Cayman's Fund governance: reigning the board of directors

Following similar steps by other jurisdictions  the Cayman Islands Monetary Authority ("CIMA") intend to update its corporate governance guidance  The regulator has posted a consultation paper on its website and has appointed Ernst&Young to perform an industry survey on the topic.

Beyond the reshuffle of its broad corporate governance principles, to align them with international standards, the CIMA is again questioning the right approach to directors supervision. The regulator is considering several improvements to govern the directors' population:

• Require all the individuals providing directorship services to Cayman's regulated entities to register with the CIMA
• Require individuals acting as directors on more than 6 regulated entities to seek approval from the regulator
• In order to improve transparency, the CIMA intend to develop a public database providing limited information on the directors of Cayman's regulated entities. 

Through the industry survey, the CIMA wants to evaluate the pertinence of other measures pertaining to the total number of directorship held by a director. The regulator is considering to require the total number of directorship to be disclosed in the fund's constituting documents and even to impose a limit on this number.

Those steps are clearly aimed at better controlling two categories of directors: the professional directors who sit on a large number of boards and the "blank check" directors who do not provide any oversight and just collect their coupon.

Comparing the current and proposed "Standards of Corporate Governance", the following changes are interesting:

• the requirement for directors to request regular information from their funds' service providers
• the new text emphasizes the need for a documented distribution of responsibilities between the various stakeholders and and appropriate oversight of those delegated functions
• the new standards require the setup of a compliance committee and other sub-committees as needed

Those changes will require from the directors a proactive stance in  seeking information from the service providers and the setup of an appropriate oversight framework of the delegated functions.

The proposed guidance is bringing the Cayman Islands closer to the standards used in European UCIT funds. Several improvements specific to the fund industry could be incorporated in the updated standards like:

• a majority of independent directors
• quarterly board meetings with at least one meeting per year with physical attendance by the directors
• increased transparency through the proposed public database (i.e, name of the service providers, last audit date)