Cayman Islands: Memorandum - Banks And Trust Companies In The Cayman Islands

Last Updated: 1 June 1999

1. GENERAL

Banks and trust companies in the Cayman Islands must be licensed under The Banks and Trust Companies Law (1995 Revision). The underlying Banks and Trust Companies (Licence Applications and Fees) Regulations (1997 Revision) govern the format of the licence application. In terms of the Law, no banking or trust business may be transacted from within the Islands other than by a holder of a valid licence granted by the Governor in Council.

2. TYPES OF LICENCES

There are two distinct classes of banking licence available in the Cayman Islands, being Category 'A' and Category 'B'. There are approximately 30 banks currently operating with Category 'A' licences which permit banks to provide services to both residents and non-residents of the Islands. The remaining banks (approximately 530) hold Category 'B' licences which restrict their activities to providing services to non-residents. There are three classes of trust licence, comprising the standard trust licence, the restricted licence and the nominee (trust) licence as more fully described below.

BANKING LICENCES

(A) Category 'A' - General Licence

This permits the carrying on of local and overseas banking business, subject to such conditions as may be imposed by the Governor in Council. In order to obtain this type of licence, the bank must maintain a fully staffed office in the Cayman Islands and must have amongst members of the staff experience in international and local banking and/or trust operations. It is difficult to obtain this type of licence except in the case of a branch or affiliate of a major international bank.

(B) Category 'B' - Unrestricted Offshore Licence

This permits the licensee to undertake all offshore banking business anywhere in the world except in the Cayman Islands. Business, of course, may be carried on in the Cayman Islands for clients outside the Islands and all management and other functions may be carried on from within the Islands. No domestic banking business is permitted apart from normal banking business as a customer of a Category 'A' licensed bank.

(C) Category 'B' - Restricted Offshore Licence

This is a restricted form of the above licence and limits business to named clients outside the Cayman Islands. This form of licence is sometimes used to administer affairs for families or in order to undertake particular intra-group financing transactions.

TRUST LICENCES

(D) Trust Licence - General Licence

This permits the carrying on of local and overseas trust business, subject to such conditions as may be imposed by the Governor in Council. To obtain this type of licence, a fully staffed office in the Cayman Islands will be required and the applicant will need to demonstrate that it has the requisite level of professional experience to meet industry standards.

(E) Restricted Trust Licence - Restricted Licence

This is a restricted form of the above licence allowing the licensee to conduct trust business for specifically named and approved persons only.

(F) Nominee (Trust) Licence - Nominee Licence

This permits the carrying on of trust business under a Trust Licence to a licensee which is a wholly-owned subsidiary of another licensee and where the sole purpose of that subsidiary is to act as its nominee.

3. GOVERNMENT LICENCE FEES

See Schedule hereto.

4. NET WORTH REQUIREMENTS

The minimum net worth for a Category 'A' or a Category 'B' licensed bank and for the holder of an Unrestricted Trust Licence is CI$400,000 (US$500,000) or its equivalent in another currency; the over-riding requirement being that capitalisation is at all times sufficient to reflect the scale and nature of the business involved. In some instances, the Government will accept a guarantee from an approved guarantor. Such guarantee would be in lieu of paid-up capital but is not usual unless the applicant has special reasons for requesting it. The minimum net worth required for the holder of a Restricted 'B' Banking Licence or a Restricted Trust Licence is CI$20,000 (US$24,390) or its equivalent in another currency. A Nominee (Trust) Licence shall not be granted to a trust company unless such trust company furnishes a guarantee from the licensee of which it is a wholly-owned subsidiary for liabilities of up to CI$200,000 (US$243,902) or its equivalent in other currencies, or such greater sum as may be determined by the Government.

5. PROCEDURES FOR OBTAINING A LICENCE

A bank and/or trust company can operate in the Cayman Islands either by incorporating a Cayman Islands company or by registering an existing overseas bank as a foreign company and thereafter opening a branch office in the Islands.

Applications for bank licences must be submitted in a prescribed form and this is normally undertaken by local firms of lawyers. Applications are examined by the Cayman Islands Monetary Authority who will then submit a recommendation to the the Governor. In the case of proposals submitted by private investors, an application will not be considered until the principals have visited the Cayman Islands Monetary Authority personally to discuss the proposition in detail. We believe that, as a general rule, only applications from branches or subsidiaries of existing known banks are likely to succeed unless there are very special circumstances applying.

The following information is usually required when making an application.

A) Branch

An overseas bank or trust company must register as a foreign company with the Registrar of Companies and obtain a banking and/or trust licence to open a branch in the Cayman Islands. The following documents are required for processing the application:-

I) Three copies of the bank's certificate of incorporation and charter or memorandum and articles of association or by-laws or other instrument constituting or defining its constitution duly certified and authenticated under the public seal of the country or state of incorporation. If these documents are not written in the English language, certified translations thereof must be submitted.

II) A list of the directors and senior officers (i.e. president, chairman, vice-chairman, secretary) giving their full names, addresses, occupations and nationalities and certified by the bank's secretary. This list should be accompanied by a letter from the chairman of the board addressed to "His Excellency the Governor", confirming that the directors and officers are all experienced banking directors and officers and are of good character and standing in their local communities and that none of them has a criminal or other undesirable record.

III) Details of the relationship of the bank to other affiliated companies and subsidiaries; preferably annexing two copies of a corporate chart for ease of reference.

IV) The name and address of the bank's auditors; stating the date of the bank's financial year end.

V) Two copies of the last annual report to the shareholders of the bank and its holding company (if any). This should contain two years figures.

VI) A letter in duplicate addressed to "His Excellency the Governor", from the chairman or president of the bank containing the following information:-

(a) The business of the bank in outline;

(b) short details of the bank's subsidiaries and affiliates;

(c) the objectives of the proposed Cayman Islands branch;

(d) the name of the bank's agent in the Cayman Islands and the address of its principal office here;

(e) evidence of the banking experience of the directors and confirming that they do not have any criminal records.

VII) Certification from the chairman or president of the bank that the net worth of the bank exceeds US$500,000.00 and will not be permitted to fall below this amount.

VIII) Two letters of reference from well-known banks or trust companies with whom the applicant has had a long-standing correspondent or mutual account relationship.

IX) Character references for all directors and the secretary from persons or organisations who have known them for a period of five years.

X) Financial references for all directors and the secretary, preferably from a large financial institution.

XI) Police clearance certificates for all directors and the secretary stating that the person in the letter has no convictions.

XII) The bank must execute a "comfort letter" that it shall be legally responsible for all the commitments, engagements and liabilities of the Cayman Islands branch to its clients, depositors and other creditors, and that, in the event of a winding up of the bank, the creditors of the Cayman Islands branch will rank 'pari passu' with other creditors of the bank.

XIII) In the case of an applicant for a Category 'B' Licence, an undertaking to "His Excellency the Governor" is to be given by the president or chairman that it will not in the course of its business or otherwise, solicit or receive funds from persons, firms or companies resident in the Cayman Islands.

B) Incorporation of a Cayman Islands Company

An 'exempt' company is the preferable vehicle for Class 'B' banks and trust companies. If an 'A' Licence is required, an 'ordinary' company must be incorporated. A Cayman Islands company applying for a banking and/or trust licence must supply the following information and documentation:-

I) Name and Registered Office

The name must be approved by the Government. Unless the Company is an 'exempt' company, it must be in English and must include the word "Limited" or the abbreviation "Ltd." The address of the registered office is also required.

II) Shareholders, Directors and Officers

All shareholders, directors and company officers must be approved by the Cayman Islands Government and the following must be supplied:-

a) full name, address, nationality, occupation and qualifications by way of the prescribed form of personal questionnaire;

b) two general character references;

c) two financial references from well established banks or trust companies;

d) Police clearance certificate;

e) evidence of genuine and extensive banking experience at a senior level for one or more officers or directors of the Bank.

Note l: Where a corporation is to be a shareholder, the following are also required:

a) duly audited annual accounts for the last preceding two years;

b) a letter addressed to "His Excellency the Governor" relating to the corporation from two international banks with whom the corporation has a correspondent or mutual account relationship stating that:-

"in all aspects of their relationship with the Company, they have the highest regard for the ability, integrity and experience of the Company and its directors and officers."

Note 2: In the case of a subsidiary of an international bank or trust company, requirements II) b), c), d) and e) may be waived. However a list of directors and senior officers should be provided with the letter referred to in paragraph 5. A) II) hereof.

III) Net Worth

The amount of the paid up capital, the number and class of shares and the number of shares of each class to be issued to each shareholder must be provided. The bank and/or trust company may either subscribe its capital in cash or marketable securities or, in special cases, it may use the method of a guarantee from an approved bank elsewhere.

IV) Undertaking (Category 'B')

A Category 'B' applicant must provide the Government with an undertaking in the prescribed form not to solicit or receive funds from residents of the Cayman Islands.

V) Auditors and Accounts

The bank and/or trust Company must appoint auditors approved by the Government. All applicants must submit an audited balance sheet to the Government at the time of application, and annually thereafter within ninety days of their year end. The information contained in these is kept strictly confidential by the Cayman Islands Monetary Authority.

VI) Year End

The date of the proposed bank or trust company's financial year must be advised to Government.

VII) Agents

Government must be advised of the bank's or trust company's agents in the Cayman Islands. These would normally be any of the directors resident in the Islands but if there are no resident directors, then agents must be appointed.

VIII) Business Plan

A proper business plan with financial projections including:-

a) reasons for Cayman operation;

b) customer base (including names for Restricted licence);

c) asset structure;

d) management structure; and

e) two-year projections.

6. SUPERVISORY AUTHORITY APPROVAL

In the case of an application for a licence for a branch or subsidiary of an established overseas bank, it is a requirement that confirmation is received from the parent bank's supervisory authority that it is aware of and has no objection to the proposed operation. It should be noted that this requirement applies even where there is no obligation imposed by the supervisory authority in question for the bank to seek such clearance.

7. LICENCE APPLICATION PROCEDURE

Once the required documentation has been compiled, application for approval in principle is made to the Governor in Council through the Cayman Islands Monetary Authority. There is an application fee of CI$1,000.00 (US$1,219.51) payable to the Government which is separate from the licence fee. If the Government is satisfied with the application it will approve in principle the granting of a licence.

1) Branch

In the case of a branch operation, the bank should be registered as a foreign company with the Registrar of Companies. The Registrar will not register a foreign company unless the application for registration includes the approval in principle from Government. After registration, a copy of the Certificate of Registration is filed with the Cayman Islands Monetary Authority, together with the appropriate fee, and then the licence will be issued.

2) Cayman Islands Company

The Company's memorandum and articles of association, certificate of incorporation and letter of approval in principle from Government are submitted to the Registrar of Companies for registration. After registration, these are re-submitted to the Cayman Islands Monetary Authority, together with the opening audited balance sheet, and the licence is issued shortly thereafter.

After incorporation, the shareholders should pay into the Company the minimum capital required or provide the required guarantee hereunder. Once this has been effected, the Company's auditors will be able to prepare the opening balance sheet to show that the capital requirements have been completed prior to submission to the Government. This balance sheet should normally be certified by two directors and as mentioned above, submitted to the Cayman Islands Monetary Authority with the memorandum and articles of association, certificate of incorporation and the prescribed fee. To complete the opening balance sheet the auditors require:-

i) sight of the memorandum and articles of association and certificate of incorporation;

ii) evidence that the Company has assets representing the minimum net worth requirements. In the case of cash or bank balances, this would take the form of a letter of confirmation from a bank or trust company holding the said monies that they hold the funds free from any charges;

iii) evidence of all liabilities, if any.

8. STATUTORY REQUIREMENT

It is a requirement that all licencees involved in either domestic or offshore banking or trust operations must submit annually, to the Cayman Islands Monetary Authority, duly audited and certified accounts of their business transactions. These accounts must be submitted within three months of the licencee's financial year-end. In the case of a branch banking operation, the licencee need only submit a copy of the parent bank's consolidated balance sheet and annual report to shareholders.

SCHEDULE

The following fees are prescribed to be payable on the first grant of a licence and thereafter annually on or before every 15th day of January:

(a) an "A" Banking licence alone: CI$80,000 (US$97,560.97)

(b) an "A" Banking licence and a Trust licence: CI$80,000 (US$97560.97)

(c) a "B" Banking licence alone: CI$15,000 (US$18,292.68)

(d) a "B" Banking licence and a Trust licence: CI$15,000 (US$18,292.68)

(e) a Trust licence alone: CI$15,000 (US$18,292.68)

(f) a Restricted "B" Banking licence alone: CI$10,000 (US$12,195.12 )

(g) a Restricted "B" Banking licence and a Restricted Trust licence: CI$10,000 (US$12,195.12)

(h) a Restricted Trust licence alone: CI$1,640 (US$2,000.00)

(i) a Nominee (Trust) licence: CI$1,100 (US$1,341.46)

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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