Cayman Islands: A Global Banking Center

During the last twenty-five years the Cayman Islands have developed into one of the world’s largest international financial centers, with more than 300 hundred active licences for banks and trust companies, 700 insurance companies and over 7,000 mutual funds. The stock exchange has approximately 1,000 listed entities with a market capitalization of over US$77 Billion.

The banking industry is represented by most of the leading banks in the world including over forty of the world’s largest fifty banks with deposits exceeding US$1 Trillion.

The deposit base of the banking industry in the Cayman Islands is second only to the United States of America, both of which provide a very similar zero tax base for persons investing in their financial institutions and markets.

All aspects of the financial industry, which offer services to the public, are regulated by the Cayman Islands Monetary Authority (CIMA), whose main aim is to regulate and supervise in accordance with internationally acceptable standards and to maintain a first class, market responsive, financial center.

CIMA is an active member of various internationally recognized supervisory and regulatory groups such as, the International Group of Banking Supervisors, the Offshore Group of Banking Supervisors, the Caribbean Group of Bank Supervisors, the Caribbean Financial Action Task Force and has constantly been revising and upgrading its regulatory standards and reporting requirements to meet the growing demands of the globalized technologically connected financial markets.

On-site inspection of banks and trust companies and other regulated financial institutions is a normal part of CIMA’s supervisory duties. Memorandum of Understandings to facilitate the effective cross-border supervision of multinational institutions have been entered into and regular visits to and from regulators, who supervise financial institutions with multinational cross-border offices or branches, are carried out. Computer systems now allow financial institutions to make their quarterly reports electronically.

CIMA is responsible for the processing of applications for licences which may be granted pursuant to the Banks and Trust Companies Law (2003 Revision) and its regulations. Various types of licences may be issued, depending on the type of business the applicant wishes to conduct. ¹The CIMA website provides extensive information on the types of licences, procedures for application, capital adequacy ratios and regulatory requirements. Once a licence has been issued the Banking Supervision Division of CIMA is responsible for the ongoing supervision and regulation of activity of banks who are required to provide regular reports to the division. The division conducts on-site meetings and inspections of licences on a regular basis. Capital adequacy, ratios, assets, quality, management capability and expertise are assessed on an ongoing basis.

CIMA is very aware of the possibility of undue criticism being leveled at the financial industry and the damage which can be caused as a result of unscrupulous persons being able to access financial institutions for illegal purposes. It has played a significant and active role in working with the Government, private sector organizations and international bodies, to put in place laws, regulations and procedures which have been designed to make it extremely difficult for any attempted illegal use to go unnoticed and unreported.

Legislation, including very strict anti-money laundering statutes and suspicious activity reporting requirements, meets or exceeds internationally recognized standards. Banking institutions are required to have in place very comprehensive internal controls and procedures for the identification of customers, training programs for staff, policies and procedures for record keeping and procedures for recognizing and reporting suspicious transactions to law enforcement agencies.

The anti-money laundering legislation in the Cayman Islands allows criminal charges to be brought against financial service providers and institutions which fail to take effective steps and measures to counter the threat of money laundering. These laws permit the restraint and confiscation of illegal assets and provide for the registration of confiscation orders granted in foreign countries and the seizing of assets for the purposes of meeting those orders.

Laws and regulations are constantly being reviewed to ensure there effectiveness and conformity with the highest international standards while being able to meet market expectations.

The legal system is developed from the British model with the Common Law of the UK forming its backbone. There is a three-tiered court system, the summary courts which have limited civil and criminal jurisdiction and are akin to the magistrate’s courts in the UK, the Grand Court whose jurisdiction is similar to that of the High Court in the UK, the Court of Appeal and the final Court of Appeal being the Privy Council in London.

Over the last 20 years the legal system, which is serviced by over 250 highly qualified and experienced attorneys-at-law from various parts of the world, has developed its own jurisprudence which is an essential tool in dealing with the sophisticated and complex matters requiring adjudication before the courts from to time.

The system is efficient and accommodates the very special needs of those doing business on an international basis and through the Cayman Islands – a feature difficult to find in most developed jurisdictions.

The Islands have a highly developed infrastructure, telecommunications system and an excellent private/public sector working relationship which enhances business working conditions.

The Islands have passed corporate, trust, partnership, insurance, banking, mutual funds, shipping and other specialized laws which have been carefully drafted with the specific aim of meeting the demands of the international financial community. These laws are constantly reviewed by the various private sector organizations that service the industry and in consultation with the government are updated to ensure that they keep abreast of the changing times. Many of the laws in the Cayman Islands are transposed by other jurisdictions now trying to enter the arena.

The Cayman Islands are a tax neutral financial centre. There are no income, capital gains, estate, profit or other forms of direct taxation imposed on persons living in the Cayman Islands or entities doing business in and from the Cayman Islands. Indirect taxation is imposed by placing duties on items imported into the country. Guarantees are given to various entities which conduct business in and from the Cayman Islands that they will remain free of taxation in the unlikely event that such would ever be introduced.

The Islands have no form of exchange control and business may be transacted in any currency. The Cayman Islands dollar is fixed at $1.20 to the US dollar and both may be used locally.

An integral part of any financial centre is the availability of professionals who are highly qualified in the various fields. The Cayman Islands have, through sensible immigration policies, been able to attract and maintain a very high quality of skilled persons who service the growing needs of the worldwide community. All the leading accounting firms are represented and have large and sophisticated offices in the Islands. A comprehensive range of services with highly skilled personnel and offices that have state-of-the-art computer and electronic equipment, essential to service the needs on a worldwide basis of sophisticated clientele on an international basis form an integral part of the finance industry.

Cayman was one of the first countries to enter into a Mutual Legal Assistance Treaty with the US which allows the exchange of information relating to drug and other criminal related offences. Recently an Exchange of Information Agreement was entered into with the USA for the exchange of information on certain tax matters and Cayman participated in the EU Tax Savings initiative.

The Cayman Islands continue to prepare themselves to meet the challenges of the 21^st century and the financial industry continues to attract major international entities from all parts of the world who conduct business in and through the Islands.

Persons and entities have recognized that an essential ingredient in competing successfully in the complex and competitive global markets is proper planning from a base which provides both adequate and sensible legislation, highly skilled and trained professionals and one which is continually adjusting to meet the challenges and demands of persons who conduct business on a global scale.

Persons and entities which intend to conduct business in any country outside their country of residence or domicile should seek competent professional advice in their country of origin or domicile. This is sensible and necessary in a global world.

1. Cayman Islands Monetary Authority – Website: www.cimoney.com.ky

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