Cayman Islands: The Cayman Islands Financial Services Regulatory Framework

The Cayman Islands and CIMA actively strive to increase international cooperation and collaboration, without compromising the rights to confidentiality of legitimate clients.

Introduction

The Cayman Islands Monetary Authority (CIMA) is the principal regulator for the financial services industry of the Cayman Islands. CIMA's mission is to provide appropriate, responsive, cost-effective and efficient supervision, in order to enhance the economic wealth and reputation of the Cayman Islands by fostering a thriving and growing, competitive and internationally recognised financial services industry. Maintenance of a stable currency is also an important aspect of CIMA's mission.

The Regulatory Framework

The framework for the authority's regulation and supervision of financial services, and for its international cooperation, consists of several elements. These include the applicable 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.

The authority has responsibility for registration, licensing and supervision of banks, money-services businesses, cooperative and building societies, trusts, insurance-companies management, corporate services, investment funds and securities services.

Home to 221 banking institutions, the Cayman Islands is ranked fourth internationally and sixth in terms of cross-border assets booked.

The Cayman Islands is the second-largest captive insurance jurisdiction in the world, the leading jurisdiction for healthcare captives, and a leading jurisdiction for catastrophe bonds.

The Cayman Islands also continues to be the premier jurisdiction of choice for fund domiciliation. As at 30 September 2013, the total number of regulated funds under CIMA's supervision was 11,343. It comprised 8,239 registered funds; 2,587 master funds; 404 administered funds; and 113 licenced funds.

At 31 December 2013, there were 385 trust-services companies operating in the jurisdiction, maintaining the country as a leading domicile for the provision of these services.

This thriving financial services industry exists as part of a global system and, as such, the Cayman Islands and CIMA actively strive to increase international cooperation and collaboration, without compromising the rights to confidentiality of legitimate clients. Recent legislative and regulatory initiatives in the United States and Europe are of particular relevance to this jurisdiction.

FATCA

The US Foreign Account Tax Compliance Act (FATCA), aimed at ensuring the reporting of foreign financial assets by US citizens and entities, is naturally significant for a jurisdiction with numerous branches, primarily from the US.

FATCA applies to reporting by US taxpayers about certain foreign financial accounts and offshore assets; and by foreign financial institutions about financial accounts held by US taxpayers, or foreign entities in which US taxpayers hold a substantial ownership interest.

In this regard, the Cayman Islands Government has signed a Model 1B inter-governmental agreement with the US. Foreign financial institutions in the Cayman Islands will now be required to report tax information about US account holders directly to the Cayman Islands Tax Information Authority, the only channel in the Cayman Islands for the provision of tax-related information to other governments.

A similar agreement for tax- information exchange has been signed between the governments of the Cayman Islands and the United Kingdom.

AIFMD

The Alternative Investment Fund Managers Directive (AIFMD), which was implemented across Europe on 22 July 2013, has also been the focus of sustained effort on the part of the authority. 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.

CIMA recently signed memoranda of understanding (MOUs) with counterparts in 27 European countries to permit the continued marketing of Cayman-domiciled funds in Europe until at least 2015. Discussions are ongoing with regulators in other European jurisdictions with a view to executing similar MOUs. These MOUs allow for the exchange of information, cross-border on-site visits and mutual assistance in the enforcement of supervisory laws in the respective countries. In ongoing dialogue with the remaining regulators, CIMA will address other areas of the AIFMD and analyse future opportunities for the Cayman Islands. The authority is working on charting the way forward past 2015 when the passporting rules could come into effect.

Conclusion

CIMA remains committed to helping the financial services industry of the Cayman Islands continue to be a leading global player. As part of this commitment, we are expanding our use of technology, and a number of initiatives in this regard are currently in development, some at an advanced stage.

A director-details portal is being developed to improve corporate governance by requiring all directors appointed to a fund to annually update their personal details along with any specific governance requirements. This is expected to be implemented in the near future.

The authority is committed to improving mutual-fund registration, administration and reporting, as well as enhancing corporate governance. CIMA is currently evaluating proposals to completely revamp our online presence with the goal of eventually eliminating most paper- based transactions between the funds (including auditors, directors and registered offices) and CIMA. An option to permit online payments with escrow accounting, and even credit cards, is under active development.

We continue to work with international standards-setting bodies to ensure compliance with financial services best practice. Another ongoing initiative being undertaken by the authority is a review of corporate-governance standards across all sectors.

Modern infrastructure, telecommunications and political stability; legal- and financial services providers with strong multinational experience and capabilities; a pragmatic, constructive and efficient regulatory body with an outstanding, proven track record; and a sophisticated business environment which consistently maintains strong public and private sector partnerships, allow the Cayman Islands to retain its position as a leading international financial centre and an attractive domicile for business.

About the Author

Cindy Scotland is the Managing Director of the Cayman Islands Monetary Authority. She represents the jurisdiction on all regulatory matters with other international 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.

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