This publication has been prepared for the assistance of those who are considering the formation of banks and trust companies in the Cayman Islands ("Cayman" or "the Islands"). It deals in broad terms with the requirements of Cayman law for the establishment and operation of such entities. It is not intended to be exhaustive but merely to provide an outline of the rules by which banks and trust companies are licensed and regulated in Cayman for which we hope will be of use to the clients of Conyers.
Before proceeding with the incorporation of a bank or trust company in Cayman, clients are advised to consult their tax, legal and other professional advisers in their respective jurisdictions.
We also recommend that our clients seek legal advice in Cayman on their specific proposals before taking steps to implement them.
- INTRODUCTION
The governing legislation is The Banks and Trust Companies Act, (2021 Revision) (the "Act"). The Act makes it an offence to conduct banking business or trust business without the appropriate licence. Regulations have been made under the Act for various purposes, notably to prescribe the information that must be provided in licence applications and to prescribe the fees payable by licensees (collectively, the "Regulations"). The Act is administered by the Cayman Islands Monetary Authority ("CIMA") which was established under CIMA Act (2020 Revision) (as amended) under the guidance of the Bank of England. The statutory definition of banking business is: "the business of receiving (other than from a bank or trust company) 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". The statutory definition of trust business is "the business of acting as trustee, executor or administrator".
The Act and Regulations are not intended to create a comprehensive and detailed code of rules but rather to provide a legislative framework within which the requirements can be tailored to the circumstances of the particular case. This was also the approach of the previous legislation (the Bank and Trust Companies Regulation Act, 1966) and it seems to have worked well under the administration of a succession of banking inspectors who, prior to CIMA, were Bank of England personnel seconded through the International Monetary Fund. Key CIMA personnel now regularly attend training courses organized by the Bank of England.
To date the number of licensed banks and trust companies has risen to a number well in excess of five hundred, including most of the largest international banking institutions.
Cayman supports the efforts of the Basel Committee on Banking Regulations and Supervisory Practices to achieve international convergence. Though not bound to do so, Cayman can be expected to adhere to the decisions of the Basel Committee insofar as they are relevant to Cayman's situation. CIMA released its Market Discipline Disclosure Requirements (Pillar 3) Rules and Guidelines in November 2020 which implement the disclosure requirements of Pillar 3 under the Basel II framework and summarise the requirements outlined by the Basel Committee on Banking Supervision ("BCBS") in a suite of associated BCBS documents. The Pillar 3 requirements promote market discipline amongst banks by increasing transparency and allowing for timely scrutiny by stakeholders including investors, analysts, financial customers and other market participants. The requirements also serve to strengthen core business practices that mitigate banks' exposure to risks in addition to the level of capitalisation. The Basel II framework applies to banks that are locally incorporated in the Cayman Islands, all home regulated banks and host regulated banks (subsidiaries or foreign banks) with or without a physical presence. Branches of foreign banks operating in the Cayman Islands will not be required to maintain a separate capital requirement and therefore will be excluded from the local Basel II requirements.
- LICENSING
2.1 Categories of licence
There are three categories of banking licence and three categories of trust licence. An institution may have both a banking licence and a trust licence. The three categories of banking licence are:
- An "A" banking licence – this permits domestic business with residents of Cayman as well as offshore business. Relatively few Class A licences are issued.
- A "B" banking licence – this permits only offshore business. The offshore business may be conducted from offices in Cayman though that is not a requirement. Most banking licences are of this category.
- A restricted "B" banking licence – this is subject to the same limitation as an unrestricted "B" banking licence (see above) but in addition the licensee is severely restricted as to the customers from whom it may solicit or receive funds. At the licensing stage a list of customers must be agreed with CIMA which will not normally permit a list of more than six names. Restrictions may also be imposed on the use of funds.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
