Financial Crime World

Regulation of Banks in the Cayman Islands

The Cayman Islands Monetary Authority (CIMA) has established a comprehensive framework for regulating and supervising banks operating in the Cayman Islands. This regulatory regime ensures that banks are solvent, have adequate capital and liquidity, manage risks effectively, and maintain appropriate governance and controls.

Key Aspects of Regulation

Licensing

  • Banks must be licensed by CIMA to operate in the Cayman Islands.
  • Class A banks must have two authorized agents resident in the Cayman Islands, while Class B banks may use employees of a Class A bank or trust company as their authorized agents.

Governance and Controls

  • The name of a bank must not include words that suggest banking activities without CIMA’s approval.
  • Banks must have their accounts audited annually and file a copy of the audited accounts with CIMA within three months of the end of the financial year.
  • Supervision: CIMA conducts off-site analysis and on-site inspections to monitor banks’ operations and ensure compliance with regulatory requirements.

Capital Adequacy

  • Banks must maintain a minimum risk-adjusted capital adequacy ratio, which is set by CIMA at 12% for subsidiaries subject to consolidated supervision in another jurisdiction and 15% for banks that are not subject to such supervision.

Economic Substance Regulations

The Cayman Islands has implemented economic substance regulations as part of its commitment to international tax cooperation. The International Tax-Co-operation (Economic Substance) Act (Revised) requires entities carrying on certain activities, including banking business and financing and leasing business, to demonstrate economic substance in the Cayman Islands.

Compliance Requirements

To ensure compliance with these regulations, it is essential for banks operating in the Cayman Islands to:

  • Conduct an Economic Substance Assessment: Determine whether their entity falls within the scope of the Economic Substance Act and identify any relevant activities.
  • Implement Substantive Activities: Engage in substantive economic activities that demonstrate a real economic presence in the Cayman Islands, such as hiring employees or maintaining premises.
  • Maintain Records: Keep accurate records to demonstrate compliance with the Economic Substance Act.

Administrative Fines Regime

CIMA’s administrative fines regime provides significant powers to impose administrative fines on entities and individuals for breaches of the Anti-Money Laundering Regulations (Revised) or certain prescribed provisions of the regulatory acts listed in the Monetary Authority Act (Revised) and associated regulations and rules.