS welcomed three professionals within the field of regulation to speak to local professionals about ways in which industry can work with the regulator. Business Editor, Lindsey Turnbull reports. First in a two-part series.

As the first in a series of informative training events, tailored specifically to staff within the financial services industry, ‘Working with your Regulator’ drew professionals from a variety of fields within Cayman’s financial services industry, to appreciate ways in which the private sector can create cohesion with regulators at home and abroad.

This first event featured three well known and highly respected regulatory experts who delivered a practical seminar targeted at improving the approach to regulatory risk management by better understanding and managing relationships with financial regulators.

Ian Patrick with the Active Group gave a short initial presentation, as a sponsor of this first event, in which he gave a brief overview of the compliance and regulatory services his company could provide Cayman’s financial services industry.

Next off the block was Paul Byles, Former Head of Policy at the Cayman Islands Monetary Authority and a regulatory consultant, who said that there was a misconception among some that CIMA, Cayman’s regulator, was somehow set up in the same way as the UK’s regulator, the Financial Services Authority or the Federal Reserve in the US.

Byles spoke about the local regulatory framework. He explained the key differences between the Cayman Islands Monetary Authority and a typical central bank organisation and in particular what we can expect (or not) from CIMA in response to the current global financial crisis.

“Because CIMA is not a central bank and does not carry out monetary policy, there is a limit to what it can do directly to influence the local economy”, said Byles. “CIMA does not hold funds on account for the local banks and does not provide any of the so called lender of last resort functions as this is not consistent with running a full currency board system,” he explained.
The session included a lively discussion on customer protection and interest rates with respect to the financial services sector and the extent to which CIMA takes an active role in this area. Byles explained that while CIMA indirectly assist in this area it did not have a mandate to perform a full or formal function which dealt with customer protection at the levels seen by some other bodies.

He explained that Cayman Islands will have to depend largely on fiscal measures by the government to provide any assistance. He also discussed how the roles of the government versus CIMA differ in the development of laws and regulations versus policies and guidelines.

“CIMA plays a key role in guiding the LA on relevant laws and regulations but it is important to recognise that these are ultimately the responsibility of the LA and not CIMA,” Byles stated. “Instead CIMA is tasked with being the main administrative body for the laws and regulations relating to the financial services industry, while CIMA has far more autonomy to develop the various policies and guidelines”

He also explained the working relationship between key local bodies including the Cayman Islands Stock Exchange, CIMA, the Financial Reporting Unit and the Anti Money Laundering Guidance Notes Committee and noted that the Attorney General’s role remained central to may of the processes and the overall local regulatory framework.
“When you look at the structure of responsibilities and consider the various approvals required, it is clear that when it comes to the local framework governing the financial services sector the AG’s role is key” said Byles.

Ross Delston, former US Federal Regulator and Co-Chair of the American Bar Association’s International Anti-Money Laundering Committee gave an interesting onshore perspective on the subject.

Delston said that every time an act of terrorism takes place there is a surge of interest by regulators on a jurisdiction’s anti-money laundering legislation as regulators believe that catching terrorists is easier when they focus on the financial side rather than the actual act of terrorism itself.

“The focus by regulators goes in cycles: at the moment the focus is not that high because of a shift in focus to the turmoil in the markets,” Delston said. “Yet the perception by the US at least is that offshore jurisdictions are high risk, no matter how well the jurisdiction does with its AML regulations,” he added.

Delston questioned whether the US itself was an at risk country as a target for money laundering and said that fraudsters preferred the US dollar as their currency of choice when laundering their money.

He also confirmed that a US regulator would scope out the Compliance Officer or Money Laundering reporting Officer of an organisation when making examinations because these individuals were “the window to the compliance culture of an organisation.”

Byles said that it was a good idea for an organisation to have a designated relationship manager, such as the compliance officer, who has the task of liaising with the regulator on an ongoing basis.

Former CIMA chairman Tim Ridley joined in the discussion here saying that there was an assumption by some that foreign regulators that they could simply arrive in Cayman and conduct audits of financial services firms at will, but that was simply not the case.

He furthered, “First stop is Immigration! Any inquiries by overseas regulators have to be handled with the parameters of international and domestic law. Regulators from overseas will be disappointed if they think they can get around these laws.”

Next month we hear from the former Chairman of CIMA, Tim Ridley on the subject of how to work with your regulator.



l-r Ross Delston, Paul Byles and Tim Ridley