By Sam Jones, Hedge Fund Correspondent, Financial Times

The Cayman Islands are poised to break with decades of secrecy by opening thousands of companies and hedge funds domiciled on the offshore Caribbean territory to greater scrutiny.

The British overseas territory, which wants to shed its reputation for clandestine financial activity, is introducing sweeping reforms that will make public the names of thousands of previously hidden companies and their directors.

In proposals sent to Cayman-based hedge fund businesses and seen by the Financial Times, the islands’ powerful monetary authority, CIMA, has outlined plans to create a public database of funds domiciled on the island for the first time. The database will also list funds’ directors, pending an ongoing consultation process due to close in mid-March.

CIMA, which did not respond to a request for comment, also plans to require directors to undergo a vetting process to ensure they are qualified to act as fiduciaries for investors.

“In the 24 months subsequent to the onset of the financial crisis, the BVI Financial Services Commission, the Central Bank of Ireland, the Jersey Financial Services Commission, the Bahamas Financial Services Board and the Isle of Man Supervision Commission all updated their corporate governance codes, laws and/or regulations,” CIMA said in one document.

The move comes amid a barrage of international criticism for the diminutive tax haven’s minimal disclosure requirements and tough corporate privacy laws in recent years. The Caymans have borne the brunt of attacks on offshore centres from angry US and EU politicians as they struggled to keep pace with fast-moving new global regulations. They even featured in rancorous debates over the tax affairs of US presidential candidate Mitt Romney.

Most of the pressure for change, however, was applied by hedge fund investors rather than politicians. Many of the world’s largest pension funds have until now had no way of verifying details of the Cayman funds they invest with or their directors.

“We have been screaming for more transparency for some time now,” said Vincent Vandenbroucke, head of operational due diligence at Hermes BPK, which makes hedge fund investments on behalf of some of the UK’s biggest pension funds. “It’s no longer acceptable for [offshore] directors to act as rubber stamps.”

In 2011, the Financial Times exposed how certain directors in the Caymans were each sitting on the boards of hundreds of hedge funds.

“It’s a significant step forward,” said Peter Heaps, managing director at Carne, a firm which provides directors for Caymanian funds. “At the moment, from anywhere in the world, irrespective of knowledge or experience, you can act as a director of a Cayman entity.”

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