Fund services adapting in the face of change
Updated: Apr 27
Ebony Myles-Berry, Fund Director at IMS, discusses how the Cayman Islands reinforces its ability to adapt in the face of change and keep its financial sector competitive as it aims to be removed from the FATF monitoring list.
Increasing regulatory scrutiny on an international and political front has put the Cayman Islands’ financial services industry under a great deal of pressure. However, as the jurisdiction progresses in strengthening measures to tackle money laundering and terrorist financing and aims to be removed from the FATF monitoring list, the Cayman Islands reinforces its ability to adapt in the face of change and keep its financial sector competitive.
“The Cayman Islands’ funds industry continues to face increased pressure and changes in regulatory requirements from international regulatory and political organisations,” outlines Ebony Myles-Berry, fund director, International Management Services Ltd, “The demand for Cayman Islands financial services could be impacted should the Cayman Islands remain on the Financial Action Task Force (FATF) monitoring list and be included on the European Union’s list of high-risk third countries.”
However, she notes the progress made by the Cayman Islands Government and the funds industry to address remaining issues in the AML regime puts the jurisdiction in a good position to be removed from these lists soon. “The Cayman Islands are committed to maintain the highest global standards and best practices and are well placed to retain its position as a leading jurisdiction in offshore investment funds,” Myles-Berry emphasizes.
Like its competitors around the world, the Cayman Islands has had to be nimble in the face of the Covid-19 pandemic and despite the challenges, it fared quite well over the course of this global crisis.
Myles-Berry highlights: “At the start of the pandemic, where possible, many businesses in the Cayman Islands adapted quickly and transitioned to remote working while continuing to be highly responsive to their customers and clients. This agility was demonstrated in the Cayman Islands’ financial services industry which proved to be resilient and continued to thrive during the pandemic with a growth in the number of regulated mutual and private funds.
“Two years after the pandemic first broke out, local industry sectors are in recovery mode with many businesses having been forced to recalibrate their business models. The pandemic has triggered changes in how we work, causing many companies to transition from an office-centric culture to more flexible ways of working.
“Where possible, many businesses have switched to working remotely or have adopted a hybrid model of office and work from home. Although the pandemic is not over, the Cayman Islands is optimistic about its future as one of the world’s leading financial centres and top tourism destinations.”
Sectors for growth
When it comes to types of funds being set up in the Cayman Islands, Myles-Berry identified an increase in certain sectors such as crypto and distressed assets. “Funds focused on climate technology are also on the rise, as environmental, social and governance (ESG) factors are becoming an increasing priority for investors,” she says, adding, “The Cayman Islands are well positioned to facilitate the demand to set up these funds due to the ease of entity incorporation, the legal structures available and the range of highly skilled and experienced service providers.”
In Myles-Berry’s experience, the industry can also expect to see growing demand for experienced and qualified directors in response to pressures from investors and regulatory bodies for independent oversight of these funds: “The pandemic has put a spotlight on the challenges of systemic risk and the need for knowledgeable and responsive boards. The intensification of regulatory requirements and the impact of the pandemic call for stronger governance so that trust and reputation are sustained, and good performance and regulatory compliance are achieved.”
She believes ESG, diversity, cybersecurity, valuation, board assessments, regulation and compliance to remain important topics and focus areas for investors, regulators, and fund directors, from a fund governance perspective.
Although the overall outlook looks promising and areas of growth and progress are clear, the uncertainty around potential COVID-19 variants coupled with increased pressure and changes in regulatory requirements from international regulatory and political organisations will continue to test the Cayman Islands investment funds industry.
“Although it is difficult to predict what the future may hold, I expect significant developments to include the removal of the Cayman Islands from the FATF monitoring list based on the jurisdiction’s significant progress in meeting the FATF’s plan requirements,” Myles-Berry envisages, “I also expect to see an increase in the regulation of crypto assets due to the rapid expansion of the crypto market and the emergence of new digital assets. The evolution and mainstream adoption of crypto assets will continue to lead to an increased focus by regulators as they try to strike the balance between investor protection and not stunting innovation.”
In her view, the Cayman Islands has shown its resilience and ability to adapt in the face of challenges over the years and it is expected that its strong legal and regulatory regime and its wealth of expertise in the investment funds space will continue to drive success in 2022.
IMS is one of the longest established company management firms in the Cayman Islands. IMS is licensed by the Cayman Islands Monetary Authority to provide independent directors, company management and incorporation, mutual fund administration, captive insurance and trust services. For more information about our services, please contact us.
Disclaimer: this publication does not constitute legal or professional advice and should not be relied on as such.