The Paper calls upon the private sector to make submissions to
CIMA in respect of the SOG, which submissions are due to be
received by 5pm Cayman Islands time on Monday, 11 May
2015. The SOG is relevant to all entities that are
regulated by CIMA in the Cayman Islands, for example Cayman Islands
professional corporate services providers, administrators and
trustees which are regulated under Cayman Islands legislation such
as the Banks and Trust Companies Law, Insurance Law, Mutual Funds
Law, Companies Management Law and Securities Investment Business
Law (amongst others). Importantly, the SOG excludes entities that
are mutual funds regulated pursuant to the Mutual Funds Law.
- Pursuant to the Monetary Authority Law of the Cayman Islands
("MAL"), CIMA has issued the SOG in
order to improve CIMA's regulatory framework on outsourcing.
The SOG is not intended to be prescriptive or exhaustive, rather
the SOG sets out CIMA's minimum expectations on the outsourcing
of material functions or activities and outsourcing
- Although CIMA has acknowledged that regulated entities regularly
use outsourcing arrangements to reduce costs, increase efficiencies
and overcome internal capacity limitations, CIMA is concerned by
the heightened risks posed by using such outsourcing
- CIMA has indicated that as a result of self-assessments
conducted, there are a number of risk areas where processes can be
strengthened with respect to CIMA's existing regulatory policy
and international standards such as those set by BASEL, IOSCO, IAIS
- CIMA has acknowledged that there are ten existing measures that
are currently part of its regulatory framework that provide
guidance to regulated entities (primarily other Statements of
Guidance) and has proposed to issue the SOG to consolidate these
measures and address existing gaps in its regulatory
- CIMA has noted that the draft SOG is intended to provide
guidance to regulated entities (including sub-contractors where
applicable) on the following matters:
appropriate due diligence of service providers;
contents of outsourcing agreements;
materiality assessments of outsourcing arrangements (i.e.
impact of outsourcing arrangements on the entity and its finances,
reputation and operations);
confidentiality and disclosure of information;
what Governing Bodies (i.e. Board of Directors) of regulated
entities are expected to do with respect to the outsourcing of
material functions or activities;
termination and exit strategies; and
expectations with respect to a regulated entity's relations
with CIMA regarding the outsourcing of material functions or
- CIMA has noted that the proposed SOG is designed to more
closely align with the relevant international standards as well as
the Group of International Finance Centre Supervisors Standard on
the Regulation of Trust and Corporate Service Providers.
- CIMA has also noted that the SOG is intended to improve risk
management processes and eliminate some of the risky practices seen
in industry currently and has noted that "the outsourcing of
functions or activities should not cause a regulated entity to be a
'shell' or 'letter-box entity'".
We welcome the issuance of the SOG as a helpful step towards
improving the clarity of CIMA's regulatory policy concerning
outsourcing arrangements. The consolidation of this policy into one
SOG makes it much easier for the Cayman Islands funds industry to
digest and should improve the industry's adherence to such
CIMA is continuing to demonstrate its ongoing commitment to
improving governance processes in the Cayman Islands. Although not
yet finalised, the draft SOG is a "shot across the bow"
and service providers that are subject to regulation to CIMA should
take steps now to review their existing outsourcing arrangements
with respect to the draft SOG and consider whether further
processes or improvements should be made to properly manage the
risks of such arrangements. Interested stakeholders may also wish
to consider providing their comments prior to the requested
deadline for submissions of Monday, 11 May.
Harneys will continue to monitor these developments.
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.
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