Speaking at an Ernst and Young Symposium at the Ritz Carlton Hotel on Grand Cayman recently, Managing Director of the Cayman Islands Monetary Authority, Cindy Scotland, outlined recent and upcoming changes to the Cayman Islands' regulatory regime.
Scotland opened by describing the CIMA’s ethos, and commitment to making the Caymans a highly efficient and well-regulated international financial centre.“CIMA’s philosophy on the regulation and supervision is that effectiveness is best achieved through a combination of rules-based and risk-based approaches. We seek to ensure that only businesses of the highest caliber become licensed or registered and that the framework governing financial services and how that framework is applied fit the level of risk of the types of businesses and the individual entities.”
“Extensive guidance is provided to our regulated entities to assist them in interpreting and meeting the requirements of the legislation and rules. We seek to ensure that the framework meets international standards and best practices. Indeed, many of the changes that we make from time to time are designed to keep us in line with the standards as they change as well as to address issues of specific concern to the industry here [in the Caymans].”
One such piece of guidance, which has recently been amended, is the ‘Guidance Note on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands.’
“The guidance notes are intended to assist financial services providers in meeting their statutory obligations with regards to anti-money laundering and countering the financing of terrorism. The latest amendments were issued in September and December.” “With these changes, specific guidance relating to wire transfers and to money services businesses have been provided. The guidance notes now explicitly cover terrorism financing, and extend to dealers of precious metals and stones.”
“Guidance related to financial transactions and business relationships, and the handling of documents, data and information has been expanded. There are also enhanced procedures and policies for client identification. These include expanded procedures for introduced business, and for preventing the misuse of technological developments to enable money laundering and terrorist financing. Additional due diligence procedures are established for cross-border correspondent banking, including that institutions should not have corresponding banking relationships with shell banks.”
“An extensive section on programs against money laundering and terrorist financing has been recently added to the guidance notes. This deals with compliance management, the audit function, and employee screening and training. The guidance notes have also expanded the procedures for record keeping.”
“Further guidance with respect to private trust companies (PTCs) will be developed shortly following the recent addition, to the Second Schedule, of the provision of registered office services to PTCs by the holders of a trust license under the Banks and Trust Companies Law.”
CIMA’s Managing Director then went on to talk about other recently introduced regulatory policies, introduced in late-2009. Firstly she explained the introduction of the regulatory policy on exemption of audits for regulated funds.
“The submission of audited annual accounts is a critical part of the off-site monitoring of all regulated entities. However, there are circumstances that may make it difficult for entities to submit the required audited accounts. The Mutual Funds Law (2008 Revision) specifically makes provision for CIMA to grant a waiver of the audit requirement.”
“To ensure there is consistency in the granting of waivers of audit to funds regulated under the Mutual Funds Law, and to enable transparency in how these exemptions are applied, CIMA issued the policy for the granting of such waivers. The policy outlines the factors that CIMA will take into account when assessing an application made under subsection 8(4) of the Mutual Funds Law for relief from the audit requirement of subsection 8(1). It also outlines the documentation and other information to be submitted with an application.”
Secondly she addressed changed regulatory policy on licensing banks:
“This policy, issued in October 2008, replaces the former Statement of Guidance on Licensing Banks. The policy clarifies the criteria that CIMA uses in assessing applications for the grant of licenses to conduct banking business in and from the Cayman Islands."
The criteria, which apply to all categories of bank licenses, are:
Scotland continued: “The policy is in accordance with the Banks and Trust Companies Law and its regulations, as well as the Core Principles for Effective Banking Supervision (BCP’s) issued by the Basel Committee on Banking Supervision."
Finally she explained the change in regulatory policy surrounding major acquisitions or investments by banks.
“The policy sets out the manner in which CIMA will exercise its powers to approve a bank’s acquisition or holding of a beneficial interest in an entity where that beneficial interest exceeds 20% of the bank’s net worth.”
“Under the Banks and Trust Companies Law (2007 Revision) a bank licensee cannot exceed this 20% level without CIMA’s prior written approval. This requirement of the law is imposed to limit investments or acquisitions that could result in corporate affiliations or structures that may expose the bank to undue risks or hinder effective consolidated supervision.”
“The regulatory policy provides transparency regarding the criteria CIMA uses in making decisions on whether or not to approve the acquisition or holding of beneficial interests in excess of the 20% limit, and makes it clear what documentation and information must be submitted. Both the law and this regulatory policy are consistent with the Basel Core Principles of Effective Banking Supervision.”
Scotland then announced that there are some additional regulatory measures that are in the pipeline.
“We recently completed industry consultation on three proposed measures. These are a draft ‘Rule and accompanying Statement of Guidance on Market Conduct for Class A Insurers’, ‘Agents and Brokers’, and a draft ‘Rule on Risk Management for Insurers’.”
“The rule and statement of guidance on market conduct sets minimum requirements for, and provides guidance to, insurance licensees in conducting business with customers. The measures seek to ensure consistency in business conduct in the domestic insurance market and to increase transparency and disclosure in selling. The rule on risk management for insurers sets out the minimum requirements for a robust risk management framework that addresses all types of risk.”
“CIMA is also continuing preparation for implementation of the Basel II capital adequacy framework in Cayman. This preparatory work has included the establishment of a CI Bankers Association / CIMA Working Committee to facilitate ongoing liaison and consultation with the banking sector as some 100 bank licensees will be impacted by the changes. CIMA is developing a number of Basel II policy and guidance documents and, over the coming months, will present these to the working committee for consultation. Given lessons learned from the international financial crisis, we can expect the Basel Committee to make some adjustments to the Basel II. CIMA will assess these changes made by the Basel Committee with a view to incorporating these if necessary.”
“In the coming months CIMA will also establish a working group to review the Securities Investment Business Law (SIBL) and regulatory framework. The SIBL Working Group will comprise CIMA, private sector and government representatives.”
“The aim is to make recommendations to CIMA’s Board and the Government to enhance the securities industry and products, strengthen the regulatory regime and remove any impediments.”
Some areas of review will include:
"This list is not exhaustive,” acknowledged Scotland.
Concluding her address Scotland, stated: “as is the norm, CIMA continues to review our regulatory standards with respect to a number of factors that contribute to the functioning of the financial industry and which have been identified as areas of focus by international standard setters (e.g. liquidity, risk management, transparency, and failure resolution). Our aim will be to assess and make our own recommendations for enhancements of those areas that are relevant to Cayman’s financial industry.”
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