From IFC Review

The “Project Future” report by Ernst & Young recommends a merger of the Cayman Islands Monetary Authority with the General Registry to increase the efficiencies of both organizations, reports the Cayman Compass.

The General Registry is one of the largest revenue collectors for government and covers 13 registers, including births, deaths and marriages, companies, partnerships and trusts, as well as patents and trademarks.

CIMA is the regulator and supervisory body for banks, insurers, funds, trust, corporate service providers and other financial firms. As a currency board, the Monetary Authority also issues and redeems Cayman currency and manages currency reserves.

The merger would enable the implementation of an online revenue collection system with shared transaction processing and improved security of any data collected, the report claims.

Additional efficiency gains could be derived from the outsourcing of back-office functions. Yet at the same time, the proposal foresees “no significant headcount implications.”

The merger would create “a one-stop online shop” for businesses when dealing with the government registers and the financial services regulator. From the reduced duplication of resources, Ernst & Young expects improvements in regulatory processes, practices and systems.

The move would require a review of CIMA’s customer-facing websites and revenue collection processes, according to the report, which states that the General Registry “is likely to have more advanced online transaction processing capabilities.

The increased efficiency would have the potential for financial savings and to free up resources to help improve the regulatory framework for financial services in the Cayman Islands, Ernst & Young says.

The report anticipates some potential pushback from the 170 employees at CIMA and the 42 staff at the General Registry. In addition, the integration of systems, processes and people would require careful planning and would represent a significant change in management effort. Moreover, a change in legislation would be needed.

“We recommend that a full operational efficiency review is undertaken, outsourcing of back office functions and a review of the merits of combining elements of CIMA and the General Registry,” the report said.

The Monetary Authority responded to a request for comment, saying that it had not had time to thoroughly review the report and will comment on the recommendations directly to government.

Stock exchange sale

The report further advocates the sale of the Cayman Islands stock exchange because it is not considered a core government function.

Based on current earnings figures, such a sale would not fetch more than $2 million, and financial and legal adviser costs for the sale would outweigh any sales proceeds, Ernst & Young said. Therefore, the commercial viability of the exchange would have to be improved first, with a potential sale or initial public offering following three to five years later.

The report suggests “a business improvement plan should be developed and agreed with government, outlining the activities and timing required to increase earnings to those required for a sale.”

If earnings could be increased from $250,000 to $2 million, the expected sales price would be boosted to about $30 million, which “would likely warrant a sale process being pursued,” Ernst & Young states.

The stock exchange was originally created in 1997 to list specialist products such as mutual funds and non-traditional debt securities and now extends to derivative warrants, depositary receipts, Eurobonds, preferred shares and international equity.

The exchange is expected to turn a $250,000 profit this year, and operational revenues are generally large enough so that no government funding is needed to maintain operations.

The proposed sale would require CIMA to become the regulator of the exchange at an estimated additional cost of $500,000 per year.

The recommendation acknowledges that the business currently has a relatively low earnings and trading volume, with only about 10 trades a week, but “it has value to the Cayman Islands by providing a reputable trading entity.”

In other offshore and Caribbean jurisdictions with a stock market, such as Bermuda, the Channel Islands, Trinidad and Tobago, Jamaica or the Bahamas, the exchanges are private entities, the report notes.

It adds that government ownership has certain disadvantages, including the need for tendering processes and freedom of information obligations, which do not apply to privatized stock exchanges. A privatization would also lead to better perception and reputation among the global investment community and greater access to foreign capital through partnerships and joint ventures.

Cayman Islands stock exchange officials said it would be premature to comment on the report at this time.

For more on this story go to: http://www.ifcreview.com/viewnews.aspx?articleId=8331

See also iNews Cayman Front Page story published today “The EY Project Future: Creating a sustainable future for the Cayman Islands Review made public”