The Cayman Islands Monetary Authority (CIMA) may drop its proposal to cap the number of fund board directorships an individual can hold following fierce opposition from the hedge fund industry, sources say.

Critics of the status quo argue that some residents of the island nation sit on hundreds of fund boards, limiting their ability to provide effective oversight.

The proposed cap – no specific number was mooted – was originally put forward by CIMA in January, saying it would conduct an online survey to gather industry views.

But CIMA now believes it may be inappropriate to impose a limit, says the Hong Kong-based general counsel at a large hedge fund. The regulator did not respond to requests for confirmation or comment.

Cayman-based directors may instead be required to disclose the number of appointments they hold to the relevant interested parties, says Nicholas Plowman of offshore specialist law firm Ogier.

One difficulty that will need to be addressed is identifying how many directorships are held – which can be defined in more than one way. For example, an individual holding a directorship for one holding company may be regarded as holding a single directorship, but that might ignore subsidiaries under the holding company.

Despite some fierce debate in the West on the issue, some note that it has not sparked much debate in this region.

That is perhaps not surprising, given looming deadlines such as that of the US's Foreign Account Tax Compliance Act (Fatca), which will require non-US financial institutions to begin withholding tax for US dividends and interest beginning July next year, as well as Europe’s Alternative Investment Fund Managers Directive, which comes into place this month.

Yet the Cayman changes would have certainly affected Asian fund managers as much as other fund managers from around the world if implemented, limiting their ability to appoint directors with jumbo directorships.

The relative lack of focus in Asia on the issue of independent board directorships also points to a wider issue on corporate governance among Asian funds.

For example, the role of independent directors on fund boards is not given the same priority in Asia as it is in the US and Europe, partly due to their smaller AUM sizes, with many Asia-based hedge funds facing greater cost pressures to hire independent directors, notes Spencer Privett, Hong Kong-based partner at offshore law firm Maples and Calder.

“When it comes to independent directors, rather than paying fees to third-party independent directors, [Asian hedge funds] tend to use people who are part of the investment manager's own personal network,” says Privett. “I suspect many of those [individuals] don’t actually charge for their services and probably only have one or two directorships."

A survey published in 2011 by fund governance services firm Carne Group found that respondents consider Asia to be the most difficult region from which to obtain information on directors, including their background and their relationship to the manager of the fund.

The survey also pointed to investor worries over directors appointed in Asian hedge funds, most noticeably for their lack of “requisite skills and experience relevant to their directorship responsibilities”.

But cost rationalization does not necessarily equate to unprofessionalism. One lawyer, who declines to be named, points to his own hedge fund clients in Asia whom he says appoint independent directors with backgrounds such as senior finance professionals and whom the investment manager knows personally (e.g. they may have been colleagues at an investment bank).

“As such, I think that [the] type of individual has a personal interest in taking their job as an independent director seriously in order to maintain their professional reputation,” the lawyer says.

Dismissing the report, he adds: “A number of published studies and surveys on independent directors have been produced or funded by companies which themselves provide independent directors and so have an interest in painting a picture of the industry which supports the services they provide.”

But overall, lawyers such as Plowman note that while the Cayman Islands corporate governance issue has not been on top of the list among client concerns, they themselves say they are seeing clients taking corporate governance more seriously.