At August 31, 1996 there were five hundred and seventy-two banks and trust companies licensed in the Cayman Islands. Of these, twenty-nine held Class A licenses and five hundred and forty-three held Class B licenses. Forty-seven of the world's fifty largest banks are represented in the Cayman Islands.
Banks and trust companies must be licensed under the Banks and Trust Companies Law. Without a license, no company may transact any banking or trust business or use any word in its name like bank, trust, savings and loan, etc.
The current policy of the Cayman Islands Government is, except in special circumstances, not to grant unrestricted bank licenses unless there is satisfactory regulation in the home jurisdiction of the bank or its parent and the home-based regulator approves or indicates no objections to the establishment of the bank or branch in the Cayman Islands.
TYPES OF LICENSES
Under the Banks and Trust Companies Law, there are two basic categories of licenses. A Class A license permits unrestricted domestic and offshore business. A Class B license permits only offshore business. The holder of a Class B license may have an office in the Cayman Islands and conduct business with other licensees and other offshore companies but, except in limited circumstances, may not do business with residents of the Cayman Islands.
The Class A and Class B Trust Company Licenses were abolished in 1989. The license is now simply called a Trust License. A Class B Bank and a Trust License may be restricted or unrestricted. An unrestricted Class B bank or a trust licensee requires a minimum paid up capital of at least US$500,000 or its equivalent and there is no restriction on the number of its customers. A restricted Class B bank or trust license only requires a minimum paid up capital of US$25,000 or its equivalent, but a list must be given of those persons or companies from whom it will solicit or receive funds by way of trade or business or for whom it will undertake trust business. This list forms part of the license and any alteration requires approval of the Inspector of Financial Services.
A licensee need not be a Cayman Islands company and a foreign bank or trust company may be licensed and registered under the Companies Law as a foreign company. In such cases, an appropriate guarantee of the branch's obligations will be required to be given by its head office. A license fee is payable on the granting of the license and in January of each year thereafter.
The basic requirements for an application are:
- Name of Company
- Address in the Cayman Islands
- Copy of Memorandum and Articles of Association or other public corporate documents
- Names, addresses and nationalities of all shareholders
- An undertaking to pay up the minimum capital, or provision of the appropriate guarantee as the case may be
- Resumes and references for all proposed directors and officers with particular emphasis on banking and trust experience, together with evidence of no criminal convictions
- Audited accounts of the holding or parent company, if any, for the proceeding two years
- Name and address of auditors
- Names of subsidiaries
- In the case of a new company, an audited opening balance sheet showing the paid-up capital
- A business plan
- Consent of home based regulator
These are outline requirements only and in some cases more detail is required while in others the regulations are considerably relaxed. This depends on the applicant and each case warrants special consideration.
Following the granting of a license, the Monetory Authority exercises continuing supervision. In particular, annual audited financial statements and unaudited quarterly returns must be filed. Shares may not be transferred without permission and the Inspector has wide powers of investigation. The Governor in Council may suspend or withdraw licenses. New directors and officers should not be appointed without approval.
Banks with unrestricted licenses are now expected to comply with the Basle Convention Rules as to capital adequacy, ratios, etc.
Apart from the general advantages of doing business in the Cayman Islands, some specific benefits applicable to banking and trust operations include:
- Relative freedom from controls on international banking and trust activities
- Access to international Eurocurrency markets and the unfettered ability to carry out Eurodollar transactions
- Absence of exchange controls
- Profits may be retained offshore and repatriated at will, with the possible advantage of legally reducing or postponing payment of taxes in the home country of the parent
- Interest can be paid without deduction of tax at source
- The ability to provide trust facilities for clients and customers.
The procedures for obtaining a banking or trust license are the subject of separate KPMG booklet entitled "Banking and Finance in the Cayman Islands" which is available on request.
This information provides an introduction to aspects of establishing business in the Cayman Islands for the benefit of clients who may be considering using the Islands as an offshore domicile. It is not exhaustive and is merely intended to give a broad indication of possible courses of action.
Before taking action on any business or other decisions related to the Cayman Islands, specific and particular advice should be sought from domestic taxation, legal, accountancy and other relevant professional advisers.
The information provided reflects the laws and regulations existing at December 31, 1996, but later developments have been noted where possible.
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.