Financial Crime World

CAYMAN ISLANDS: Regulatory Requirements for Financial Institutions

The Cayman Islands, a popular offshore financial hub, has a robust regulatory framework in place to govern the activities of financial institutions. The Monetary Authority Act and the Banks and Trust Companies Act give the Cayman Islands Monetary Authority (CIMA) the responsibility for licensing and regulating banking and trust business in the islands.

Definition of Banking Business

According to Section 2 of the Banks and Trust Companies Act, a “banking business” is defined as the business of receiving and holding money on current, savings, deposit or other similar account, which is repayable by cheque or order and may be invested by way of advances to customers or otherwise.

Licence Categories

CIMA issues various categories of licences, including:

  • Category A Banking Licence:
    • Suitable for banks with a substantial presence in the Cayman Islands
    • Requires a minimum capital requirement of $250 million
  • Category B Banking Licence:
    • Suitable for banks with a smaller presence in the Cayman Islands
    • Requires a minimum capital requirement of $50 million
  • Trust Licence:
    • Suitable for trust companies providing trust services
    • Requires a minimum capital requirement of $500,000
  • Restricted Category B Banking Licence:
    • Suitable for banks with a restricted presence in the Cayman Islands
    • Requires a minimum capital requirement of $10 million
  • Restricted Trust Licence:
    • Suitable for trust companies providing restricted trust services
    • Requires a minimum capital requirement of $200,000
  • Nominee (Trust) Licence:
    • Suitable for entities acting as nominees for trusts
    • Requires a minimum capital requirement of $100,000

Standards of Regulation and Supervision

The Authority regulates banking and trust business in accordance with the Acts and Regulations specifically governing banking and trust services, as well as the relevant rules, guidance, policies, and procedures issued by CIMA. The Authority also adheres to international supervisory standards articulated by the Basel Committee on Banking Supervision and other international bodies.

Capital Adequacy

CIMA follows the principles of the Bank for International Settlements’ capital adequacy regime, with minimum threshold levels set at:

  • 12% for subsidiaries of banks subject to consolidated supervision
  • 15% for locally incorporated banks

Supervision

The Authority’s Banking Supervision Division is responsible for processing applications for licences, ongoing supervision, and regulation of banking activities. The division conducts on-site examinations of licensees, as well as off-site monitoring through the analysis of quarterly prudential returns and annual audited financial statements.

Compliance and Enforcement

In cases where a bank engages in conduct detrimental to the public interest or threatens the safety of depositors, the Authority has remedial powers to address such issues. The Authority’s supervisory system is designed to foster prudent banking practices that will enhance the financial sector.

The Cayman Islands’ regulatory framework provides a robust and transparent environment for financial institutions to operate within. By adhering to these requirements, institutions can ensure compliance with international standards and maintain a strong reputation in the global financial industry.