Cayman Islands: Regulatory Update: Cayman Islands Monetary Authority

CIMA's Managing Director Cindy Scotland, provides an update on recent regulatory developments


The Cayman Islands continues to be home to a thriving financial services industry, which is bolstered by prudent and robust regulation. As the principal regulator for the Cayman Islands financial services industry, the Cayman Islands Monetary Authority (CIMA) has developed a regulatory and supervisory framework which emphasises adherence to international standards and which approach is a combined rules-based and risk based approach.

Fundamental to the success of the jurisdiction is comprehensive regulation, supervision and the consideration of the evolving dynamic nature of the industry. In this regard, the Authority has also recently drafted the 2016 – 2018 Strategic Plan to reflect its dedication to continuous improvement. Although the objectives remain similar to the previous plan, a comparison will reveal that there will be more focus on educating the local population about CIMA's role and functions within the financial services industry. In keeping with this objective, the Authority has launched a 12-week public education radio campaign to highlight topics such as a general overview of CIMA and its operations, including the latest developments in banking, currency, insurance, mutual funds, cyber-security, trust and fiduciary services, relevant legislation, career opportunities and training.

STATUS OF CAYMAN'S FINANCIAL SERVICES INDUSTRY

Since the last update for this publication, CIMA has continued its mandate to supervise and regulate the Cayman Islands financial services industry. The industry remains highly competitive in several areas. The jurisdiction also maintained its position as the top domicile for hedge funds during the period, ending the financial year with 11,021 funds. The Cayman Islands remains a top international location for the provision of trust services, with 242 companies licensed to provide these services in and from the jurisdiction. In the Banking sector, at 30 June 2016, the Cayman Islands is home to 176 licensed and registered banks, compared to 196 in the previous year. This decline is due to mergers, consolidation of banks, and restructuring. With 862 total licensees, the Cayman Islands remains the second largest off shore jurisdiction in terms of the number of international insurers, including captives. There were 36 new insurer licences and 4 insurance intermediary licences added to the Cayman market. The Authority has also issued its second Reinsurance licence this year. As a leading jurisdiction for hedge funds and the second largest jurisdiction for captive operations, the Cayman Islands is well positioned to build on its expertise to be the domicile of choice for the emerging hedge fund-backed reinsurers.

THE REGULATORY FRAMEWORK UPDATE

The implementation of robust corporate governance and risk management frameworks for the financial sector is critical to the safety and development of the financial system. As such, the Authority continues to provide comprehensive guidance and oversight of these important frameworks. Among these elements are the relevant laws and regulations passed by the Government of the Cayman Islands; the rules and statements of principle and of guidance issued by the Authority; the regulatory policies and procedures detailed in the Regulatory Handbook and other manuals; the cross-border agreements undertaken by the Authority, and the international standards to which CIMA adheres.

Over the past year, the Authority has issued or revised several measures that impacted the various regulated sectors. The Regulatory Policy on Exemption from Audit Requirements for a Regulated Mutual Fund was revised to expand the list of circumstances under which a regulated mutual fund can apply for an audit waiver. Similarly, a new Regulatory Policy was issued for Class 'C' Insurance companies to set out conditions for which such licensees could be exempted from the annual audit requirement. A new Regulatory Policy on Recognised Overseas Regulatory Authority was issued to provide the criteria used by the Authority to recognise an overseas regulatory authority for the purposes of the Securities Investment Business Law, 2015 (SIBL).

Further changes were made to the Regulatory Policy on Licensing Banks to enable Class 'B' applicants to have more options to meet CIMA's expectations of how to hold the minimum required capital. New measures were issued for the insurance sector pertaining to corporate governance and a licensee's use of an Internal Capital Model. The Authority also enhanced its measures pertaining to fitness and propriety assessments across all sectors. Revisions were also made to the general Statement of Guidance on Corporate Governance with a view to enhance and modernise this measure in line with international standards and best practices. New measures relating to the outsourcing of material functions and activities and approving changes in ownership and control were also issued for all sectors with noted exceptions. In February 2016, the Authority introduced its first edition of the Cayman Islands Monetary Authority's Supervisory Issues & Information Circular, which will be issued bi-annually. The document aims to raise awareness, in the industry, of common regulatory and thematic issues identified through our off -site and on-site supervisory practices and highlight regulatory developments for the financial sector. As a secondary objective, the circular also aims to emphasise regulatory matters which might not be particularly problematic at this time but are important to our regulatory objectives.

INTERNATIONAL COOPERATION

The Authority also remains committed to cooperating and interacting with other regulatory bodies, without compromising the rights to confidentiality of legitimate clients. Therefore, every effort is made to ensure that we continue to meet the requisite standards, both locally and internationally. To date, the Authority has entered into 54 international agreements. The most recent Memorandum of Understanding was signed in June 2016, between with the Financial Services Regulatory Authority of Abu Dhabi. CIMA is also represented in various bodies, including: the Group of International Financial Centre Supervisors (GIFCS); Caribbean Group of Banking Supervisors (CGBS); Association of Supervisors of Banks of the Americas (ASBA); International Association of Insurance Supervisors (IAIS); Group of International Insurance Centre Supervisors (GIICS); International Organization of Securities Commissions (IOSCO); and the Financial Stability Board's Regional Consultative Group for the Americas. The Authority continues to keep abreast of relevant legislation in other jurisdictions which has an impact, or potential impact, on the Cayman Islands. This is done with a view to reassessing the adequacy of the jurisdiction's regulatory regime via the Alternative Investment Fund Managers Directive (AIFMD) passport. This directive is aimed at bringing managers of alternative investment funds, such as hedge funds and private equity funds managed or marketed in Europe, under similar regulatory arrangements as mutual and pension funds and their managers.

Another major development which occurred recently was the European Securities and Markets Authority's (ESMA) assessment of the Cayman Islands at the end of June 2016. This assessment was based on whether there were significant obstacles regarding investor protection, market disruption, competition or the monitoring of systemic risk to making the European Union Passport available to the Cayman Islands. Thus far, the Authority has engaged in several discussions with the Ministry of Financial Services, Commerce and Environment, and stakeholders within the private sector. This involved advising on draft legislation, and providing relevant information to ESMA. This then resulted in the advice issued from ESMA on 18 July 2016. Further to the statement issued by ESMA regarding an update on the AIFMD passport regime, it was noted that ESMA could not give definitive advice in relation to extending the passport to the Cayman Islands since the jurisdiction is in the process of implementing new regulatory measures including internal supervisory practices, and the assessment will need to take into account the final rules in place. ESMA will continue its assessment of the Cayman Islands with a view to reaching a definitive conclusion on whether to extend the passport to this jurisdiction. Given the complexity of the AIFMD, the assessment will require an extensive amount of work, with several steps occurring before completion. To secure our position as a top jurisdiction of choice, the Authority will provide the necessary assistance with any ongoing review.

CONCLUSION

Given our robust, yet flexible and competitive regulatory regime, infrastructure and high levels of expertise and experience in service areas such as insurance, legal and accounting, CIMA is confident that the Cayman Islands will continue to thrive as a leading financial centre. Working together with Government, the industry, and other stakeholders, the Authority is committed to playing its part in contributing to the continued success of this industry.

About the Author

Cindy is the Managing Director of the Cayman Islands Monetary Authority. She oversees the implementation of policies to ensure the sound management of the Cayman Islands' currency and the effective supervision of various regulated entities operating in and from the Cayman Islands. She also has responsibility for the development and maintenance of strong working relationships between the Authority and other international regulatory bodies including the Group of International Financial Centres Supervisors, the International Organisation of Securities Commissions, the International Association of Insurance and the Financial Stability Board Regional Consultative Group.

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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