CIMA chair talks about challenges

Timothy Ridley, Chairman

Monday, April 25, 2005

Just a few weeks after the release of the International Monetary Fund, (IMF) report on the Cayman Islands Monetary Authority, (CIMA) the Chairman Authority’s Timothy Ridley talked about how the international and domestic initiatives are affecting the financial sector and how CIMA is evolving to meet those challenges at the Cayman Islands Society of Professional Accountants’ lunch on 15 April.

“One man’s sound regulation is another man’s regulatory creep,” said Mr Ridley. “Given that the Cayman Islands’ regime receives criticism as too light by certain overseas regulators, international standard setters and foreign governments and as too onerous by some in the private sector, it seems likely that the balance is reasonably good.”

Mr Ridley discussed how CIMA is working towards creating an effective regulatory environment that will attract users and providers of the financial services sector from all over the world and raising the jurisdiction’s profile locally and internationally.

“If we wish to be a major participant in the global financial markets, we cannot afford to ignore them and stand still,” said Mr Ridley.

“We must engage with the relevant bodies driving the initiatives, improve their knowledge and understanding of our regime and help frame the discussions and craft the outcomes.”

He reviewed the conclusions and challenges from the IMF report and additionally, he discussed the Bank for International Settlements and said CIMA is considering the implementation of Basel II for major institutions. Other international organisations discussed were the International Organisation of Securities Commissions (IOSCO), Financial Stability Forum (FSF) and International Association of Insurance Supervisors (IAIS).

Cross-border information sharing and the role of Memoranda of Understandings were also closely examined.

“Given the size of the Cayman Islands’ banking industry and that a significant number of the banks are members of major international banking groups, CIMA is giving serious consideration to the implementation of Basel II, at least for major institutions,” he said.

“So what is the problem with the existing regime? Since October 2000, CIMA has received requests for assistance in over 400 matters. Assistance was given in approximately 98 percent of these cases. Where assistance was denied, the requesting party was either unable or unwilling to provide undertakings required by the Monetary Authority Law.”

Mr Ridley went on to say that the current cross-border cooperation regime is once again under pressure.

“Withdrawing CIMA’s application to IOSCO would now not remove that pressure or in my view be tactically wise,” he advised. “The not so veiled threat from IOSCO and the FSF is already there, to meet our requirements or expect to be on a published ‘non-cooperative’ list with possible sanctions. Thus, the questions are, should the regime change and, if so, by how much and when?

“These are major policy matters for Government not simply CIMA. Applying the level playing field approach, Cayman should argue that it will comply with the new standards only when one, CIMA is admitted to full membership of IOSCO and two, when all other major financial centres, certainly those which are IOSCO members, also meet and apply those standards,” Mr Ridley added.

In the current international climate, Mr Ridley addressed the fact that CIMA is working towards implementing international standards locally.

“It is important to dispel any perception that CIMA blindly introduces the standards laid down by the relevant international bodies. Often these standards are not in fact applied by other major financial centres.

“So CIMA considers the standards in terms of their applicability to Cayman’s financial industry, reviews the position in other comparable jurisdictions, carries out a cost-benefit analysis and regulatory impact study and consults with the private sector. In all cases, Board approval to any proposal is secured.”

Mr Ridley discussed the role of CIMA consulting with the private sector before issuing rules and the statements of principles of guidance. He said many professional associations were proactive and helpful in commenting on draft statements but said that unfortunately others did not take time to give adequate feedback.

“We fully understand the risk of ‘consultation fatigue,’ but if you want to be part of the solution, you have to participate,” Mr Ridley encouraged. “CIMA is willing to consider revising any statement of guidance if a well-reasoned case is made for revision.”

Numerous working groups have been established with the private sector including mutual funds, insurance, unregulated financial industry, fiduciary services, anti-money laundering and local Memoranda of Understandings.

“Standing still is not an option,” he added. “We either move forward or we slip backwards. Change is inevitable and should be used as an opportunity to enhance the Islands’ regulatory environment.”

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