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Cayman Islands Regulatory Compliance for Banks: A Nationwide Approach
The Cayman Islands, a renowned financial hub in the Caribbean, has established a robust regulatory framework to ensure the integrity and stability of its banking sector. The Monetary Authority Act and the Banks and Trust Companies Act provide the legal foundation for the operation of banks and trust companies in the islands.
Definition of Banking Business
According to Section 2 of the Banks and Trust Companies Act, “banking business” is defined as:
- The business of receiving and holding on current, savings, deposit or other similar account money which is repayable by cheque or order
- And may be invested by way of advances to customers or otherwise
Licence Categories
The Cayman Islands Monetary Authority (CIMA) issues various categories of licences for banks and trust companies. These include:
Licence Categories
- Category A Banking Licence: Issued to banks that meet the minimum capital requirements
- Category B Banking Licence: Issued to banks that do not meet the minimum capital requirements but have a proven track record
- Trust Licence: Issued to trust companies that provide trust services
- Restricted Category B Banking Licence: Issued to banks that are subject to certain restrictions on their activities
- Restricted Trust Licence: Issued to trust companies that are subject to certain restrictions on their activities
- Nominee (Trust) Licence: Issued to nominee companies that act as nominees for other entities
Standards of Regulation & Supervision
CIMA regulates banking and trust business in accordance with the acts and regulations governing these services, as well as international supervisory standards articulated by the Basel Committee on Banking Supervision. The Authority has membership in several international bodies, including:
- Offshore Group of Banking Supervisors (OGBS)
- Caribbean Group of Banking Supervisors (CGBS)
- Association of Supervisors of Banks of the Americas (ASBA)
Capital Adequacy
The Authority follows the principles of the Bank for International Settlements’ capital adequacy regime, with minimum threshold levels of:
- 12% for subsidiaries of banks subject to consolidated supervision
- 15% for locally incorporated banks
Supervision
CIMA’s Banking Supervision Division is responsible for processing applications for licences and making recommendations on their issue or non-issue. The division also oversees ongoing supervision and regulation of banking activities.
Ongoing Supervision
- Conducts off-site analysis of quarterly prudential returns
- Reviews annual audited financial statements
- Conducts formal prudential interviews with banks
On-Site Inspections
The on-site inspection program provides additional insight into risk management practices and operations. The inspection is risk-based, with a review of:
- The bank’s risk assessment policies and procedures
- Control measures used to monitor and control risks
- Compliance with acts, regulations, and supervisory directives
Compliance and Enforcement
The objective of the supervisory system is to foster prudent banking practices that will enhance the financial sector. In instances where a bank engages in conduct detrimental to the public interest or threatens the safety of depositors, remedial powers are available.
Remedial Powers
- The Authority has the authority to take enforcement action against banks that fail to comply with regulatory requirements.
Conclusion
The Cayman Islands’ regulatory framework for banks is designed to ensure the stability and integrity of the financial sector, protecting both domestic and international stakeholders. By adhering to these regulations, banks in the islands can maintain confidence and trust with their customers, while also promoting economic growth and development.