Taking Strategic Captives to the Next Level

As regulatory frameworks transform around the world, complying with these is now much more than a tick-box exercise.

Regulatory frameworks around the world are being elevated with new codes and rules being introduced. With the bar raised, compliance departments have had to respond accordingly. This is resulting in a concerted shift from the traditional approach – reacting to the regulator and ticking boxes – to something much more dynamic. 

“Compliance has really evolved from traditional regulatory governance to demonstrating effective oversight and informed decision making,” says Dearbhaile O’Kelly, Compliance Director at SRS Cayman. “Gone are the days where compliance is just a tick-box exercise. 

“Across the board, every company needs to have a continuous improvement mindset. If you don't have that, you're going to be left behind.”

The benefits are clear. Regulatory missteps can be costly, in terms of potential financial penalties, imposed restrictions and reputational damage. Proactively engaging with regulators earlier, and before any potential issues arise, can help avoid such costs. This means unique compliance services for each client. What may have worked for one client may not be suitable for another, and being able to work proactively to bridge these gaps is an increasingly important part of a compliance department’s work. 

“It's about being flexible and educating clients whatever their needs are,” says Andrew Hupman, managing director at SRS Bermuda. “About getting ahead and formalizing it, having the leadership of the captives to really think about what they should be addressing. 

“This allows third parties like us to come in and help people structure their thoughts and develop a disciplined approach to addressing the matters they should be considering for their captive and risk financing strategy.”

Getting the green light for innovation

Sidestepping mainstream insurance markets can open new doors for corporates, especially those with niche or complex risks, but any innovation must still operate within the rules. 

Striking the right balance between innovation and regulatory discipline is therefore crucial, with input required by compliance experts to ensure neither factor compromises one another. This means service providers with strong relationships with regulators, and the ability to discuss ideas ahead of time, are well-placed to add value.

“Regulators really value that sort of relationship, because it shows that you care,” says Dearbhaile. “They appreciate our transparency, our ability to navigate complex issues thoughtfully, and the credibility and trust we have established with regulators.

“It's invaluable for us to be able to pick up the phone for any time-sensitive or complex matters. That supports positive client outcomes."

Choice without bias

With domicile choice becoming more challenging, captive owners are increasingly leaning on service provider insights to help them make the right call. These decisions begin and end with what the client needs, which is why SRS ensures that any guidance is truly independent. 

Being able to make key decisions that are not compromised by prior arrangements or biases help the right conclusions to be reached, as well as help foster long-term relationships built on trust. For SRS, this has even seen the firm advise some clients to choose domiciles where the former does not have a presence simply because this works best for the latter’s unique requirements.

“The fact that we're not part of a broker whose core business really is to sell insurance means there's no conflict of interest,” says Brady. “Brokers historically get paid by the more premium they put into the market, but we're not pushing. If it doesn't make sense to use the captive in certain areas, then we don't push it.

“We know who our client is, and our job is to help them.”

At this point, it can be more about finding the right fit for a captive owner which further heightens the need for high-quality and in-depth strategic advisory services. This requires a thorough knowledge of the domicile’s regulator, service providers and operating environment it offers on a day-to-day basis.

“Many companies are interested in forming in their home state, whether for convenience or other incentives,” says Bob. “Often there isn’t that much difference in terms of the actual regulations, but there will be qualitative factors that come into the assessment. Here, you need the right advisor to help you, that knows the domiciles and can give good advice in terms of the right ones to consider.”