Definition of Banking Business

Section 2 of the Banks and Trust Companies Act defines “banking business” as:

"the business of receiving (other than from a bank or trust company) and holding on current, savings, deposit or other similar account money which is repayable by cheque or order and may be invested by way of advances to customers or otherwise".

Regulation of Banking Business

The Monetary Authority Act and the Banks and Trust Companies Act give the Cayman Islands Monetary Authority ("CIMA" or "Authority") the responsibility for licensing and regulating banking and trust business in the Cayman Islands. 

The Banks and Trust Companies Act provides the legal framework for the operation of banks and trust companies in the Cayman Islands.

The Development Bank Act governs the operation of the sole development bank in the Cayman Islands.

Licence Categories

Under the Banks and Trust Companies Act, CIMA may issue the following categories of licences:

• Category A  Banking Licence
• Category B Banking Licence
• Trust Licence
• Restricted Category B Banking Licence 
• Restricted Trust Licence
• Nominee (Trust) Licence

A Note on Trust Services

The information in this section of our website (Banking Services) pertains to both banking services licensees and to trust licensees that also hold a banking licence. Go to the Trusts section of the website for information on stand-alone trust services.

Standards of Regulation & Supervision

CIMA regulates banking and trust business in accordance with:

• the acts and regulations specifically governing banking and trust services, as well as with the legislation that applies to all licensees (See  Acts and Regulations for links to the applicable legislation);
• the relevant rules, guidance, policies and procedures issued by CIMA (See Banking Index of Measures);
• the international supervisory standards articulated by the Basel Committee on Banking Supervision and other international bodies.

The Authority has membership in the Offshore Group of Banking Supervisors (OGBS), the Caribbean Group of Banking Supervisors (CGBS), and the Association of Supervisors of Banks of the Americas (ASBA). These groups provide a vital link to the Basel Committee.

The Basel Committee and the OGBS reached a joint accord on the supervision of cross-border banking in 1996. The accord addressed the difficulties experienced by banking supervisors in conducting effective supervision of the cross-border operations of international banks, and the flow of information between home- and host-country supervisors. In keeping with the accord, the Authority conducts on-site examinations of licensees for which it is the sole supervisor (i.e., the home supervisor), as well as of licensees for which it is the host supervisor (i.e., where licensees are branches and subsidiaries of foreign banks in Cayman).

Capital Adequacy

The Authority follows the principles of the Bank for International Settlements' capital adequacy regime and has set minimum threshold levels of 12% for subsidiaries of banks subject to consolidated supervision and 15% for locally incorporated banks.

Supervision

CIMA's Banking Supervision Division is responsible for processing applications for licences and making recommendations to the Management Committee on the issue (or non-issue) of a licence. The division is also responsible for ongoing supervision and regulation of the activities of banks.

One of CIMA's obligations is to promote and maintain a sound financial system in the Cayman Islands.  It does so primarily through an integrated off-site and on-site monitoring, the actual processes of which are reviewed regularly in light of experience and changes in the global financial industry.

Off-site

The division continuously analyses the condition of banks from quarterly prudential returns and annual audited financial statements. Attention is directed to capital adequacy, loan loss experience, liquidity, and loan and deposit concentrations. Analysis is supplemented by formal prudential interviews, which generally cover strategic initiatives, adherence to prudential banking standards, adherence to the requirements of the Banks and Trust Companies Act and money laundering and terrorist financing counter measures.

On-site

The on-site inspection program provides significant additional insight into the risk management practices and operations of banks. The inspection program is risk based. CIMA starts by developing a risk profile for each bank, which establishes the scope of the inspection. Central to the program is a review of the risk assessment policies and procedures of the bank and the control measures used to monitor and control these risks. On-site work includes a review of the bank's risk management processes, control environment, and compliance with acts, regulations and supervisory directives. The inspection tests transactions to evaluate the effectiveness of the control environment and quality of assets. As part of the inspection, discussions are held with the external auditors to review the bank's strength of internal controls, compliance with legislation and prudential standards, and adequacy of provisions.

Compliance and Enforcement

The objective of the supervisory system is to foster prudent banking practices that will enhance the financial sector. In those instances where a bank engages in conduct detrimental to the public interest or threatens the safety of depositors, the legislation provides remedial powers. See the Enforcement section of our website for further information.