The Cayman Islands is moving to bolster its financial services sector with a package of legislation aimed at placing it at the forefront of the developing virtual assets market.
At the same time, in piloting the laws under the heading of the Virtual Assets Legislation, the Hon. Minister for Financial Services, Tara Rivers underscored that the objective was also to safeguard the territory against illegal activity targeting the emerging sector.
Stringent demands are being imposed by international regulators especially the global watchdog, the Financial Action Task Force (FATF).
NEW LUCRATIVE SECTOR
The technology-driven Virtual Assets sector built on blockchain digital technology, another recent innovation, is poised to be a dominant player in the global financial services sector.
In tabling a series of bills in the Legislative Assembly on Wednesday, the Financial Services Minister Rivers stated:
“This bill along with four other bills forms a legislative package which aims to attract legitimate business to our shores by providing participants with the firm foundation on which to provide virtual asset services as well as to meet international anti-money laundering and financing of terrorism standards (ALFT) established by the Financial Action Task Force (FATF) for this relatively new industry.”
She explained that “these technologies have the potential to make financial markets more efficient, facilitate access to products and services and offer disenfranchised individuals new opportunities and methods to access financial services.”
The new sector is regarded as having the potential of being a lucrative economic addition to Cayman's successful offshore financial services industry, one of the territories two main economic pillars - the other being tourism which is currently in the doldrums due to the COVID-19 pandemic.
According to Min. Rivers: “Financial markets are changing at a rapid pace and enterprises are investing billions of dollars in an attempt to remain at the forefront of this evolving trend.”
Outlining the scale of the global sector, the Financial Services Minister said recent data shows that the equivalent of over one trillion US dollars was transacted using digital assets.
She also stated that over 371 billion dollars has realised by Virtual Asset issuances in 2019 alone.
The legislation is also aimed at ensuring that the technology underpinning the sector is secure.
FIRST HURDLES CLEARED
The legislation was generally accepted although without the input of the Official Opposition which had walked out of the sitting in objection to procedural issues including matters it wanted to have debated in the Assembly and inadequate notification of the meeting.
Among the issues of concern raised, MLA for Northside, Ezzard Miller wondered why it took so long to bring the legislation to the Assembly since a report into the sector was done since March 2019.
"Are these bills the sum total of what was required under the review of our financial industry back in March 2019 ...and why it took so long to get the bills here," he asked.
Mr Miller also questioned if the bill could be broadened in scope to cover illegal online gambling. he also queried how the fees for the sector were determined as it appeared to him that the financial industry had an overly influential voice in setting the fees to their advantage.
He also sought clarification of a provision in the legislation which allows the waiving of fees.
In pledging his support for what he called "new avenues for the financial services," Hon. independent MLA for George Town Central, Kenneth Bryan said the timing of Caymans entry into the sector was opportune.
"It allows our financial services industry to take advantage of that growing opportunity in the world of finance", he said, adding that the legislation also provides a safety framework underpinned by law.
"If we expect to stay ahead of the game this is an area which we had to embark on and to be prepared to cover the risk that some along with it," the independent MLA stated.
CAYMAN AT THE FOREFRONT
More detail on the necessity and urgency of the package of legislation was provided by the Hon. Attorney General Samuel Bulgin.
He explained that the Cayman Islands is subject to "the ever-changing, ever-evolving standards" of the regulators of the global financial services sector, adding that at the time of the most recent review of March 2019, virtual assets were not included in standards on which the territory was evaluated.
Mr Bulgin disclosed that wasn't included until June 2019.
"We are here today, but I can guarantee that we will be back here with other amendments to legislation to satisfy the ever-changing needs of the FATF."
He described the new legislation and amendments as "yet another example of the Cayman Islands being at the forefront of the global fight against money laundering, terrorist financing and the financing of the proliferation of weapons of mass destruction."
Attorney General Bulgin also pointed out that while some other jurisdictions have shied away from the Virtual Assets sector, the Cayman Islands "have seen the wisdom and I daresay the prudence in welcoming and embracing the change while ensuring that adequate measures are implemented which effectively limit the opportunities for any abuse."
DEADLINE MET... JUST IN TIME
Meanwhile, in explaining the urgency of the meeting, Hon, Premier Alden McClaughlin disclosed that the measures were coming into force against a deadline of the 25th of May to meet requirements set by international regulators.
"We are going through a re-rating application process and the Attorney General on behalf of the government would need to provide an application and a report of where we are on the legislative front with respect to this by the 25th of this month."
On the timing of the meeting, Premier McLaughlin reported that Cayman was at risk of missing the deadline hence he expedited the calling of the meeting as the legislation debated was a crucial element of the submission the territory had to make.
That was one of the triggers for a dispute, with the Official Opposition staging a walkout of the meeting on the basis that they were given inadequate notification.
"When I realised that we had not called the meeting even though we put the bills out, I scrambled as quickly as I could to do so. And so members did not get the usual time as they normally would...and I regret that," Premier McLaughlin informed the Assembly.
But, he proceeded to chide the Official Opposition for their decision to walk out of the meeting instead of staying to debate what he called "these critically important pieces of legislation".
After the Financial Services Minister Tara Rivers addressed the concerns raised by the independent opposition MLAs present, the Virtual Assets Legislation along with accompanying amendments to associated existing laws were passed.