Cayman Islands Financial Services

According to the experts, the failure of 2 hedge funds based in the Cayman Islands with estimated losses of USD 4 billion could have severe repercussions on the offshore banking industry in Cayman.

It has been previously described that Bear Stearns was forced to liquidate 2 funds – Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd.

What is remarkable is the speed of the collapse with 1 hedge fund folding in less than 10 months after its creation.

It is worth noting that about 8 500 of the world’s 9 000-and-something hedge funds are domiciled in Cayman.

That is why the issue is so interesting to international community. Also, there are many speculations on this issue as far as some other hedge fund managers may be observing Bear Stearns in order to see if they can effectively solve problems if they arise.

After Bear Sterns filed bankruptcy petitions for its 2 devastated hedge funds in the USA and the Cayman Islands in the beginning of August, court papers began to reveal the events that led to the funds’ demise.

The Bear Stearns High-Grade Structured Credit Strategies Master Fund and the Bear Stearns High-Grad Structured Credit Strategies Enhanced Leverage Master Fund filed in the United States under Chapter 15 of the bankruptcy code. They also filed in the Cayman Islands – the jurisdiction they were registered.

In the beginning of August, the Cayman Islands Grand Court appointed Simon L C Whicker and Kristen Beighton of KPMG as joint provisional liquidators. According to the lawyers of the court, most of the funds’ assets are in the United States and probably a local court will be needed in order to to oblige creditors to turn over assets held to the Cayman liquidators.

As it has recently emerged, most of the assets of the 2 shuttered funds had been re-possessed by secured creditors during the period before their bankruptcy. Also, Bear Sterns suspended redemptions in a 3rd fund, the USD 900 million Bear Stearns Asset-Backed Securities Fund, but, according to Bear Sterns, the fund had just a tiny exposure to the sub-prime mortgage market.

So, in the beginning of August, legal action against Bear Sterns was begun by some investors in the 2 bankrupt funds. An arbitration claim with the National Association of Securities Dealers was filed by law firms Zamansky & Associates and Rich & Intelisano to allege that Bear Stearns misled investors about its exposure to the funds.

The government of the Cayman Islands is seeking for more comment from the public on a Legal Practitioners Bill proposing to introduce fundamental changes affecting the legal profession. The Legal Practitioners Bill is aimed at providing more modern regulation and discipline of the legal profession in Cayman.

According to Attorney General Samuel Bulgin, the final date for submitting comments on the Legal Practitioners Bill 2007 is August 24. Comments may be delivered to the Government Administration Building or submitted by email. The draft bill as well as and the Law Reform Commission’s report on it, recently submitted for consideration to the Governor-in-Cabinet, are available in the Internet.

Having received the report, the Cabinet agreed that, to make a final determination on the bill, the public should be provided with one more opportunity to comment on it. Bulgin commented said that the new law will introduce fundamental changes that will affect the entire legal profession in the jurisdiction, therefore public, including members of this profession, should provide comments so that the Government has no doubt when going forward with the legislation.

The Cayman Islands Bankers Association (CIBA) in conjunction with all of the retail banks in the Cayman Islands has announced that a new Banking Code has been launched.

The code, which is voluntary, sets standards of good banking practice in the jurisdiction explaining the way banking institutions subscribing to it are expected to deal with clients.

Mr. Conor O’Dea, President of CIBA expressed the excitement to introduce the Banking Code as it encourages “higher standards for the benefit of customers through competition and market forces”.

The code covers 16 areas that influence the interaction between banks and their clients, including complaints, interest rates and charges and banks’ assistance in case a client has financial difficulties.

It should be noted that the new code was welcomed by local regulators as it is improves local banking standards and encouraged all banks to adopt it.

So, all of current retail banking community of the jurisdiction have agreed to adopt and implement the banking code. This included Butterfield Bank, Cayman National Bank, HSBC, Fidelity Bank, First Caribbean International Bank, Scotiabank & Trust and Royal Bank of Canada.

Following its recent Board of Directors meeting, the Cayman Islands Monetary Authority (CIMA) made an announcement that it will undertake a staged implementation of the Basel II Framework for banks licensed in Cayman.

The above-mentioned decision was taken following a detailed impact study conducted with PricewaterhouseCoopers. The study included consultation with different stakeholders of the Cayman banking industry.

The implementation will be staged in collaboration with the industry over a number of years.

Patrick Bodden, CIMA’s Acting Managing Director, said that the implementation of the Basel II Framework is to be beneficial for the jurisdiction. According to him, “The implementation of the framework is a vital part of the Cayman Islands’ continued commitment both to modern risk based supervision and to meeting internationally accepted and applied supervisory standards. Having the framework in place will enhance our standing and competitiveness as a financial services centre.”

In autumn, the Association for Certified Anti-Money Laundering Specialists offers its CAMS certification examination and preparation seminar in Cayman, which is internationally recognised, in conjunction with the Global Compliance Solutions 3rd Annual Anti–Money Laundering & Compliance Conference.

On October 6-7, 2007, anti-money laundering specialists from banking institutions, law enforcement and government sectors from all across the Caribbean will be able to take the examination in order to earn the CAMS designation. The CAMS designation is considered to be the gold standard in Anti-Money Laundering credentials.

Spokesperson for the Global Compliance Solutions conference, Karen O’Brien, said that qualified and certified experts in the sphere of anti-money laundering are always needed both in the Cayman Islands and throughout the Caribbean. According to her, “due to increased scrutiny from various regulatory bodies concerned with the development of international anti-money laundering policies and practice, AML professionals must always be one step ahead with the right resources and credentials to fight off the criminals and stay in the good graces of the regulators”.