Cayman Islands: Update To Banking Regulations Further Enhances Cayman's Appeal

Last Updated: 1 October 2014
Article by Marco Martins

The Cayman Islands have for decades been one of the world's leading banking and financial centres, currently ranking as the fifth largest banking centre worldwide, with over 200 banks, including 40 of the world's 50 largest banks, and over US$1.5 trillion in assets.

As is the case in most sophisticated jurisdictions, the Cayman Islands' banking regulations are based on prudent and trusted principles, including the international supervisory standards articulated by the Basel Committee on Banking Supervision.

In recent years we have seen a surge in interest and demand from entities looking to establish a licensed bank in the Cayman Islands. It is therefore helpful that the Cayman Islands Monetary Authority (CIMA) recently updated its Regulatory Policy on Licensing Banks (the Policy) so that the conventions that CIMA has previously applied to an application are now explicitly codified. This article provides an overview of the updates to the Policy. For further information about the requirements for a complete banking licence application please contact us.

Three types of banking licence:

The Banks and Trust Companies Law (2013 Revision) of the Cayman Islands (Law) creates three categories of banking licence:

  • an "A" banking licence which permits domestic business with residents of the Cayman Islands as well as offshore business;
  • an unrestricted "B" banking licence which permits only business conducted outside of the Cayman Islands; and
  • a restricted "B" banking licence which is subject to the same limitation as an unrestricted "B" banking licence but in addition, the licensee is restricted to a preapproved customer base.

CIMA has always categorised each type of bank into a further two categories; Home Regulated Banks and Host Regulated Banks, and the updated Policy now clearly reflects the requirements for each type of entity.

Home Regulated Banks are those banks that are incorporated in the Cayman Islands, are usually independent of a banking group and are primarily regulated by CIMA.

Host Regulated Banks are usually branches or subsidiaries of a foreign parent bank which are ultimately subject to regulation by the parent company's own home banking regulator. The approach to Host Regulated Banks reflects the view that primary responsibility for their regulation rests with the regulatory authorities of the foreign parent. If it appears to CIMA that the parent country regulation of a proposed Host Regulated Bank applicant might not be adequate, the applicant may be encouraged to form a Cayman Islands company which would be treated as a Home Regulated Bank instead.

The licensing (and continuing regulation) of Home Regulated Banks differs from that of Host Regulated Banks in some important respects, such as capital adequacy ratio requirements, financial resources, information that needs to be provided about the key shareholders, financial resources of key shareholders, audit requirements and the bank's local presence in the Cayman Islands. Where these distinctions are not set out in the Law (or the regulations or regulatory policy promulgated thereunder) these distinctions are now clearly set out in the updated Policy.

The Policy has also been revised to reflect the application details required by CIMA, in particular the contents of the business plan, as well as details about the proposed management of the applicant and its internal systems.

Capital adequacy

It has always been clear that banks which are incorporated in the Cayman Islands must maintain a minimum capital adequacy ratio of 15 per cent and branches must maintain a minimum capital adequacy ratio of 12 per cent, unless CIMA varies the ratio for a particular licensee if it considers it appropriate to do so given the risks associated with the licensee's activities. Further, it was always known that a portion of an applicant's issued capital, in cash or cash equivalent, had to be maintained at a local Cayman Islands retail bank, but the updated Policy now expressly sets that requirement at US$500,000 for Home Regulated Banks. This amount cannot be pledged without CIMA's permission.


CIMA must be able to identify all intermediate and ultimate owners of an applicant and if the group structure of an applicant is overly complex or lacks transparency, this must be fully clarified and explained. The Policy now specifically requires all applicants to provide a complete corporate structure chart showing all entities under common ownership, including non-financial entities, rather than just a beneficial ownership chart.

The Policy is now clear that information must be provided on any shareholder holding 10 per cent or more of the voting power of an applicant or its holding company. If no shareholder holds more than 10 per cent, the 10 largest shareholders must be identified. There must be proper controls in place so that policies and procedures may not be overridden by shareholders or senior managers and Home Regulated Banks with two or fewer shareholders must provide details of their succession plan in case of death or incapacity of a shareholder.

Shareholders and financial resources

Under the updated Policy, CIMA will also assess the financial resources of the applicant's owners. For Home Regulated Banks, applications will generally be considered if a shareholder holding more than 20 per cent of a class of shares or voting rights has a minimum net worth of the greater of US$10 million (not including prime residence) or five times the value of shares to which that member is subscribing.

For Home Regulated Banks a public accountant must independently verify the financial statements of shareholders. For Host Regulated Banks CIMA will expect to see a satisfactory audit history.

Business plan

CIMA now requires that a more detailed business plan (covering the first three years of activity) be submitted for applications for Home Regulated Banks and Host Regulated Banks. Applicants must demonstrate in their business plan that they have adequate manpower, systems and expertise to implement their objectives and the Policy now sets out an extensive list of items which CIMA expect to be addressed in a business plan. In addition to addressing items such as background, financial plans and corporate governance, the Policy now requires that criteria such as details of an applicant's proposed marketing strategy, investment policy, dividend policy, remuneration plan, operational resources, risk management strategy and any reports of feasibility studies be addressed in the business plan.

The reasons for any outsourcing (together with copies of agreements in respect of these arrangements) must also be provided in the business plan. Home Regulated Banks must carry out rigorous stress tests that identify worst-case scenarios of possible events (over a three year period) and the Policy now provides that the results of such tests must be set out in an applicant's business plan.

Internal systems

Detailed requirements for licensees' policies, systems and internal controls are set out in further regulations, however the Policy expressly stipulates that applicants must provide an overview of their proposed IT governance structure and must demonstrate that they have developed their own Internal Capital Adequacy Assessment Process.


The Policy has expanded the "fit and proper" criteria and the criteria for the proposed management of an applicant. The requirements for Home Regulated Banks and Host Regulated Banks are the same in this respect; both types of entities must ensure that there is a clear division of responsibilities between directors and management, so that there is a balance of power and authority. The updated Policy now stipulates that at least two directors of an applicant must have sound banking experience.

The updated Policy also specifically references the "four eyes" principle, which requires that significant decisions be made by more than one person. CIMA must also be satisfied that, where individuals take on more than one role, these roles are compatible.

The Policy also refers to an applicant's MLRO and Compliance Officer, both of whom (if the role is not carried out by one individual) must be suitably qualified and experienced. The MLRO and Compliance Officer must be resident in the Cayman Islands and neither role may be outsourced.

Further information

The popularity of the Cayman Islands as a jurisdiction in which to establish a banking structure is based on decades of sound and prudent regulation and Cayman's key role in the global financial industry. While the majority of Cayman Islands licensed banks are subsidiaries or branches of global financial institutions, we are seeing increased demand from large corporate groups which use banks as an efficient structure to manage global treasury operations, and from diverse financial institutions wishing to serve the high net worth market, particularly in emerging regions. The recently announced Policy will further clarify the process for these potential new clients and is a welcome development in a thriving industry.

With operations in all key emerging markets, we are well positioned to help clients across the globe, often in their local language and with a deep understanding of how to bridge local and international aspects of a banking structure.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions