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Cayman Islands’ Banking Regulations: A Framework for Sound Financial System

The Cayman Islands Monetary Authority (CIMA) plays a crucial role in regulating and licensing banking and trust businesses in the country, ensuring a sound financial system that promotes economic stability.

Definition of Banking Business

According to Section 2 of the Banks and Trust Companies Act, “banking business” is defined as:

  • The receipt and holding of money on current, savings, deposit, or other similar accounts that are repayable by cheque or order
  • Which may be invested through advances to customers or otherwise

Regulation of Banking Business

CIMA’s authority is derived from the Monetary Authority Act and the Banks and Trust Companies Act, which provides a legal framework for the operation of banks and trust companies in the Cayman Islands. The Development Bank Act governs the sole development bank in the country.

Licence Categories

CIMA issues various categories of licenses under the Banks and Trust Companies Act, including:

  • Category A Banking Licence
  • Category B Banking Licence
  • Trust Licence
  • Restricted Category B Banking Licence
  • Restricted Trust Licence
  • Nominee (Trust) Licence

Standards of Regulation & Supervision

The Authority regulates banking and trust business in accordance with:

  • Relevant acts and regulations
  • International supervisory standards
  • Its own rules, guidance, policies, and procedures

CIMA is a member of the Offshore Group of Banking Supervisors (OGBS), the Caribbean Group of Banking Supervisors (CGBS), and the 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, setting minimum threshold levels of:

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

Supervision

CIMA’s Banking Supervision Division processes applications for licenses, conducts on-site examinations, and monitors the activities of banks. The division also:

  • Analyzes quarterly prudential returns
  • Reviews annual audited financial statements
  • Assesses capital adequacy, loan loss experience, liquidity, and loan and deposit concentrations

Compliance and Enforcement

The objective of CIMA’s supervisory system is to foster prudent banking practices that enhance the financial sector. In cases where a bank engages in conduct detrimental to the public interest or threatens the safety of depositors, the Authority has remedial powers at its disposal.

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