CIMA Launches Study Into Basel II Banking Requirements

by Amanda Banks, for LawAndTax-News.com, London

28 February 2007

The Cayman Islands Monetary Authority (CIMA) has begun a study that will help it decide the most appropriate options for implementing updated international standards for determining capital adequacy for banks.

Capital adequacy is a key tool used by banking regulators in assessing whether banks have sufficient capital to cover their risks and to protect the interests of depositors.

The updated international standard is commonly known as Basel II. This is a new set of standards for establishing minimum capital requirements for banking organizations and was developed by the Basel Committee on Banking Supervision, a group of central banks and bank supervisory authorities in the G10 (Group of 10 Industrialised Countries). Basel II takes into account innovations in banking markets, risk management and banks’ internal processes since the first capital framework, which is commonly know as Basel I or the Basel Concordat, was introduced in 1988.

Basel II is a more risk-sensitive approach to capital regulation that is being implemented in G10 countries and, in addition, a number of non-Basel member jurisdictions are also implementing Basel II as a requirement for banks operating in their jurisdictions.

The CIMA impact study and assessment is being conducted, together with consultants PricewaterhouseCoopers, with two objectives in mind. Firstly, CIMA intends to develop a clear understanding of the requirements and implications of implementing the various options of Basel II for the Cayman Islands’ banking industry as well as CIMA. Secondly, CIMA intends to assess the best options for implementation through a cost benefit analysis.

During various phases of the impact study and assessment, CIMA and the consultant will be liaising with a number of representatives of the banking industry, private sector associations and other stakeholders.

CIMA views this assessment of the Basel II capital framework and its implications for the jurisdiction as a joint collaboration with the various stakeholders of the financial industry and looks forward to active participation throughout the process.

The study is expected to extend over a four-month period and is a key step in determining Cayman’s approach to Basel II and to ensuring that the jurisdiction retains its competitiveness as a key player in the world financial markets while adopting appropriate international standards.

As at 31st December 2006, CIMA regulated some 291 bank licensees, most of whom were a part of an international banking group that will be impacted by Basel II.

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