The perceived wisdom that regulation is destroying the alternative investment business was challenged during a panel debate at the Cayman Alternative Investment Summit, which took place in Grand Cayman last week (February 4-5).
Brian Doohan, chief compliance officer at Commonfund, said in contrast, feedback from delegates this year suggested that regulation was helping to drive the industry forward. “Regulation is another tool in the investment advisor’s box and can help make sure there are no blind spots that you are going into or any gaping holes in your investment philosophy,” Doohan said.
From a Cayman Islands perspective, Hayden Isbister, partner and head of Corporate at Mourant Ozannes, said certain regulations and legislation introduced in the past couple of years would fall into that category, notably the Directors Registration and Licensing Law and CIMA’s Statement of Guidance on Corporate Governance, introduced in 2014.
“These have certainly helped the industry move forward, particularly on the corporate governance side,” he said.
The Cayman Islands’ regulator, CIMA, advocates regulation but not over-regulation and Garth Ebanks, deputy head of the Investments and Securities Division, said the authority is committed to continuing to focus on communication and consultation with its stakeholders, to ensure that regulation has a positive impact on the financial services industry.
For hedge funds, regulation can be used to positive effect, by pre-empting unintended consequences and by engaging with regulators to improve relations. “There is a definite business incentive to getting your policies and procedures right and investors expect cutting edge best practice,” said Lisa Stanton, in-house counsel at Darsana Capital Partners. “But any policy you adopt has to fit your business. It has to work for you.”
While the pace of new legislation has slowed somewhat in the US, there have still been plenty of new rules and regulations introduced. Stanton said the biggest issues she is concerned with are cybersecurity – like everyone else - and the new AML rules issued by FinCEN.
“With cyber security we are really looking at not only our written security policies, but also real vendor management and evaluating the risks for the firm,” she said. “For AML it is more of a gap analysis where we think we will need to be versus where we are now.”
Cayman Alternative Investment Summit, Brian Doohan, Commonfund, Cayman