Cayman Islands: Cayman Islands Banks And Trust Companies Law Amended

Last Updated: 25 June 2019

Bank and trust company licensees in the Cayman Islands ("licensees") should note that there have been recent changes to legislation and guidance issued by the Cayman Islands Monetary Authority ("CIMA").

Some of the new guidance has broader application to corporate service providers and other licensees.

Legislative Update

The Banks and Trust Companies Law (2018 Revision) ("BTCL") was amended in March 2019 (the "Amendment").  The Amendment provides some new, key definitions, including:

(a) 'Cayman Banking Group', which includes (i) the licensee, (ii) a subsidiary of the licensee (iii) the licensee's parent undertaking, any subsidiary of the licensee's parent undertaking, or a parent undertaking of any of the licensee's subsidiaries (unless any such undertaking is subject to consolidated supervision by another banking regulator) and (iv) an undertaking in which the licensee, its parent undertaking or subsidiary has a participating interest;

(b) 'Economic Group', in relation to a licensee, includes its subsidiaries, parent companies, parent undertaking, holding companies, affiliates, participating interests, companies related to the licensee through common ownership, and companies related to the licensee through a majority of common senior management or directorships; and

(c) 'Parent Undertaking' means, unless otherwise specified by CIMA, the entity that, directly or indirectly through another entity or entities, controls or exerts dominant influence over an entity.

It should be noted that, unless specified, the term "licensee" includes both bank and trust company licensees under the BTCL. Accordingly, the term Economic Group would apply to both categories of licensee.

The Amendment requires enhanced reporting by licensees to CIMA, including:

(a) Submission of consolidated accounts in respect of the parent undertaking of the Cayman Banking Group within three months of the financial year end of the parent undertaking, unless prior written approval for an extension has been granted by CIMA;

(b) Providing access to information from any member of the Cayman Banking Group or any member of the licensee's Economic Group including policies, procedures, financial statements, audit reports, board reports, regulatory returns and supervisory reports from overseas regulators;

(c) Allowing CIMA to examine the business or affairs, including the conduct of onsite inspections, of the licensee or any member of the Cayman Banking Group; and

(d) Notification to CIMA by a licensee of any change to the composition of its Economic Group within 45 days.

Given the broad scope of the term Economic Group, this latter obligation has potential to significantly impact certain licensees.  The notification is in addition to the existing obligation for a licensee to either seek preapproval from CIMA for, or (where an exemption has been granted) notify CIMA of, any issuance, transfer or disposal of any shares or beneficial interests in the licensee.

The Amendment also creates the ability for CIMA to reject a licence application (or attach conditions to a licence) where it believes that either (i) the structure of the applicant's or licensee's Economic Group will hinder effective supervision by CIMA, or (ii) the activity of any entity within the applicant's Cayman Banking Group is likely to negatively impact the financial stability of the licensee or prejudice the interests of its depositors.  CIMA has been granted extended supervisory and enforcement powers for the same matters in relation to existing licensees.

Finally, the Amendment imposes a requirement on the parent undertaking of a Cayman Banking Group to ensure that the licensee's minimum net worth is maintained on both a solo and consolidated basis, and that its capital and other prudential requirements are met on a consolidated basis.

Regulatory Guidance

CIMA have also recently issued a number of updated and revised Rules and Statements of Guidance ("SOGs") that affect banks and trust companies as well as service providers in the company management sector.

Applicable to Bank Licensees Only

- The Rules and SOG on Liquidity Risk Management were amended to include the minimum standards for funding liquidity and a liquidity risk management framework and monitoring tools.

- A new Rule (and associated SOG) on Management of Credit Risk and Problem Assets, to ensure that licensees establish, implement and maintain strategies, policies and procedures for credit risk management and assessment that are appropriate for the size, complexity and nature of their activities.

Applicable to Trust and Company Management Licensees Only

- A new SOG on Market Conduct establishing minimum standards and requirements for market conduct, including standards of integrity and fair dealing, administration of client money and assets, appropriate resourcing and conditions for delegation, conflict of interests and complaints handling, and minimum requirements for agreeing terms of business.

- A new SOG on Recruitment and Selection Standards provides guidance on the recruitment, selection and competence of employees (in particular setting expectations around professional development and ongoing training).

Applicable to All Licensees

- A new SOG on Succession Planning that outlines CIMA's expectations in relation to succession planning for all licensees, including:

(i) The governance structure, size and composition of the Board to be adequate for the size, nature and complexity of the licensee's business;

(ii) The management of the licensee to be undertaken in a fit and proper manner by persons in controlled functions who are themselves deemed fit and proper; and

(iii) For licensees to have a plan in place to deal with the unexpected absence of persons in key functions who become unavailable for either a significant period of time or permanently.

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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