In the Cayman Islands, financial services initiatives include legislation addressing trustee investment powers and duties, and new rules facilitating private or special purpose trusts. Plans are also well advanced for the establishment of a Caymans monetary authority in January.
The Proceeds of Criminal Conduct Bill was passed by the Cayman government and strengthens the Mutual Legal Assistance Treaty signed with the US. Under the legislation, which is based on the UK's Criminal Justice Act 1993, it will be a criminal offence for a financial services provider not to report any suspicions that a client has been engaged in or benefited from crime.
The law also allows for application to be made to the Grand Court for an order restraining criminal proceeds pending prosecution, and makes the ultimate sanction confiscation. It will also allow for confiscation orders made in designated countries to be registered in the Caymans and enforced by the Grand Court.
“This legislation makes it clear that the Cayman Islands is not a place for those who wish to hide illicit proceeds,” says attorney general Richard Coles.
The Monetary Authority, approved by the government last month, will integrate the currency board and the Financial Services Supervision Department (FSSD) in order to manage Cayman currency reserves and regulate its financial industry. The single authority is intended to strengthen the islands' regulatory regime and build confidence in its financial services among the international investing community.
The Cayman government has also appointed John Fleming to oversee the establishment of the Monetary Authority in the next few months. Fleming has been appointed to the FSSD as acting inspector of financial services. According to financial secretary George McCarthy, Fleming's role will be wide-ranging. “In addition to his responsibility for the administration of the FSSD, one of his primary functions will be to manage the transition of the FSSD into the Monetary Authority,” McCarthy says.
Regulation of the finance sector in the Cayman Islands has been placed under the spotlight recently with the court case in the US against John Mathewson, former chair of the Guardian Bank & Trust, and others allegedly involved in US cable TV piracy, which is estimated to have cost the cable industry around $100m.
The case, which centres around the sale of illegal converter boxes that allowed free access to scrambled cable channels, was first brought to the attention of the US authorities by the FSSD when irregularities were noticed during a routine inspection of banking procedures. The bank in question was subsequently closed.
“We are pleased that information we provided has assisted in the prosecution of this case,” says McCarthy. “It clearly demonstrates that the Cayman government will not stand for illegal activity in its financial services sector.”
The Cayman Islands Stock Exchange (CSX) is likely to be operative in the early part of 1997. But as assistant financial secretary Deborah Drummond comments: “It is not a race. For a project of this complexity, it will be far more important to adhere to quality.”
The rationale for the CSX is that the Caymans has worked on hundreds of fund launches that go elsewhere for listings. The listing rules will provide for mutual funds, debt securities of international issuers and domestic companies. Having created enabling legislation in February, government officials are now consulting with market practitioners in New York, London and Tokyo to produce “the same basic hallmarks” of an exchange that will allow the CSX to be recognised by the Securities & Exchange Commission, Securities Investment Board and the Japanese Ministry of Finance.
Drummond says that, using the island's expertise in fund management, the exchange will be able to offer a variety of additional services.