The Cayman Islands are home to over 9,400 hedge funds, harbouring assets estimated to be worth close to $2.2trn. It has long been a popular investment destination, but over recent years, local government has faced calls from the international community to modernise its regulation, and in particular, make it more transparent. But a fiduciary services company based in the island has taken legal steps against the Cayman Islands Monetary Authority to prevent the regulator from legislating on any transparency or corporate governance reforms.

Investors with funds in the Cayman Islands were severely hit by the crash of 2008, partly because of fund director’s misguided decisions in trying to protect themselves against fast withdrawals. The large-scale losses prompted investors to insist the Monetary Authority to increase regulation, especially when it comes to directorship rules.

Investors have also voiced their concerns about the lack of transparency offered them by fund managers and directors. There are currently no regulations in place in the islands that would make fund directors file publicly accessible information about their operations, making it difficult for investors to remain in the loop about their interests. Since 2008 steps have been taken by the Monetary Authority to produce a directory of funds, managers and directors, a step in the way to becoming a more transparent jurisdiction.

But DMS Management, a fiduciary services company based in the Caymans and purporting to represent a number of local fund directors has filed a suit challenging the decision. One of the main points of contention is a proposed piece of legislation that would limit the number of funds directors can act in; investors hold that they have no way of ascertaining the number of fund relationships their directors hold, or whether there might be conflicts of interest. But DMS, which has been fingered by the FT last year as acting as a contractor of director services, argues that directors act rather like doctors in that they can service hundreds of clients independently.

DMS has filed an injunction against the regulator in an attempt to prevent what they see as “Poor predetermined outcomes deriving from CIMA’s arbitrary and exclusionary consultation process.”

In a recent editorial Jeffrey D Sachs suggests that the current situation in the Caymans, is unsustainable. The Bank for International Settlements has recently reported that the Cayman banking system has an estimated $1.4trn in liabilities and assets; in an island with a population of 57,000 that equals about $24m per resident. “Cayman Island board members often sit on dozens or even hundreds of boards, offering essentially no oversight or accountability,” he wrote. “This house of cards is a mortal threat to the world economy, as well as an abuse of basic financial practices. It is reckless.”

Don Seymour, the founder of DMS, allegedly attends between 400 and 500 board meetings a year. “I have 158 relationships and someone might gasp at that, but the key thing to realise is that I’m a full-time director: this is all I do every single day.” His company provides professional independent directors to sit on boards of Cayman Island-based companies with the purpose of protecting the rights of investors.

So far the CIMA has not published its list of hedge funds and directors.