The Cayman Islands is a leading international financial centre and is a desirable and favoured jurisdiction for the establishment of banking operations on account of its fine reputation, tax neutrality, reliable legal system, balanced regulatory regime and stable political and economic environment.  As at March 31, 2018, there were a total of one hundred and forty-seven (147) banks under the supervision of the Cayman Islands Monetary Authority (“CIMA”). Of these, eleven (11) are Class A Banks and one hundred and thirty-six (136) are Class B Banks. As at June 2017, total international assets and liabilities (cross-border positions in all currency and domestic positions in foreign currency) were reported as US$1.026 trillion and US$1.027 trillion, respectively (June 2016: US$1.15 trillion and US$1.20 trillion, respectively). The jurisdiction is now ranked eighth   internationally based on the value of cross-border assets – US$1.01 trillion (June 2016: US$1.13) – and seventh in terms of cross-border liabilities – US$0.97 trillion (June 2016: US$1.15), highlighting the important role of the Cayman Islands as a financial intermediary.

In this note we briefly summarise the statutory framework for the regulation of the banking sector in the Cayman Islands, then set out the various types of banking licence available, the procedures for applying for such licences, the documents required to be filed in support of the application and the applicable fees.

Regulation of the banking sector

The Banks and Trust Companies Law (2018 Revision) of the Cayman Islands (the “Banking Law“) is the primary legislation for the regulation of banks and governs the transaction of any “banking business” from within the Cayman Islands.  There are also subsidiary regulations, the Banks and Trust Companies (Licence Applications and Fees) Regulations (2013 Revision) (the “Regulations“), which prescribe the form of the licence applications as well as the fees payable.

CIMA through its Banking Supervision Division is responsible for ensuring compliance with regulatory provisions governing banks.  CIMA is provided with broad powers under Cayman Islands law over the issuance and revocation of licences or the imposition of conditions thereon, as well as in relation to the supervision of a licensee’s directors, managers and officers. CIMA has issued supervisory guidelines to be followed in the conduct of banking business.

All banks doing business in the Cayman Islands are subject to provisions of the Proceeds of Crime Law (2019 Revision) and the Anti-Money Laundering Regulations (2018 Revision) and attendant Guidance Notes^[1]. It is to be noted that the Cayman Islands have also passed legislation to implement the provisions of United States Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standards (CRS).

CIMA licenses and supervises banks in accordance with the Core Principles for Effective Banking Supervision (the “BCPs“) issued by the Basel Committee on Banking Supervision.

Definition of “banking business”

The Banking Law provides that “no banking business may be transacted from within [Cayman], whether or not such business is carried on in [Cayman], except by a person who is in possession of a valid licence granted by [CIMA] authorizing him to carry on such business.”

“Banking business” is defined 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.

Categories of Banking Licence

There are three (3) main categories of banking licences provided for under the Banking Law, which differ primarily with regards to their permissible activities.  The categories are set out below.

Category “A” Banking Licence

This unrestricted licence is for the conduct of banking business both within and outside the Cayman Islands, but is subject to any such conditions as may be imposed by CIMA.   A Class A Licence is normally granted to a branch or subsidiary of a major international bank. Class A Licensed Banks are required to maintain an office in Cayman staffed with experienced personnel.

The Regulations further subdivide Category “A” licences based on permissible activities.  The types of Category “A” licences are as follows:

• an “A” licence granted without restrictions on the carrying on of banking business within Cayman;
• an “A” licence granted with restrictions as to the carrying on of banking business within Cayman and with permission to provide principal office services to five or more other licensees; and
• an “A” licence granted with restrictions as to the carrying on of banking business within Cayman.

Category “B” Banking Licence – Unrestricted

This licence enables the holder to carry on unrestricted banking business anywhere in the world from Cayman, except that it may not service clients within the Cayman Islands itself, subject to limited exceptions.  Thus, the licensee is not permitted to:

• take deposits from any person resident in Cayman, other than another licensee or an exempted or ordinary non-resident company which is not carrying on business in Cayman;
• invest in any asset which represents a claim on any person resident in Cayman, other than a claim resulting from (a) a loan to an exempted or ordinary non-resident company which is not carrying on business in Cayman, (b) a mortgage loan to one of the licensee’s employees for the purchase or construction of an owner-occupied residence in Cayman, (c) a transaction with another licensee, or (d) the purchase of bonds or securities issued by the Cayman Government; or
• carry on any business which is outside the express scope of the Category “B” licence without written approval from CIMA.

Additionally, the Banking Law stipulates that the holder of a Category “B” licence which is neither the subsidiary or branch of a bank licensed in a country or territory outside of Cayman may not carry on business in Cayman unless it has such resources (including staff and facilities) and such books and records as CIMA considers appropriate having regard to the nature and scale of its business.  Generally, CIMA will require a minimum of two (2) persons having suitable experience to be located in Cayman, one of whom would be the Managing Director and the other the Assistant Managing Director. Alternatively, where a licensee does not maintain its own office and staff in Cayman, it must have its principal office situated at a Class A Bank or Trust Company and the authorized agents should be employees of such bank or trust company.

Restricted Category “B” Banking Licence

This category is similar to the unrestricted Category “B” licence, save that it imposes an additional restriction that the licensee shall not receive or solicit funds by way of trade or business from persons other than those listed in any undertaking accompanying the application for the licence.

This licence is therefore restricted to named clients of the licensee and might be used, for example, where the licensee is a well-established corporate group located outside Cayman which is setting up a bank in Cayman to provide a treasury function to other members of that group only (i.e. there is no intention to take third-party deposits).

The Regulations also subdivide each of the Category “B” licences and Restricted Category “B” licences based on ownership structure.  The sub-types of Category “B” and Restricted Category “B” licences are as follows:

• where the licence holder is a branch of a bank licensed in a country or territory outside Cayman;
• where the licence holder is a subsidiary of a bank licensed in a country or territory outside Cayman;
• where the licence holder is not a subsidiary or branch of a bank licensed in a country or territory outside Cayman;

Category “B” and Restricted Category “B” licensees falling within paragraphs (i) and (ii) above are considered by CIMA to be “host regulated banks”, in that they are subject to consolidated supervision in accordance with the BCPs by another banking supervisory authority (for example, the FDIC or Federal Reserve Board in the USA).  In general, upon application by a host-regulated bank for a licence under the Banking Law, CIMA will seek assurance from the banking supervisory authority of the fact of such consolidated supervision and the good standing of the applicant and will require such authority to give its approval for the establishment of the applicant.

Those licensee’s falling within paragraph (iii) above are considered by CIMA to be “home regulated banks” and CIMA will supervise these applicants on a consolidated basis in accordance with the BCPs.

Company Vehicle for Establishing a Bank in Cayman

In the case of Class A Banks, an ordinary company should be used as a Class A Bank may, in some instances, carry on business locally.

Where branch operations are contemplated, an existing foreign bank will be required to register as a branch of a foreign bank having a place of business in Cayman.

For operations which will not operate as branches, a Cayman Islands ordinary or exempted company may be utilized. The advantages of using an exempted company for a Category “B” bank licence include the tax exemption certificate (effectively a guarantee from the Cayman Government from incorporation that the licensee will not be required to pay taxes for a period of twenty (20) years), the fact that the licensee may issue shares of no par value and that it need not have “Limited” or “Ltd.” in its name.  Further information on exempted companies may be found in our publication “In Brief – Cayman Islands Exempted Companies”.

Name of Company

CIMA must approve the name of the company which will provide banking business. The name must not be similar to that of other company names in Cayman or to other banks anywhere else in the world. CIMA will not permit the use of a name which is misleading or suggests an association with an entity or organization that does not exist.

Directors and Officers

All Directors and Officers of licensed banks must be approved by CIMA. The Banking Law provides that a licensee shall not have fewer than two (2) directors). CIMA requires that directors of licensed banks have a minimum of five (5) years’ experience in a senior position. Directors and officers must meet fitness and propriety criteria which include: honesty, integrity and reputation, competence and capability and financial soundness.

Requirements as to Capital

There are applicable minimum capital requirements which depend on the type of licence issued.  For example, the Banking Law provides for all licensees to have a minimum net worth of US$487,804.88, save for Restricted Category “B” licensees where the minimum net worth is US$24,390.24.  However, this can be varied by CIMA if it is of the view that a higher net worth figure is required to demonstrate that the applicant will have, and will continue to have, financial resources (whether actual or contingent) that are adequate for the nature and scale of the business and for amount of risks underwritten.  CIMA must also be satisfied that the applicant’s owner(s) have sufficient financial strength to support the applicant and, in doing so, will also assess the financial strength of the applicant’s owner(s).

Proof that capital has been paid in will be required before a license is issued.

The Application Process

The application for a banking licence is made to CIMA in writing, accompanied by the prescribed application fee of US$2,439.02 and the supporting documents.  The licence is typically granted within four (4) to six (6) weeks from the date of CIMA’s receipt of all necessary documents in the proper form.  Upon grant of the licence (and annually thereafter), a fee is payable as set out in the table at the end of this note.

The information and documents which need to be filed with the application differ depending on the type of licence being applied for as follows:

Category “A” and “B” Banking Licence – Branch

The following documents and information must accompany the application:

• Copy of bank’s charter or constitutional documents;
• Copy of By-Laws certified by the Secretary before a notary public;
• List of directors, shareholders and the major corporate officers with full names, addresses, occupations and nationalities certified by the company’s secretary;^[2]
• In respect of the shareholders, directors and officers holding more than 10% of the applicant’s issued shares, the following documents are required:
  • personal questionnaire;
  • two (2) character references;^[3]
  • financial reference from bank/trust company verifying good financial standing or annual reports for each corporate shareholder and its parent company;^[4]
  • police clearance certificate or if not available in the home jurisdiction an affidavit of no convictions;
  • evidence that there are at least two (2) directors; and
  • evidence of relevant banking experience of at least one (1) director;
• Corporate chart showing relationship of affiliate companies and subsidiaries. CIMA will require the names and addresses of the registered office of all subsidiaries and a statement as to how much capital of each subsidiary makes up an asset of the applicant;
• Name and address of bank’s auditors. There is an approved list of over twenty (20) accountants provided by CIMA;
• Last annual report of the bank and its holding company (containing at least two (2) years figures);
• A letter to the Governor signed by the Chairman/President of the bank containing the following information:
  • business of the bank in outline;
  • short details of the bank’s subsidiaries and affiliates;
  • objectives of the Cayman branch;
  • names of authorised agents; and
  • evidence of banking experience of the directors and confirming that they do not have any criminal records;
• Undertaking to meet liabilities of the branch;
• References from two (2) different international banks;
• Undertaking not to trade in Cayman;
• Where necessary, approval of the banking supervisory authority in the country of origin and assurance from such authority of consolidated supervision and good standing of the applicant;
• Date of financial year end; and
• Any exemption required from s. 7 of the Banking Law (which imposes restrictions on the issue and transfer of shares in the licensee, subject to qualified exemptions in the case of a publicly-listed licensee).

Category “A” and “B” Banking Licence – Locally incorporated company

The following documents and information must accompany the application:

• Approval of corporate name;
• In respect of the shareholders, directors and officers of the company, the following documents are required:
  • personal questionnaire form, completed;
  • two (2) character references;
  • financial reference from bank/trust company;
  • police clearance certificate;
  • evidence of two (2) effective directors; and
  • evidence of relevant banking experience of at least one (1) director;
• Letter of recommendation from bank/trust company;
• A written assurance from the parent’s banking supervisory authority of the consolidated supervision and good standing of the applicant;
• Objectives of company:
  • reasons for establishment;
  • customer base (including names for Restricted Category “B” licence);
  • asset structure;
  • management structure; and
  • two-year projection;
• Any exemption from s. 7 of the Banking Law;
• Minimum required capital;
• Undertaking not to solicit funds in Cayman;
• Principal office;
• Authorised agents;
• Local auditors;
• Date of financial year-end;
• Memorandum and Articles of Association;
• Certificate of Incorporation; and
• Opening balance sheet

Restricted Category “B” Banking Licence – Branch

As per Category “A” and “B” Banking Licence – Branch above, save for item (iv) regarding the documents relating to shareholders and directors/managers/officers/controllers, which are not required.

Restricted Category “B” Banking Licence – Locally incorporated company

As per Category “A” and “B” Banking Licence – Locally incorporated company above, save for item (vii) regarding minimum required capital.  Here, when third party funding/liabilities are involved, the minimum required capital is US$24,390.24 or such amount as is necessary to satisfy a risk asset ratio of 15% (non-bank or unconsolidated bank subsidiaries) or 12% (bank subsidiaries).  Otherwise, for totally related operations or 100% related funding, the RAR-based capital requirement (and large exposures guidelines) can be waived if the applicant provides confirmation from all depositors/creditors that they are aware that CIMA’s normal capital adequacy (and lending guidelines) will not be applied to the operations of the bank.

Continuing Obligations

• Licensed banks must have their accounts audited annually by an approved auditor and a copy of the audited accounts must be forwarded to CIMA within 90 days of the licensee’s financial year end. These audited accounts are not required to be made public.
• Licensed banks must submit Quarterly Prudential Returns in the form prescribed by CIMA providing information required to ensure that the bank is complying with the Banking Law and is in a sound financial position.^[5]
• The minimum capital adequacy ratio for locally incorporated banks is 10%. For subsidiary banks subject to consolidated supervision in another jurisdiction CIMA requires a minimum ratio of 12% and for banks which are not subject to such supervision the minimum ration is 15%. There is no minimum ration requirement for branches regulated in another jurisdiction.
• A director or senior manager is usually required to meet with CIMA annually to discuss matters pertaining to the licensee. Additionally, CIMA may arrange periodic on-site inspections of the licensee.
• No issue of shares or transfer of shares of a licensed bank is permitted.
• CIMA must be made aware of any significant change in the licensee’s operations or activity. It is recommended that significant changes be discussed with CIMA prior to any implementation.
• The Dormant Accounts Law (2011 Revision) requires licensed banks to transfer monies held in any dormant accounts to the Cayman Government after seven (7) years of account inactivity. Licensed Banks must submit a report to the Minister of Finance and to CIMA at the time that it makes such transfers (no later than 31 March each year) and must submit a certificate of compliance, attesting that it has complied with these dormant account requirements by 31 December annually.

EdMills LawFirm regularly provides assistance to financial service providers who are seeking licenses from CIMA and can provide assistance in making application for and obtaining banking licensees including meeting with CIMA and providing introductions to Class A Licensees who may act as agents.

February 2019

Summary of Licence Categories, Fees and Restrictions

“A” domestic

Fee on Grant of Licence: US$731,707.32
Annual Fee: US$1,219,512.20
Applicable Restrictions: Unrestricted banking business both within and outside Cayman

“A” domestic (restricted) – provides principal office to five or more licensees

Fee on Grant of Licence: US$365,853.66
Annual Fee: US$365,853.66
Applicable Restrictions: Unrestricted banking business outside Cayman, but restrictions on banking business within Cayman and with permission to provide principal office services to five or more other licensees

“A” domestic (restricted) – provides principal office to less than five licensees

Fee on Grant of Licence: US$195,121.95
Annual Fee: US$243.902.44
Applicable Restrictions: Unrestricted banking business outside Cayman, but restrictions on banking business within Cayman and with permission to provide principal office services to fewer than five other licensees

Category “B”^[6]

Fee on Grant of Licence: US$85,365.85
Annual Fee:

< US$100 million	US$73,170.73
between US$100 million and US$500 million	US$85,365.85
between US$500 million and US$1.0 billion	US$97,560.98
between US$1.0 billion and US$5.0 billion	US$109,756.10
> US$5.0 billion	US$121,951.22

Applicable Restrictions: Unrestricted banking business outside Cayman, but restrictions on banking business within Cayman and with permission to provide principal office services to fewer than five other licensees

Restricted Category “B”^[7]

Fee on Grant of Licence: US$54,878.05
Annual Fee: US$48,780.49
Applicable Restrictions: May not service clients within Cayman, subject to limited exceptions, and may only service named clients outside Cayman

---