CIMA admits weaknesses in SIBL

| 12/07/2010

Cayman Islands News, Grand Cayman Business News, CIMA, Cedrus Investments(CNS): Following questions by CNS readers about Cedrus Investments, the Cayman Islands Monetary Authority (CIMA) has issued a statement indicating that it could be the law rather than CIMA which is at fault. OffshoreAlert, the Miami based newsletter, published an article this month raising concerns about the owner of Cedrus and asking if local financial institutions in Cayman doing business with it had done the due diligence. Explaining that the firm is registered as an ‘Excluded Person’ under the Securities Investment Business Law and is exempt from holding a license, CIMA indicated it could not refuse to register such an entity if the legal requirements were met. The authority also noted that the financial service providers are obligated to carry out the appropriate due diligence on their clients.

CIMA explained on Friday thatthere are four categories in which entities registered as Excluded Persons can fall as specified in the Forth Schedule of the Securities Investment Business Law  (2004 Revision) (SIBL): a company that is part of a group of companies and is providing services only to companies in the same group; an entity that is providing services to sophisticated or high net worth individuals or to legal entities whose shareholders are sophisticated/ high net worth; and entities serving sophisticated/ high net worth persons and which are regulated in respect of securities investment business by a recognised overseas regulatory authority in the country or territory (other than Cayman) in which the securities investment business is being conducted.
 
“As it currently stands, the SIBL gives CIMA full regulatory, supervisory and enforcement powers in relation to applicants for, and holders of, licences. This includes the responsibility for doing due diligence on applicants. However, the SIBL contains no provision for CIMA to refuse to register an applicant in the Excluded Person category once the applicant falls within the list of Excluded Persons specified in the Fourth Schedule and meets the requirement to submit an annual declaration to CIMA (set out in section 5(4) of the law),” officials from CIMA stated.
 
The authority added, however, that Excluded Persons are fully subject to the anti-money laundering/combating terrorism regulations.
 
“When the Securities Investment Business Law was enacted by the government in 2002, the intent of the Excluded Person provision was to provide a less onerous regime for financial service providers who exclusively serve sophisticated/high net worth investors,” CIMA explained. “This was on the basis that such investors understand and take responsibility for doing, themselves, the due diligence that CIMA does with respect to licensed entities.”
 
The statement from CIMA continued to explain that those doing business with the ‘Excluded Persons” have responsibilities under the law. “Financial service providers involved in relevant financial business are obligated under the Money Laundering Regulations to carry out the appropriate due diligence on their clients. The Excluded Person regime was built on the premise that these service providers carry out their responsibilities under the Money Laundering Regulations and that they take seriously their duty to protect the reputation of the Cayman Islands in choosing and doing business with clients,” it stated.
 
Although the regime for registration rather than licensing for certain categories of service providers is recognised and utilised by a number of other jurisdictions, CIMA admitted this was under review.
 
“CIMA has recognised weaknesses in the securities investment business regime and for that reason began a formal review of the regime in 2009, covering, among other things, the
Excluded Person provision. Proposals for enhancements to the regime have been submitted by CIMA to government for consideration,” the authority said, adding that it was limited in what it could say about this specific situation.
 
“Under existing law, CIMA is constrained in the manner and the extent to which it can publicly discuss the affairs of individual licensees/registrants and must act, as it has always done, in a responsiblemanner regarding disclosure of such information. Any further statement by CIMA with respect to Cedrus Investment Ltd., as with any other licensee or registrant, will only take place within the context of what is permissible under law,” CIMA said.
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Comments (19)

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  1. Anonymous says:

    See the post from the Monetary Authority staffer at 07/13/10 11:43 AM:

    “Even the IMF has been reporting that the Authority is understaffed to fully carry out all of its duties.”

    Are we ever in trouble – CIMA knows that it is understaffed, the IMF knows that it is understaffed, the FCO has commented that it is understaffed, OffshoreAlert knows that CIMA is not doing its job effectively and we can see from the results that it is understaffed, so what are we going to do about it.

    Does the Cayman Islands Government know that CIMA is understaffed?

    Are the fees collected by CIMA sufficient for them to "…carry out all of its duties"?

    If not then what is HE The Governor and all of government going to do to ensure we have "Good Governance" of the financial industry, our economic future depends on it.

    Is the HE The Governor and all of the Cayman Islands government just going to continue with a deficient very important government agency that is supposed to regulate our most important industry?

    If this is not recognized as a crisis then we are all just plain stupid – and I include myself!

    WAKE UP!

  2. Anonymous says:
    Institutional Investor’s "Compliance Reporter" magazine(circ>4000) named Global Crown Capitals Team as Compliance Leaders of the Year 2007, ahead of other category nominees from Fidelity Management & Research (Boston) and Lloyds TSB (London). 
    • One of the recipients of this award was Henry Carter. I have a transcript of Carter’s deposition on May 29, 2008 as part of a civil lawsuit brought in California by a former employee of Global Crown Capital.

      The following exchange took place:

      Q. Have you ever taken the California Bar?

      A. No.

      Later in the deposition, Carter admitted that, in fact, he had taken the California Bar three times – and failed three times!

      He then revised his earlier answer from ‘No’ to ‘Yes’.

      On March 25, 2010, the former employee, Patrick Gabrielli, received an award of $242,430.

      I long ago learned not to place any faith in awards and that the compliance industry is awash with as many undesirables as any other industry (including journalism, I might add). I suspect that they are often given out in return for financial consideration (just like the British honours system).

  3. Anonymous says:

    OK Cayman this is your chance to show the world differently.

    CIMA step up to the plate and make changes and take the necessary action immediately for if you do not the damage done to our reputation will squarely be on your shoulders.

    ACTION

    • Anonymous says:

      The handful of institutional money managers and family offices peacefully operating here under SIBL, conform to the same principal as most hedge funds, specifically, that all investment participants have attestedthat they are pre-qualified "sophisticated individuals" as defined by the law.  If there are injured parties somewhere, please let them step forward…so far, everyone is getting worked up over a phantom issue. 

  4. Anonymous says:

     So who is supposed to monitor this company? Or is everyone crying "It wasn’t me"? I really don’t understand this. Just because they have money and cater to the rich, they aren’t checked out?  Someone please enlighten me.  I’m very confused.

    • Anonymous says:

      Their customers are "accredited investors" as defined by CIMA (based on SEC rule 501regD "sophisticated investor" definition), same as the thousands of hedge funds domiled here.  http://www.sec.gov/answers/accred.htm

       

      • Dennis Smith says:

        What a load of c**p.

        “less onerous regime for financial service providers who exclusively serve sophisticated/high net worth investors,” CIMA explained. “This was on the basis that such investors understand and take responsibility for doing, themselves, the due diligence that CIMA does with respect to licensed entities.”

        It took a genius to write that twisted logic. No wonder so many people think Cayman is still a secret tax haven where almost anything goes. A kind of a hole-in-the-wall hideout for fast money.

        Lets see what this is really saying: “Less onerous” means that the “Excluded Person” is excluded from CIMA’s due diligence requirements becausethe requirements are too onerous for this “Excluded Person”, a professional investment advisor, to meet. But then in the next breath CIMA maintains that every ordinary client with a net worth of US$1 million is sophisticated enough to perform an onerous and costly due diligence investigation on the “Excluded Person”, who is hiding behind Cayman’s wall of laws. Laws so strict that even CIMA cannot reveal any additional information to us in this article.

        Just to clarify how ordinary you can be and still qualify as a "sophisticated Investor".

        # a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;

        # a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or

        So a “sophisticated investor” only needs a net worth of CI $800K. Most houses in Lower Valley are getting close to this value, add in a little pension, some savings, the cars, a bit of furniture and the house lots saved for the kids and guess what? We have a lot of “sophisticated investors” in Cayman who according to CIMA are smart enough to perform a due diligence test on every con artist who sets up shop here. Wow! Every one of Madoff’s investors was worth a lot more than $1m and not one of them did a due diligence on him and he wasn’t even in Cayman.
        I sure hope they bury this law along with the rest of the dinosaurs of our past.

        • Anonymous says:

          CIMA uses the SEC definition, so you may need to speak with Mary Schapiro in Washington DC.  

          • Anonymous says:

            CIMA you know that the SEC definition is fundamentally wrong.

            You are all smart, you know where "follow fashion" has got us in trouble already.

            You know that the SEC definition is wrong and is only there because it is of the crooked financial industry lobby getting the USA SEC to do wrong.

            CIMA take responsibility for your own actions and start doing what is correct and in the best long term interest of the Cayman Islands, we need you to make us the best international financial center of the world.

  5. Anonymous says:

    CIMA is being completely disingenous here and so is its former chairman Tim Ridley, CIMA easily could have utilised various provisions of the Monetary Authority law as grounds for refusing to register Cedrus.

    It is disappointing that our regulator seeks to avoid any responsibility by using clever semantics-oh well they clearly have lawyers too.

    If the Trade&Business Licensing Board or CIMA had done the slightest bit of due diligence and acted properly in the crucial gatekeeper role they play Cedrus would not be in the position it is now.

    Mr Marchant is quite correct to pose the question whther CIMA failed in its duties, a careful reading of the Monetary Authority law will provide an answer.

    • Cicero says:

      As I understand it Cedrus is exempt from the provisions of the Trades and Business Law. However presumably Mr Jarkas has a work permit and was checked out when it was issued. More bumbbling by the authorities.

    • Anonymous says:

      CIMA – another failing government agency!

  6. Anonymous says:

    OK, CIMA sees there is a problem. They have a huge number (130?) of high paid staff (Director=200K a year plus perks). When I worked in Government, if there was a problem with a law, you worked with the Legislative Drafting people to change it and got your Minister to take it to the House.

    But CIMA is a place of high paid inaction and Cayman’s reputation is suffering – and has long been suffering – as a result. In Cayman at all levels of "Government", there is a "it’s not my problem, the law, regulations, general orders, standing orders etc etc say blah blah blah. Perfect excuse for collecting the big salary and saying "nothing can be done".

  7. Honest Dave says:

    Without commenting on this story in any way, we need director disqualification proceedings, and better attorney regulation backed up by disciplinary proceedings – at the moment there are real moral hazard issues with financial services in Cayman. 

    And if those involved can’t stand such mild heat, rooms other than the kitchen are available.

  8. Chris Johnson says:

    As I previously intimated the service providers dropped the ball. Maybe CIMA can look into this matter further and whilst they are at it rectify the shortcomings of the law.

  9. Kryptonite says:

    Can anyone explain to me the purpose of CIMA. And I’m being serious, I genuinely don’t know.

    • Anonymous says:

      Simply put, CIMA is the central bank of the Cayman Islands. It is supposed to manage our currency (despite that fact that the US Federal Reserve sets Cayman monetary policy due to the peg) and to act as both an impartial regulator for our financial services industry and an advisor to government.

      • Anonymous says:

        The Monretary Authority IS NOT a Central Bank nor does it carry out duties of one.  The Cayman Islands Government is responsible for our monetary and fiscal policy.   Not CIMA.

         If you should like more information on what CIMA does and does not do please make sure to visit our website:

        http://www.cimoney.com.ky

        Enlighten yourself and maybe you’ll be qualified to apply for a job here yourself…..Even the IMF has been reporting that the Authority is understaffed to fully carry out all of its duties.  Any mistake could happen as this could have been you.  No decision is made that does not have the approval of our entire management committee and that of the Board of Directors (appointed by the Premier) and later complied in a report to the Premier.