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(CNS Business): One of five critical laws relating to the financial services sector hit a problem this week as it left the Legislative Assembly on its way to the governor’s office for assent. The Companies Amendment Law 2012, which passed through parliament last week, became the focus of attention because of a requirement for all Cayman registered companies and funds to keep full records of financial transactions here as well as where the companies do business. Government issued a short statement on Friday afternoon telling the financial services industry and the public that the Companies (Amendment) Bill, 2012, was not in effect and that government was aware of industry concerns and was working to make appropriate changes to address them.
Officials have confirmed that representations have been made to government over clause 20 in the amendment but it hopes to address the concerns through the regulations and avoid returning the law to the LA.
It is understood that members of the offshore industry and government representatives were in discussions throughout this week to try and address the problem that could create a bureaucratic nightmare for the offshore sector if the law remains in its present form.
The new amendment to the Companies Law was rushed through the House on Thursday 30 August in the wake of the budget’s passage through parliament. It was tabled along with a number of other pieces of critical legislation on the eve of a visit from the OECD’s peer review group in order to ensure Cayman’s compliance regime was in line with international standards.
However, the requirement in the law to keep full records of every transaction that offshore firms make at their registered office here in Cayman as well as where their business takes place could create significant problems and for some companies and funds and be virtually impossible to comply with.
Paul Harris, the president of the Cayman Islands Company Managers Association, noted that prior to this law the practice regarding records locally follows the practice adopted in the United Kingdom and includes statutory records, such as register of directors, register of shareholders and similar documents, being held here but not records of every financial transaction.
“Our law already requires that companies keep proper books of account and supporting records but to mandate that all financial records should be kept at the registered office would be a departure from UK practice and would be next to impossible to implement,” he said. “UK law allows a company to keep its accounting records anywhere in the world and accounts and reports anywhere in the United Kingdom. To require Cayman companies to do differently would impose an insurmountable disadvantage on the desirability of Cayman as a corporate base.”
For some companies registered here keeping records of every transaction, which could be hundreds per day, would prove impractical if not impossible.
Local chartered accountant Chris Johnson, of Chris Johnson Associates, said the amendments to section 59 in the original law were tantamount to disaster for the sector as he warned of mountains of papers that could bury the industry and require thousands of people to manage. He questioned if anyone at all in the financial services sector had been asked before the legislation was drawn up.
The issue of record keeping and the need to clarify how and which records are kept was raised during previous peer reviews, and one industry expert told CNS Business that the fundamental problem for the Cayman government is that it does not have anyone with private sector financial services experience in its negotiating teams working with the OECD.
“It is suicide for the Cayman Islands Government to continue to field a team to negotiate with the OECD when no member of the team has the relevant financial services private sector experience and expertise,” the industry professional, who wished to remain anonymous, stated. “So long as the authorities are not prepared to properly consult, this kind of utter confusion will continue to reign.”
Government was engaged in after-the-fact consultation, however, after the bill was stalled but it is understood that officials wish to see the law assented to as soon as possible. They believe the issue can be addressed in the supporting regulations and the law need not return to the Legislative Assembly. Several industry spokespeople, however, have raised concerns that attempting to address a fundamental flaw in the primary law in the secondary or supporting regulations is unlikely to solve the problem as talks between government and financial services representatives continue.
Laws pass at 11th hour (6 September 2012)
The comments posted do not necessarily reflect the views of CNS or any individual staff member. All comments are posted subject to approval by CNS. Read more
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