The regulatory framework of the Cayman Islands is at the heart of the jurisdiction's success as a financial centre with high integrity.
There are five main components to the jurisdiction's regulatory regime:
- The Cayman Islands Monetary Authority
- The Financial Reporting Authority
- The Cayman Islands Stock Exchange
- The main supervisory legislation
- The financial services industry
The Cayman Islands Monetary Authority
The Cayman Islands Monetary Authority (CIMA) is the main agency responsible for the regulation of the Cayman Islands financial industry. Established in 1997, CIMA is the product of a merger between the Financial Services Supervision Division, a government department responsible for financial regulation, and the Currency Board, a Statutory Board, which was responsible exclusively for currency matters.
CIMA is operationally independent from the Cayman Islands Government while being answerable to the Government and the Legislative Assembly for the conduct of its affairs.
CIMA's supervisory responsibility is to regulate licensees pursuant to the regulatory laws and the monitor their compliance with the money laundering regulations. In addition the CIMA's Board of Directors is also responsible for the licensing and registration of all Cayman Islands regulated entities as well as ongoing enforcement matters.
CIMA's mission statement is:
- To preserve the value and integrity of the Cayman Islands currency;
- To regulate the financial services industry and to assist overseas regulators in a manner which meets internationally applied standard appropriate to the Cayman Islands and which enhances market confidence and the reputation of the Cayman Islands;
- To foster sound, honest, competitive and innovative financial services and markets; and
- To act in the best economic interests of the Cayman Islands and in a fair, open, efficient and cost-effective manner.
CIMA regulates all financial service providers in the Cayman Islands which include the following:
- Banks & Trusts
- Mutual funds
- Insurance companies
- Money services businesses
- Corporate services providers
CIMA carries out the above responsibility via four main supervisory divisions being banking, fiduciary services (which covers trust companies and corporate services providers), insurance (both retail and captive) and the investment services division which covers the mutual funds sector.
In addition to its supervisory role, the CIMA's functions are supported by 6 non supervisory departments being Policy and Development, Legal, Compliance, Operations and Information Systems, Currency, and the Managing Director's Office. CIMA is also governed by a ten member board of Directors which includes the Managing Director.
In addition to its supervisory functions, CIMA is also responsible for the issuance and redemption of currency, and the management of the Currency Reserve on behalf of the Government and by extension the people of the Cayman Islands.
General supervisory approach
CIMA's approach is to maintain a financial centre with a supervisory system that reflects international supervisory standards articulated by the Basle Committee on Banking Supervision, the IAIS principles for insurance regulation, the IOSCO principles for regulation of investments business, the FATF Forty Recommendations on anti money laundering and best practices in the area of trust and corporate services regulation.
Ongoing supervision is carried out through a system of off-site and on-site functions. The off-site unit analysis of regulated entities uses periodic prudential returns, annual audited financial statements and regular meetings to asses the ongoing compliance of institutions.
On-site inspections entail a visit by a team of regulators from the respective department (e.g. banking). These inspections are carried out periodically and provide additional insight to the CIMA team into the risk management practices and operations of its licensees. This approach uses a system of interviews and sample testing of internal records and files to determine the institution's level of compliance with the regulatory laws. In cases where a licensee engages in conduct detrimental to the public interest or threatens the safety of the institution's clients, the legislation provides remedial powers. These may include revoking or imposing conditions on the licence, and changing management and directors.
As a part of its supervisory functions CIMA is also responsible for international cooperation with other regulatory bodies, namely to assist overseas regulatory authorities in accordance with the Monetary Authority Law (2003 Revision).
CIMA participates regularly in international regulatory forums including the Basle Committee Cross Border Working Group, Offshore Group of Insurance Supervisors and the Caribbean Financial Action Task Force (CFATF).
The Financial Reporting Authority
The Financial Reporting Authority (FRA) of the Cayman Islands was recently established under The Proceeds of Criminal Conduct (Amendment) Law 2003, (PCCL). The new body is a combination of two agencies: the first being the Reporting Authority which is the body created by the PCCL to receive suspicious activity reports (SARs) from the financial service industry and other business sectors. The second agency is the Royal Cayman Islands Police Service, which has an investigative role in following up on SARs.
The FRA is the intelligence component at the heart of the Cayman Islands fight against money laundering and financing of terrorism. It is responsible for receiving suspicious reports from the industry process and analysing this information. The product of the FRA's work may then be disseminated to the most appropriate agency (e.g. police, customs, or immigration) to investigate further, with a view toward preparing the way for a possible prosecution.
The Cayman Islands was admitted to the Egmont Group in 2001. The Egmont Group is the international body which promotes the standards of, and cooperation between, national financial intelligence units such as the Cayman Islands FRA.
The FRA is governed by the Anti-Money Laundering Steering Group (AMLSG) which is chaired by the Hon. Attorney General. Other members of the AMLSG include the Hon. Financial Secretary, the Managing Director of the Cayman Islands Monetary Authority, the Commissioner of Police, Solicitor General and the Collector of Customs.
The Cayman Islands Stock Exchange
The Cayman Islands Stock exchange (CSX) is a private company owned by the Cayman Islands Government which operates as an independent entity. The CSX provides a listing facility for offshore mutual funds, specialist debt securities, global depositary receipts, derivative warrants and eurobonds.
In 1999, the CSX was granted approved organisation status by the London Stock Exchange (LSE), being one of the first offshore exchanges to do so. This meant that securities listed on the CSX became eligible for trading on the LSE's international equity market and for quotation on the SEAQ (Stock Exchange Automatic Quotation) International Trading system.
In 2001, the CSX join the Intermarket Surveillance Group (ISG), which is an international group of 23 North American, European, Asian and Australian stock exchanges. The ISG is committed to the coordination of regulatory efforts across the markets represented.
The CSX carries out regulation through its listing rules and rules for its broker members. In this regard the CSX's core objectives are:
- The protection of investors
- Ensuring that markets are fair, efficient and transparent
- The reduction of systemic risk
The Main Supervisory legislation
The overall regulatory framework of the Cayman Islands financial services industry is governed by the following legislation:
- The Monetary Authority Law
- The Banks and Trust Companies Law
- The Mutual Funds Law
- The Companies Management Law
- The Securities Investment Business Law
- The Money services Law
- The Proceeds of Criminal Conduct Law
- The PCCL Money Laundering Regulations
- The Misuse of Drugs Law
- The Confidential Relationships (Preservation) Law
In addition numerous regulations are issued under the above laws. Copies of the laws and regulations can be obtained for a nominal fee from the Legislative Department by contacting the Clerk of the LA at the following details:
Clerk of the Legislative Assembly
Cayman Islands Legislative Assembly
PO Box 890 GT, Grand Cayman CAYMAN ISLANDS
Tel: (345) 949-4236/4237/4238 Fax: (345) 949-9514
Our industry's compliance culture
The Cayman Islands financial services industry has a strong compliance culture. The industry's commitment to creating its self imposed code of conduct on anti-money laundering issues long before the FATF review is a testament to this culture. The industry is well organized via a number of associations that maintain a well run sector and serve as key liaison points with the Government on pertinent matters whether of a commercial or regulatory nature. These bodies are:
- The Society of Trust and Estate Practioners (Cayman Islands branch)
- The Bankers Association
- The Compliance Association
- The Company Managers Association
- The Fund Administrators Association
- The Insurance Managers Association
These associations regularly carry out training for their members on anti-money laundering and other issues.
Equally important, the industry in Cayman has always provided key input during the process of creating or amending legislation in the Cayman Islands. An example of the level of cooperation between the Government and the private sector was the publication of the anti-money laundering Guidance Notes which were jointly produced by the Cayman Islands Monetary Authority and a number of associations.