Financial Crime World

Regulatory Framework for Banks in the Cayman Islands

Role of the Banking Supervision Division

The Banking Supervision Division, a part of the Cayman Islands Monetary Authority (CIMA), plays a crucial role in regulating and supervising banks operating in the Cayman Islands. This division is responsible for ensuring that licensed institutions adhere to the regulatory framework and maintain sound banking practices.

Requirements for Licensed Institutions

Fitness and Propriety

  • CIMA assesses the fitness and propriety of persons who have applied to perform a controlled function, ensuring that they are suitable for their roles.
  • This evaluation involves checking their background, experience, and qualifications to guarantee that they can effectively manage risk and maintain the integrity of the institution.

Authorized Agents

  • A licensee must either maintain a place of business in the Cayman Islands with two resident agents or have its registered office situated at a Class A bank or trust company.
  • This ensures that there is a local presence and effective communication channel for CIMA to monitor and regulate the institution’s activities.

Banking Names

  • Care is taken when adopting a proposed name, as it cannot include words like “bank” without approval from CIMA.
  • The name must not be too similar to another bank’s name, avoiding potential confusion or brand dilution.

Auditors

  • A licensee must have its accounts audited annually by an independent auditor.
  • A copy of the audited accounts is filed with CIMA within three months of the end of the financial year, ensuring transparency and accountability.

Supervisory Issues

CIMA conducts regular supervisory activities to monitor business and maintain a general review of banking practice in the Cayman Islands. These include:

  • Off-site analysis: Regular examination of an institution’s financial statements and other reports to identify potential issues.
  • On-site inspections: Periodic visits to an institution’s premises to verify its operations, compliance with regulations, and risk management practices.

Capital Adequacy

The statutory minimum risk-adjusted capital adequacy ratio for a bank incorporated in the Cayman Islands is 10%. However, CIMA has the power to increase this requirement if necessary to ensure the stability of the financial system.

Annual Review

A licensee’s representatives visit CIMA regularly to discuss affairs and ensure that there are no supervisory issues. Authorized agents must also maintain effective contact with clients to facilitate communication between CIMA and the licensee.

Additional Requirements

  • A Class B bank that is either a Cayman Islands branch or a subsidiary of a foreign bank may seek reimbursement for reasonable out-of-pocket expenses related to on-site inspections outside the Cayman Islands.
  • The economic substance requirements under the International Tax-Co-operation (Economic Substance) Act (Revised) apply to in-scope entities that carry on particular activities, requiring them to have demonstrable economic substance in the Cayman Islands.

Administrative Fines Regime

CIMA has significant powers to impose administrative fines for breaches of the Anti-Money Laundering Regulations (Revised) or certain prescribed provisions of the regulatory acts listed in the Monetary Authority Act (Revised). This regime provides a deterrent against non-compliance and ensures that institutions maintain high standards of governance and risk management.