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30 Cayman. Moving finance forward. THE CAYMAN ISLANDS FINANCIAL SERVICES REGULATORY FRAMEWORK By Cindy Scotland Prudent and robust regulation is central to the Cayman Islands being an international financial centre of repute. As the principal regulator for the financial services industry of the Cayman Islands, the Cayman Islands Monetary Authority (CIMA) takes its responsibilities very seriously. Part of the CIMA’s strategic planning process for the period 2014-16 included the crafting of a new mission statement to reflect CIMA’s evolving role, and the dynamic nature of the industry which it regulates. CIMA’s renewed mission is, “To protect and enhance the reputation of the Cayman Islands as an International Financial Centre by fully utilising a team of highly skilled professionals and current technology, to carry out appropriate, effective and efficient supervision and regulation in accordance with relevant international standards and by maintaining a stable currency, including the prudent management of the currency reserve.” In addition, CIMA developed its first vision statement to reflect its dedication to continuous improvement, which reads: “Committed to continually enhancing the Cayman Islands Monetary Authority’s position
Cayman. Moving finance forward. 31 as a financial services regulator of excellence, consistent with the jurisdiction’s standing as a leading international financial centre.” The Regulatory Framework There are several elements which make up the framework for CIMA’s regulation and supervision of financial services, and its cooperation with fellow regulators. 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 CIMA; the regulatory policies and procedures detailed in CIMA’s Regulatory Handbook and other manuals; the memoranda of understandings (MOUs) undertaken by CIMA; and the international standards to which CIMA adheres. The relevant international standards are those set by the Basel Committee on Banking Supervision; the International Organisation of Securities Commissions (IOSCO); the International Association of Insurance Supervisors (IAIS); and the FATF’s 40 Recommendations. CIMA takes a combined rulesbased and risk-based approach to regulation and supervision of financial services. CIMA processes licence/registration applications and performs due diligence. CIMA’s remit includes responsibility for registration, licensing and supervision of banks, money services businesses, cooperative and building societies, trusts, insurance business, companies management, corporate services, investment funds and securities services. A major development which occurred since our last update for this publication is the coming into effect of the Directors Registration and Licensing Law (DRLL). Under this legislation, non-resident directors and Cayman Islands-based directors of entities regulated under the Mutual Funds Law are now required to be either registered or licensed with the Cayman Islands Monetary Authority. This requirement is also applicable to certain “excluded persons” under the Securities Investment Business Law. The filings must be done electronically through CIMA’s Director Gateway portal. This requirement is expected to improve data quality and significantly enhance the CIMA’s ability to effectively carry out its mandate under the Monetary Authority Law. Status of Cayman’s Financial Services Industry The Cayman Islands is home to 195 banking institutions. The jurisdiction is ranked fifth internationally based on the value of cross-border liabilities booked from the Cayman Islands and sixth in terms of cross-border assets booked. With regard to captive insurance, the Cayman Islands is the second largest 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 31 December 2014, the total number of regulated funds under CIMA’s supervision was 11,010. It comprised 7,835 registered funds; 2,685 master funds; 386 administered funds; and 104 licensed funds. Such numbers indicate the strength of the hedge funds industry and also the confidence the global community has in the jurisdiction. It is therefore abundantly clear why the Cayman Islands was named the Best Hedge Funds Services Jurisdiction at the Hedgeweek <strong>2015</strong> Awards in London. There were 137 trust services companies operating in the jurisdiction at 31 December 2014, thus maintaining the country’s standing as a leading domicile for the provision of these services. International Cooperation The Cayman Islands Monetary Authority is very cognisant of the fact that the jurisdiction’s thriving financial services industry exists as part of a global system. Therefore, every effort is made to increase international cooperation and collaboration, without compromising the rights to confidentiality of legitimate clients in order to ensure compliance with financial services best practice. CIMA is represented in various bodies, including: the Group of International Financial Centre Supervisors (GIFCS) (formerly the Offshore Group of Banking Supervisors (OGBS)); 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 Organisation of Securities Commissions (IOSCO); and the Financial Stability Board’s Regional Consultative Group for the Americas. CIMA keeps 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. For example, the Alternative Investment Fund Managers Directive (AIFMD), which was implemented across Europe on 22 July 2013. 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 funds and pension funds and their managers. In order to ensure that Cayman domiciled funds continue to be marketed in the European Union (EU) under the AIFMD, CIMA has entered into MOUs with 27
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