The Cayman Islands Monetary Authority ("CIMA" or the "Authority") has issued an updated Statement of Guidance on corporate governance aimed at the governing bodies of entities regulated by the Authority ("regulated entity") and the Directors of those entities ("Directors") ("SOG").
The "Governing Body" of a regulated entity is the Board of Directors where the entity is a corporation, the General Partner where the entity is a partnership and the manager where the entity is an LLC.
Regulated entities include company managers, banks, money services businesses, credit unions and building societies but do not include funds regulated, registered or licensed by CIMA pursuant to the Mutual Funds Law, excluded persons pursuant to the Securities Investment Business Law, insurers regulated under the Insurance Law or private trust companies as defined in the Private Trust Companies Regulations. For more information on the guidelines on corporate governance for the Governing Bodies of regulated mutual funds, please see our publication relating to this here:
The objective of the SOG is to provide the Governing Bodies of regulated entities and the Directors of those entities with a framework for sound and prudent governance to assist them in fulfilling their duties as Directors and Governing Bodies efficiently and effectively. The SOG is not a codification of and does not amend the existing laws of the Cayman Islands.
Highlights of the SOG
- The SOG is a more comprehensive version of the previous statement of guidance which was issued in January, 2013.
- The SOG is not intended as a prescriptive or exhaustive guide to CIMA's governance expectations.
- The corporate governance of a regulated entity, and the size and composition of the Governing Body, must be appropriate and suitable for the legal and operational structure of the regulated entity. The size, nature and complexity of its business are fundamental factors in determining the adequacy and suitability of its governance framework.
- The regulated entity should implement a corporate governance framework that addresses, at a minimum:
1. Objectives and strategies of the Governing Body
- The roles and responsibilities of the Governing Body should be clearly documented.
- The Governing Body is responsible for the oversight of the regulated entity, setting the strategy and business objectives, ensuring that the regulated entity conducts it affairs in accordance with all applicable laws, rules and regulations, and ensuring that the regulated entity adopts a management structure appropriate with its size, complexity, structure and risk profile.
- The Governing Body should clearly document its strategic objectives, the means of attaining those objectives and procedures for monitoring and evaluating the progress toward those objectives and the objectives of the regulated entity.
- The Governing Body must make a determination on the regulated entity's risk appetite and approve the policies, procedures and controls for identifying, assessing and managing all significant risks faced by the regulated entity.
- The Governing Body is charged with providing suitable oversight of risk management and should maintain a sound system of risk measurement and controls.
- The Governing Body has the ultimate responsibility for internal controls as well as all relevant areas of risk. The internal control strategy should be documented, implemented and monitored. A regular review of internal controls should be undertaken and deficiencies addressed in a timely manner.
2. Structure and governance of the Governing Body
- The Governing Body is the directing will and mind of the regulated entity and has ultimate responsibility for effective oversight of the affairs of the regulated entity.
- The Governing Body should require regular reporting from the regulated entity's management to enable it to make informed decisions and to adequately oversee and supervise the regulated entity.
- Of paramount importance is the implementation of and adherence to a conflicts of interest policy.
- The Governing Body is required to conduct periodic self assessments on performance and governance practices and thereafter undertake to correct deficiencies identified. If the size, nature and complexity of the regulated entity warrants such assessment, it is recommended that an external evaluator should carry out the assessment.
- The Governing Body must have a balance of skills, knowledge and experience among its members to enable it to effectively oversee the business of the regulated entity.
- It is important for the Governing Body to have a succession plan in place for Directors and senior management positions.
- The Governing Body should document its nomination and appointment procedures, structure functions, re-elections and balance between executive and non-executive Directors.
- The Governing Body retains responsibility for delegated functions and must monitor and supervise delegated functions appropriately, and on a continuing basis be they to senior management, sub-committees or any other person or entity.
3. Collective duties of the Governing Body
- The Governing Body should monitor compliance with the laws, regulations, rules and standards of the Cayman Islands and the Authority, requesting appropriate information and initiating appropriate control and supervision to enable on-going and effective monitoring of compliance with these laws, rules and regulations.
- Enquiry should be made by the Governing Body into the affairs of the regulated entity, requesting information from service providers for meetings, together with their presence at meetings of the Governing Body where necessary.
- The Governing Body is responsible for ensuring that senior management is held accountable for day-to-day management of the regulated entity, and further implementing a senior management structure to ensure that duties are appropriately segregated to create a system of checks and balances.
- Where applicable, the Governing Body should clearly distinguish between the responsibilities, accountabilities, decision-making, interaction and cooperation of the Governing Body, chairman, chief executive and senior management. This clear division of responsibilities will ensure a balance of power and authority, so that no one individual has unfettered powers of decision.
- A complaints procedure should be put in place and the Governing Body must be satisfied that it is communicated properly to their customers. The Governing Body must ensure that there are procedures in place to promote customer awareness of products and services.
- The establishment of an appropriately skilled compliance committee or appointment of a person who should report directly and regularly to the Governing Body on all compliance matters is essential. Additionally, periodic verification of adherence with compliance standards should be ensured, as well as the implementation of any remedial action to rectify shortcomings in as timely a manner as possible.
- The Governing Body must have ultimate responsibility for approval of all key policies.
4. Duties of individual members of the Governing Body
- Each Director should have sufficient and relevant knowledge and experience to carry out his duties as a Director.
- The Director should continuously inform himself of the regulated entity's business and should update his knowledge periodically, consistent with changes in the industry, regulatory landscape or business of regulated entity.
- The Director must communicate openly, act honestly and in good faith, and operate at all times with due skill, care and diligence.
- In circumstances where issues are raised, the Director should make enquires, satisfying himself that appropriate and timely course of action is being taken to address any concerns raised by that Director.
- The Director should carefully consider all decisions and understand potential negative implications for the regulated entity, its shareholders or its customers.
- The Director must ensure that he has sufficient time to complete his responsibilities as a Director and to apply his mind to the function of overseeing a regulated entity.
- The Director should exercise independent judgement and act at all times in the best interests of the regulated entity.
- The Director should continuously verify that the regulated entity, its Governing Body, its service providers and advisors are acting in accordance with the regulated entity's constitutional documents and any other documents directing the management and operation of the regulated entity and/or its advisors or service providers.
- The Director should understand the services and reports provided by each service provider, as well as the scope of the service and the expertise that each service provider delivers for their respective control function of the entity.
5. Management of conflicts of interest
The Governing Body is responsible for ensuring that the regulated entity's conflicts of interests policy is documented and adhered to. Directors must disclose interests in any contract to which the regulated entity is an existing or potential party. Such disclosures should be made at least annually and also during meetings in circumstances where any such conflict is relevant to a discussion being had. Each Director is responsible for ensuring that his potential or actual conflicts of interest are managed and controlled.
6. Remuneration policy and practices
The Governing Body should have in place a documented remuneration policy for Directors and senior management. The remuneration policy should be reviewed periodically to ensure that it is compatible with the regulated entity's risk management framework, strategy and values. It should also be consistent with the regulated entity's risk appetite, long term objectives and financial soundness, and discourage inappropriate risk taking.
7. Transparency and communications
The Governing Body should hold meetings regularly at intervals sufficient to enable it to carry out its role effectively. Full, accurate and clearly recorded details of the meetings and any material decisions and/or considerations must be maintained, usually in the form of minutes. Records should include agenda items, details of attendees, circulated documents, matters considered, decisions made, and information requested from and provided by service providers.
8. Duties of sub-committees
The SOG states that in circumstances where sub-committees are appointed to adequately manage the regulated entity's risks and carry out specific functions, the Governing Body should document a clear division of roles and responsibilities, and maintain oversight over the functions delegated to sub-committees.
9. Relations with the Authority
The Governing Body and the Directors must conduct their affairs with the Authority in a transparent and honest manner, always disclosing to the Authority anything that the Authority would reasonably expect notice of. Where the Governing Body or any of the Directors are uncertain about whether to communicate certain information to the Authority they should be prudent and diligent and report such information to the Authority.
How can Dillon Eustace Help?
To assist in compliance with the SOG, a Governing Body should ensure that Directors are aware of the relevant policies and procedures that apply to their regulated entity and can avail of adequate and sufficient training to enable them to discharge their duties.
In advising clients in relation to complying with the SOG and its various requirements, Dillon Eustace has identified a number of key areas in which Directors might consider formal training in relation to their commitments under the SOG and, more generally good corporate governance for their Governing Body.
Dillon Eustace can tailor a training programme to suit the needs of your Governing Body and deliver it in a confidential interactive setting in which Directors will have an opportunity to raise issues that are of concern to them. These training sessions can be arranged to tie in with your Governing Body meetings either here in our Cayman Islands office, or can be delivered at any other convenient location.
Some of the topics in which Dillon Eustace can provide training include:
- Understanding the Governing Body's Role
- Creating and Maintaining an Effective Governing Body
- Operating an Effective Governing Body
- Monitoring Risk
In addition to training, Dillon Eustace can provide and tailor support documentation for Directors, including Governing Body Operating Procedures, Governing Body Policies and relevant compliance manuals, each reflective of client requirements as well as the requirements of the SOG.
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.