Cayman Islands: Banks & Trust Companies

Last Updated: 9 June 2008

INTRODUCTION

All banks and trust companies (except "controlled subsidiaries", defined below) wishing to carry on business from within the Cayman Islands (whether or not such business is actually to be carried on in the Cayman Islands) must be licensed by the Cayman Islands Monetary Authority ("CIMA") pursuant to the Banks and Trust Companies Law (as amended) (the "Law")before they can operate. CIMA carefully reviews applications with the aim of preserving the high standards for which the Cayman Islands have become known in international financial circles.

CONTROLLED SUBSIDIARY EXCEPTION

The Law was amended by the Banks & Trust Companies (Amendment) Law 2006 and there is now one exception to the requirement to be licensed. A trust company that is a "controlled subsidiary" does not require a licence to carry on the business of issuing debt instruments (s2(a) of the Law). However, a controlled subsidiary is still required to register with CIMA on an annual basis and file an annual declaration regarding its name, its "parent" licensee, its directors and senior officers and confirmation that it continues to be a controlled subsidiary, together with the annual registration fee.

A "controlled subsidiary" is a trust company:

  1. that is incorporated in the Islands;

  2. that is a wholly owned subsidiary of a licensee under section 6(5)(c) of the Law; and

  3. whose directors and senior officers are directors and senior officers of the licensee or are otherwise persons approved by CIMA as fit and proper persons to be directors and senior officers of licensees holding licences for trust business under section 6(5) of the Law.

"Debt" has the same meaning as under s2 of the Mutual Funds Law (as amended) and means:

"an obligation of a company, unit trust or partnership to repay principal either without interest or together with interest calculated at either a fixed, floating or variable rate and whether or not together with any other entitlement, but payable in the event of the liquidation, termination or dissolution of the company, unit trust or partnership otherwise than in respect of, and, unless otherwise provided for by its terms, in priority to any payment in respect of a share, a trust unit or a partnership interest of that company, unit trust or partnership."

LICENSING PROCEDURE

The licensing procedure is to apply to CIMA for the grant of a bank or trust licence. If everything is in order, and if CIMA is satisfied that the grant of such licence will not be against the public interest, CIMA may issue the licence and the bank or trust company may commence business.

TYPES OF LICENCES

A licence may be either to carry on banking business or to carry on trust business (or both). The following are the main types of licence issued in the Cayman Islands.

Category 'A' banking licence

This permits the carrying on of local and overseas banking business and is difficult to obtain except for a branch or affiliate of a major international bank. CIMA will normally require an applicant granted this type of licence to maintain a fully staffed office in the Cayman Islands. A Category 'A' license will normally only be granted to the branch or subsidiary of a major international bank

Category 'B' banking licence (unrestricted)

This permits the carrying on of banking business anywhere in the world. The licensee may, of course, carry on such business in the Cayman Islands for clients from outside the Islands. However, activities in the Islands must only be in furtherance of the licensee's offshore activities. A Category 'B' unrestricted licence is normally only granted to the branch, subsidiary or affiliate of an existing bank with a substantial net worth, usually in the region of US$50,000,000.00, and operating in a well regulated jurisdiction.

A 'B' licensee is prohibited from:

  1. taking deposits from residents of the Cayman Islands, other than another licensee, or an exempted or ordinary nonresident company not carrying on business in the Cayman Islands;

  2. investing in any asset representing a claim on any resident of the Cayman Islands, except:

  1. a loan to an exempted or ordinary nonresident company not carrying on business in the Cayman Islands;

  2. a mortgage loan to a staff member or a person possessing Caymanian status for the purchase or construction of a residence to be owner-occupied;

  3. a transaction with another licensee; or

  4. the purchase of bonds or other securities issued by the Cayman Islands Government or any statutory body or company owned or substantially owned by the Government;

  1. carrying on any business in the Cayman Islands other than that described in the licence application, without the written approval of CIMA;

  2. investing in an interest, the value of which exceeds 20 percent of the net worth of the licensee, without the prior approval of CIMA; and

  3. purchasing, acquiring or leasing real estate unless:

  1. it is necessary to conduct business or provide accommodation for staff;

  2. the market value of the property does not exceed 20 percent of the net worth of the licensee (increasing to 50 percent at the discretion of CIMA). This prohibition does not apply to property owned prior to the September 2006 amendments or to the provisions relating to security for a debt.

Restricted Category 'B' banking licence

This is a restricted form of the 'B' licence and limits the holder to a few named clients outside the Cayman Islands. Clients often form a restricted offshore bank to undertake particular financing transactions or transactions with related companies. In these circumstances, the number of named related entities is often quite high and 60, for example, has been considered acceptable.

Trust licence

This permits the carrying on of trust business from within the Cayman Islands without restriction. A trust licence is normally only granted to a branch, subsidiary or affiliate of an existing trust company operating in a well regulated jurisdiction. Since the Law was amended in September 2006, trust companies must ensure that the trust assets and liabilities are segregated from the assets and liabilities of the licensee. The licensee is also required to maintain professional indemnity insurance or a similar arrangement that adequately covers the risks relating to the trust business.

Restricted Trust licence (sometimes called "Private Trust Company" licence)

This is a restricted form of the Trust licence. It permits carrying on trust business from within the Cayman Islands only for a few named clients (usually not more than six). Clients sometimes form a Restricted Trust Company to administer trusts for their own families. There is no restriction on the formation of a Private Trust Company other than that the beneficial owners must be persons of the highest character. A Private Trust Company may open its own office in Cayman or use the facilities of an existing Cayman trust company.

TYPES OF STRUCTURE

The two ways in which a bank or trust company can operate in the Cayman Islands are:

  1. by registering an existing overseas bank or trust company in Cayman as a foreign company and opening a branch office in the Islands; or

  2. by incorporating a company in the Cayman Islands. This is the usual way to form a Private Trust Company and may be used by all licencees as an alternative to opening a branch.

OPENING A BRANCH OFFICE

To open a branch in the Cayman Islands, an overseas bank or trust company must register as a foreign company and obtain a banking or trust licence. The information required to do so is set out below.

  1. A copy of the applicant's Charter.

  2. A copy of the By-Laws certified by the Secretary before a Notary Public. These should be duly certified under the public seal of the country or state of incorporation and, if not in English, accompanied by a certified translation.

  3. A list of the directors, shareholders and the major corporate officers with full names, addresses, occupations and nationalities certified by the company's secretary.

  4. Approval of shareholders, directors and controllers. The following is required:

  1. personal questionnaire; two character references;

  2. financial reference from bank/trust company;

  3. police clearance certificate;

  4. evidence of two effective directors; and

  5. evidence of relevant banking experience of at least one director.

  1. Corporate chart showing relationship of the applicant to other affiliated companies and subsidiaries.

  2. Name and address of applicant's auditors.

  3. Last annual report of the applicant and its holding company. This should contain two years' figures.

  4. A letter to the Governor signed by the Chairman/President of the applicant containing the following information:

  1. the business of the applicant in outline;

  2. short details of the applicant's subsidiaries and affiliates;

  3. the objectives of the Cayman Islands' branch;

  4. the names of authorised agents; and

  5. evidence of banking experience of the directors and confirmation that they do not have any criminal records.

  1. An undertaking to meet the liabilities of the branch.

  2. References from two different international banks.

  3. An undertaking not to trade in the Cayman Islands.

  4. Where necessary, approval of the Central Banking Authority in the country of origin.

  5. Assurances from the Central Banking Authority of consolidated supervision and good standing of the applicant.

  6. Date of financial year end.

  7. A request for any exemption from the requirements of the law.

  8. The application fee of CI$2,000.00.

  9. Certificate of Registration.

  10. Licence Fee.

INCORPORATION OF A COMPANY

Except for applicants for Category 'A' Banking licences, and/or Trust licences, both of which must form ordinary companies as they may carry on local business, applicants for other types of licences should normally form Exempted Companies as they will not be carrying on local business. In addition to the corporate information, the information for licensing purposes is set out below:

Name

CIMA must approve the name of the applicant company. The proposed name must not be similar to that of any company carrying on business in the Cayman Islands or to any major banking organisation in any other jurisdiction. CIMA will not accept a name if it suggests a status or association which in the opinion of CIMA does not exist. If a personal name is to be used, the applicant should explain the reasons for its choice.

Directors, shareholders and officers

All directors and senior corporate officers and shareholders (holding more than 10 percent of the applicant's issued shares) must be approved by CIMA. At least one and preferably more of the directors and officers must have senior banking or trust experience (as may be appropriate). The applicant must give the following information for each director, officer and shareholder (holding more than 10 percent of the applicant's issued shares):

  1. a completed and signed CIMA form of Personal Questionnaire for Directors, Shareholders and Controllers. We would be pleased to send you copies of this form on request;

  2. not less than three references, including two character references, and one reference verifying the good financial standing for each director and officer;

  3. not less than three references, including two character references, and one reference verifying the good financial standing of each individual shareholder or annual reports for each corporate shareholder and its parent company (if any);

  4. a police clearance certificate for each director, officer and shareholder. If such certificates are not available in a jurisdiction, an affidavit of no convictions is acceptable; and

  5. evidence of two effective directors and evidence of availability of banking or trust professional knowledge and experience (as appropriate) at a senior level for at least one director.

Subsidiaries

CIMA requires the names and addresses of the registered office of all subsidiary companies of the applicant, together with a statement as to how much of the capital of each subsidiary constitutes an asset of the applicant.

Sponsorship

The applicant company should normally be the subsidiary of a substantial bank or trust company elsewhere. CIMA requires a letter of recommendation from a bank or trust company and approval from the parent supervisory authority (where appropriate) and assurance from the parent supervisory authority of consolidated supervision and good standing of the applicant (where appropriate). This is not required for a Private Trust Company.

Undertakings

CIMA requires the applicant to submit the following undertakings before it will issue the licence:

  1. with respect to a 'B' licence, an undertaking not to solicit or receive funds from the public of the Cayman Islands;

  2. with respect to a Restricted 'B' licence, an undertaking not to solicit or receive banking funds from anyone except those listed; and

  3. with respect to a Restricted Trust licence (Private Trust Company licence), an undertaking not to undertake trust business from anyone except those listed.

Capital

The applicant must submit details of the proposed paid-up capital. This should include the number and class(es) of shares and the number of shares of each class to be issued to each shareholder. In addition, the applicant must provide details of subsidiary companies and capital employed in those subsidiaries.

Principal office

The applicant must provide details of its own physical presence in the Islands or the name, address and consent of a service provider in the Islands to provide principal office services.

Authorised agents

Two individuals or a body corporate to act as authorised agent(s) in the Cayman Islands are necessary. These would normally be any of the directors or officers resident in the Islands. If there are no resident directors or officers then the bank or trust company must appoint a separate agent(s) (usually an 'A' bank).

Proposed business

The applicant should give a detailed outline of the type of business it proposes to carry. The outline should include:

  1. the business aims, and rationale for those aims, of the applicant;

  2. a detailed projected financial statement for the next two years;

  3. details of management structure and personnel;

  4. details of anticipated customer base. In the case of a Private Trust Company the names, addresses and relationship to each other of the settlors or providers of funds of the proposed trusts; and

  5. a copy of the most recent financial statements of the applicant, where available.

Year end

The applicant should state the date selected as the end of its financial year.

Auditors and accounts

The applicant must appoint approved local auditors. CIMA has approved the following firms of accountants:

Altschuler, Melvoin & Glasser (Cayman)

Grant Thornton

Moores Rowland (Cayman Islands)

Arthur F. Bell & Associates (Cayman)

Harb Levy & Weiland LLP

Moore Stephens (Cayman Islands) Ltd

BDO Tortuga

J H Cohn (Cayman)

Paul Harris & Company

Decosimo Cayman Limited

Kaufman, Rossin & Co. (Cayman)

PricewaterhouseCoopers

Deloitte & Touche

Kinetic Partners Cayman LLP

Rankin Berkower (Cayman) Ltd

Eisner (Cayman) Ltd

KPMG

KPMG Rothstein Kass & Company (Cayman)

Ernst & Young

Marcum & Kliegman (Cayman)

RSM Cayman Islands

Goldstein Golub Kessler International Cayman

Margolin, Winer & Evens (Cayman)

 

All applicants must submit an audited opening balance sheet to CIMA at the time of application, and annually after that within 90 days of their financial year end. The information contained in these is kept strictly confidential by CIMA.

Increased obligations for auditors

The amendments also increase the obligations of auditors in respect of bank and trust companies. A new section of the Law requires an auditor to notify CIMA if, in the course of carrying out an audit of the accounts of a licensee, the auditor obtains information or suspects that the licensee is:

  1. unable or unlikely to become unable to meet its obligations as they fall due;

  2. carrying on or attempting to carry on business without keeping any or sufficient accounting records to allow its accounts to be properly audited;

  3. carrying on or attempting to carry on business in a fraudulent or criminal manner; or

  4. carrying on or attempting to carry on business without compliance with:

  1. the principal Law or any regulations made thereunder;

  2. the Monetary Authority Law (2003 Revision);

  3. the Money Laundering Regulations (2003 Revision); or

  4. a condition of the licence.

An auditor who fails to comply with this notification requirement risks being disqualified by CIMA from being an auditor of the licensee. CIMA can revise this if satisfied that the auditor will comply in the future.

In addition, CIMA can revoke its approval of an auditor under the Law if it believes that the auditor lacks the competence or objectivity to be able to carry out the audits of the accounts of licensees.

Exemptions

A request for any exemption from the requirements of the law.

Constitutional documents

The Memorandum and Articles of Association and the Certificate of Incorporation must be submitted.

Application and licence fee

An application fee of CI$2,000.00, and the appropriate licence fee must be submitted.

ISSUES TO NOTE

  1. CIMA may waive certain requirements for a major international bank or trust company approved by it.

  2. Besides these references, CIMA reserves the right to obtain further references.

  3. The applicant must provide details of any involvement of any shareholder, director or officer with any previous application for a licence.

  4. Please send all references to us, but address them to:

  5. The Cayman Islands Monetary Authority
    1st Floor
    Elizabethan Square
    George Town
    Grand Cayman
    KY1-1001 Cayman Islands

  1. CIMA is unlikely to approve an application for a licensee that does not intend to have a physical presence in the Cayman Islands, unless an existing 'A' licensee is to represent it.

  2. If the applicant (for a branch) or the parent company of the applicant (for a subsidiary company) holds a Banking licence in another country, the banking authorities in that other country must approve of the Cayman application and agree to supervise the applicant on a consolidated basis.

  3. In preparing a statement of proposed business, applicants should include details of the following:

  1. overall objectives and reasons;

  2. customer base (eg corporate, private, related party, geographical distribution etc);

  3. asset structure (loan portfolios, investment policy, liquidity guidelines etc);

  4. management structure and overall staffing (if applicable); and

  5. off-balance sheet and fee-earning activities.

ADDITIONAL REQUIREMENTS

Minimum capital requirements

The paid-up capital required for a subsidiary bank or trust company is at the discretion of CIMA, subject to statutory minima. The statutory minimum paid-up share capital for each category of licensee is as follows:

Type of Licence

CI$

US$

'A' Banking licence

400,000.00

480,000.00

'B' Banking licence (unrestricted)

400,000.00

480,000.00

Restricted 'B' Banking licence

20,000.00

24,000.00

Trust licence

400,000.00

480,000.00

Restricted Trust licence (Private Trust Company)

20,000.00

24,000.00

Despite the statutory minimum, the paid-up share capital has to be realistic in the circumstances of the applicant. CIMA is unlikely to give approval for unrestricted Bank licences unless the capital is very substantial. The minimum paid-up capital must be subscribed in cash (or readily marketable securities). Evidence that the capital has been paid in will be required before the licence is issued.

As a result of the recent amendments to the Law, CIMA now has the authority to require a licensee to maintain a portion of its issued capital, in cash or cash equivalents, in such amounts and in such manner as it considers appropriate. In dong so, CIMA will take into account the scale of risk associated with the licensee's activities.

In addition, licensees carrying on banking business and incorporated under the Companies Law (as amended) must not have a capital adequacy ratio of less than 10 percent (the calculation of which will be carried out in a prescribed manner). CIMA will vary the ratio for a particular licensee from time to time if it considers it appropriate to do so after reviewing the risks associated with the licensee's activities.

Licensees who fail to maintain the capital adequacy ratio or structural capital requirements as stipulated by CIMA, will be treated by CIMA as carrying on business in a manner detrimental to the interests of the public, its depositors, beneficiaries and creditors.

Supervisory guidelines

CIMA has issued Supervisory Guidelines which a bank licensee should observe in conducting its business. These specify:

  1. a gearing ratio (capital and reserves less fixed assets and goodwill compared to all other liabilities) of not more than 1:10; and

  2. the total loans to any one customer (or group of related customers) should not normally exceed the percentage of free capital (capital and reserves less fixed assets and goodwill) as set out below:

  1. 10 percent for medium to long term loans usually with collateral;

  2. 25 percent for short term (less than or equal to 180 days) self-liquidating loans (eg trade finance secured by supporting documentation) or loans with cash collateral; and

  3. 50 percent for loans fully backed by cash provided that the deposit and loan are made in the same country and currency with matching maturities. In addition, a valid and binding right of set off must exist between the deposit and the loan.

External official consents (not required for private trust companies)

For a financial institution wishing to establish a branch or subsidiary bank or trust company in the Cayman Islands, CIMA will require evidence of the knowledge of the appropriate regulatory authorities in the applicant's own jurisdiction to the application. This applies even if there is no obligation in the Applicant's own jurisdiction to obtain consent for such an application. A similar principle applies when a Cayman incorporated bank or trust company proposes to have its principal place of business or a branch outside the Cayman Islands. Then, the applicant must produce evidence showing either (a) that it proposes to apply for authorisation to carry on the business in the relevant jurisdiction, or (b) that the provisions of local legislation require no such authorisation.

This regulation does not apply to Private Trust Companies.

Issue and transfer of shares to the public

No licensee may issue shares or other securities to the public unless CIMA has given approval, and the applicant should include this in the original application. CIMA will only give the exemption for institutions whose shares are quoted on a recognised stock exchange. Where the shares in a proposed licensee are to be held through a privately owned company, CIMA will require undertakings from the ultimate beneficial owners. In these, the beneficial owners will undertake not to issue or transfer the shares in the intermediary company without prior approval.

Regular supervision and visits

For most new licensees, CIMA will require the licensee to submit quarterly financial statements, including statements of maturity analysis, within fifteen days of the end of each calendar quarter. After the licensee is well established this may be extended. A Private Trust Company will normally only be required to submit semi-annual or annual financial statements.

CIMA will require that a representative of management of the licensee visit the Islands every six months initially and thereafter at least once per year. This is to keep CIMA fully appraised of the licensee's activities, to discuss the licensee's progress and to review the guidelines established for that licensee. Where a licensee does not maintain its own local office, Authorised Agents must ensure that their contact with their clients enables them to effectively perform their role as intermediary between CIMA and the licensee.

Increased powers of CIMA on a winding up

On a winding up of a licensee, CIMA must be served with a copy of the petition (and any relevant documents) and can elect to appear at the hearing (or any meetings of creditors or meetings called to discuss comprised arrangements) and has the right to make representations.

Exchange controls

The Cayman Islands has no exchange controls regulations and all currencies may be moved freely in and out. Banks and trust companies may deal in all currencies and in precious metals without any restrictions. The Cayman Islands dollar and the US dollar are linked at the rate of CI$1.00 = US$1.20 (mid rate). Buy and sell transactions are often effected above and below this rate.

Notification of changes in operations

Any significant change in the range or type of activity undertaken may necessitate a review of the status of the licence. Accordingly, institutions should discuss matters with CIMA before embarking on any major shift in policy. Licencees must have not less than two directors at all times and must obtain prior written approval for any changes in directors.

It is important that holders of Restricted 'B' Banking licences and Restricted (Private) Trust licences obtain prior approval to any planned extension to the approved list of permitted clients.

PROFESSIONAL ASSISTANCE

This firm will be pleased to help clients to obtain banking or trust licences and to provide introductions to 'A' licensees. Should the bank wish to maintain its own staffed office in the Cayman Islands, this firm will be pleased to help in obtaining office space and work permits for managerial staff. Our experience has been that the Immigration Department Work Permit Board is very cooperative in the granting of such permits to management personnel. The costs of operating a fully staffed office in the Cayman Islands are very similar to the costs of such an operation in a typical United States city, except that communication costs would be higher.

Should an existing Class 'A' licensee in the Cayman Islands be used for any of the above services, fees are negotiable with them and are usually subject to minimum.

Cayman Islands

Wayne Panton, Partner

London

David Whittome, Partner

Jersey

James Gaudin, Partner

Peter Harris, Partner

British Virgin Islands

Jack Boldarin, Partner

Hong Kong

Hugh O'Loughlin, Partner

Dubai

Rod Palmer, Partner

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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Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.