Cayman: Responsive, Pragmatic And Accessible

IFC: What have been the biggest achievements of the Cayman Islands Monetary Authority since its establishment 25 years ago?

CIMA: Since its inception in 1997, the Cayman Islands Monetary Authority (CIMA) has successfully transitioned from a very small regulator to a fully integrated regulator, responsible for the supervision and regulation of over 28,000 licensed and registered entities spread across various financial services sectors operating in and from the jurisdiction.

In these 25 years, CIMA has taken on additional responsibilities and functions. Through ongoing legislative changes, CIMA has been given more clearly defined duties, powers, and obligations, thus enhancing our ability to meet international standards of supervision.

In fulfilling its principal supervisory functions, CIMA has accomplished many items of tremendous national and international significance.

• CIMA has contributed to Cayman’s reputation as a leading financial services centre, known as the top jurisdiction for healthcare captives and hedge funds, and the second largest domicile for captive insurance.

 

• CIMA is an active member of nine international standard setting bodies, some of which includes the Financial Stability Board (FSB), the Caribbean Financial Action Task Force (CFATF), the International Organization of Securities Commissions (IOSCO), the International Association of Insurance Supervisors (IAIS), the Group of International Financial Centre Supervisors (GIFCS); and the Basel Committee on Banking Supervision (BCBS). Currently, CIMA holds executive level positions within several of these global and regional organisations.

 

• To date, as a part of international cooperation, CIMA entered into 58 bilateral agreements and eight multilateral agreements with regulatory authorities in the Caribbean, Asia, Europe, Middle East, United Kingdom, United States of America and Canada.

 

• We have developed and continue to develop robust, flexible and innovative supervisory frameworks for various sectors, whether it is for a traditional sector such as banking or the latest virtual asset services sector in close collaboration with the industry participants and the domestic authorities.

Some recent major achievements include:

• Key contributions to the jurisdiction’s 4^th round mutual evaluation by the CFATF and Financial Action Task Force (FATF) where the Post Observation Period Report recognised the tangible and positive progress made by the jurisdiction in enhancing its anti-money laundering/combatting the financing of terrorism (AML/CFT) framework.

 

• Meeting the FATF’s follow up requirements for Immediate Outcome 3, which is identified as effective supervision, in April 2021 - nine months ahead of the required timeframe.

 

• Completion of 159 inspections and issuance of 1,384 enforcement actions, while maintaining regular contact with licensees, registered persons and industry associations.

 

• Partnering with the Ministry of Financial Services and Home Affairs to successfully address the European Union’s blacklisting in relation to economic substance.

 

• Implementation of an enhanced supervisory regime for Registered Persons, formerly Excluded Persons, under the Securities Investments Business Act.

 

• Enforcement of the Private Funds Act, which resulted in over 14,000 private funds registrations to date.

 

• Implementation of AML/CFT supervisory framework for Virtual Asset Service Providers (VASP).

 

• Comprehensive self-assessments against core principles in the insurance, banking, and securities sectors.

 

• Publication of multiple advisories, supervisory circulars, thematic reviews and notices, most recently on Russian and Belarus Sanctions for example, and delivering targeted outreach on areas of AML/CFT risk.

 

• Earned top ratings following the Group of International Finance Centre Supervisors’ evaluation against the standard on the regulation of trust and company service providers.

While CIMA has continuously provided exceptional service to the Cayman Islands financial community, in recent years it has also broadened its scope to focus on corporate governance, cyber security, together with climate and environmental risks. As part of these efforts, CIMA was recently confirmed as a member of the Network for Greening the Financial System.

IFC: How important is Cayman’s regulatory regime to the success of its financial services sector?

CIMA: CIMA plays a critical role in the success of the financial services industry of the Cayman Islands. CIMA has developed a modern and flexible supervisory framework for the sectors under its supervision. As a chief regulator of the financial services industry, we aim to set high standards for the provision of financial services, including the probity and scrutiny to inhibit illegitimate money flows in the financial system and to encourage our financial system sectors to be custodians and guardians of the public interest in preventing all forms of financial crime. We also issue various regulatory measures to assist regulated entities to comply with their regulatory obligations and address any exposed risks. Therefore, our regulatory regime is key to the success of Cayman’s financial services sector.

IFC: What strategies does CIMA employ to combat money laundering and the financing of terrorism?

CIMA: The Anti-Money Laundering Division was established in March 2019 as a specialist supervisory division dedicated to the monitoring and supervision of entities under its remit for compliance with AML/CFT requirements. The strategic purpose of the division is to enhance the role and credibility of CIMA, as the main AML/CFT supervisor for the financial services industry, as well as provide timely feedback to improve industry’s AML/CFT compliance thereby reducing the risk exposure of licensees. We also closely monitor AML/CFT risks and trends and adjust our supervisory approach accordingly. Additionally, CIMA regularly collaborates with domestic authorities and industry to combat financial crime.

Collectively, Cayman continues to make progress with our AML/CFT/CPF measures to display an effective regime that caters to sound business and fights criminality, both locally and globally. This was evident by the technical compliance ratings issued by the CFATF, indicating that the jurisdiction is now ‘Largely Compliant’ or ‘Compliant’ with all 40 of the FATF Recommendations and positive remarks on the effectiveness of supervision under Immediate outcomes 3 and 4.

IFC: Cayman was recently added to the EU’s AML blacklist, along with eight other jurisdictions. What is CIMA’s response to this; and what new policies are being introduced to ensure protection from AML/CFT risks?

CIMA: In February 2020, the European Union (EU) included the Cayman Islands on its Annex 1 list of non-cooperative jurisdictions for tax purposes, commonly referred to as the ‘blacklist’, and the government responded by introducing the Private Funds (Amendment) Act, which came into effect on 7 July 2020 to clarify the intended scope of supervisory coverage with respect to private funds and enhance the jurisdiction’s regulatory safeguards. CIMA also partnered with the Ministry of Financial Services and Home Affairs to successfully address this area. In October 2020, the Cayman Islands was removed from the EU blacklist.

As for new policies, CIMA takes a risk-based approach in determining the frequency and intensity of on-site and off-site AML/CFT supervision. This takes into account the inherent ML/TF risks identified through the National Risk Assessments as well as sectoral risk assessments conducted by CIMA and the characteristics of all entities within CIMA’s remit, such as the number and diversity of these entities and the degree of supervisory discretion afforded to them under the risk-based approach. The VASP regulation is also a new policy which addresses a high-risk area.

IFC: How do you balance the demands for regulatory measures with ensuring that the jurisdiction remains sufficiently innovative to meet client expectations?

CIMA: At CIMA, we believe that a well-crafted and thorough regulatory regime helps to ensure the jurisdiction and market participants therein are well respected internationally. In developing regulatory measures, CIMA focuses on well-tailored requirements that address key risks but allow flexibility to market participants to carry on business in an efficient manner.

IFC: Do you see external regulatory pressure from organisations such as the OECD, FATF and the European Commission as a hindrance or as an opportunity for economic growth?

CIMA: As a leading international financial centre, the Cayman Islands views its engagement with global standard setting bodies such as OECD, FATF and EC as an important responsibility, which provides reputational value with an opportunity to enhance and implement a robust regulatory regime. Engaging with global bodies and our local stakeholders is an important part of the work being done to protect and enhance the jurisdiction’s international standing and economic growth.

IFC: The jurisdiction is well-known for its thriving fund industry. How is CIMA promoting regulation and transparency in this sector?

CIMA: The Cayman Islands prides itself on being a leading financial centre, not only in terms of numbers, but with the application of international standards as well. In the fight against money laundering and the preservation of financial stability, CIMA works closely with the Cayman Islands Government, including various international regulatory groups, to ensure that the relevant supervision can continue to be carried out in accordance with the best interests of all stakeholders.

One of our statutory duties is to provide advice to the government on monetary, regulatory and cooperative matters. Accordingly, CIMA makes recommendations, as necessary, to the government for modernisation of our framework to address new risks and threats as they arise. 

CIMA also prioritises ongoing training and development of our staff to ensure that we are equipped to adequately and appropriately supervise the industry in a dynamic and continually evolving environment. As a top priority, we maintain regular dialogue with regulated entities and industry associations regarding any issues affecting the industry, including the work of CIMA.

Recent legislative amendments have also contributed to the continued success of our fund industry. These include:

• The enforcement of the Private Funds Act, which resulted in 12,695 new private funds registrations.
• The Mutual Funds (Amendment) Act, which now requires funds, with fifteen investors or less, to be regulated by CIMA. Prior to the commencement of this Act in February 2020, these funds were exempt from licensing and registration.
• The Mutual Funds (Annual Returns) (Amendment) Regulations 2020 outlines additional information required by regulated mutual funds, which will assist CIMA in attaining the requisite information for macro-prudential supervision.

IFC: What frameworks does Cayman have in place to facilitate innovation and encourage further access to finance for new companies?

CIMA: The pace of change in the global financial services industry has been rapid, and that has created both challenges and opportunities for firms to adapt quickly in order to remain relevant, particularly in the virtual asset space. CIMA is therefore developing a sandbox to facilitate innovative companies in this area. This framework will also capture coin issuances and trading platforms and exchanges.

IFC: The Virtual Asset (Service Providers) Act was enacted in October 2020 to provide a framework for the regulation and supervision of virtual asset service providers. How successful has this legislation been since its adoption; and what else is being done to promote Cayman as a successful digital jurisdiction?

CIMA: CIMA undertook the development of the Virtual Asset Service Provider (VASP) framework along with commencing registration of VASPs, including a sectoral risk assessment (as part of the National Risk Assessment) to sufficiently address any gaps or areas of concern during the registration of VASPs.

We provided submissions on materiality to the FATF, which were decisive to Cayman’s successful re-rating as ‘Largely Compliant’ with FATF’s Recommendation 15 – New Technologies, indicating that the jurisdiction is now ‘Largely Compliant’ or ’Compliant’ with all 40 of the FATF Recommendations.

The jurisdiction has successfully begun registering a range of VASPs and is in the process of developing rules and guidance for trading platforms, custodians and ICOs. So, far we have 11 VASPs registered under the VASPA. We are aiming to implement Travel Rule provisions from July 2022. CIMA is currently developing a regime for the prudential supervision of VASPs that provides services such as trading platforms and custodians. CIMA is also developing a sandbox to facilitate innovative companies in the virtual asset space.

IFC: What do you think sets Cayman apart from its competitors?

CIMA: For decades, the Cayman Islands has maintained its position as a leading jurisdiction for international business. From CIMA’s point of view, this growth and success are attributable to several factors:

• A mature and sophisticated regulatory regime, which offers operational freedom within the confines of the law and international best practices.
• Ability to quickly adapt to evolving international standards.
• A wide range of quality professional expertise within CIMA and the industry.
• CIMA’s regulatory philosophy to remain responsive, pragmatic and accessible to our licensees.
• A sound and sustainable macroeconomic and financial sector policies.
• A well-developed public infrastructure.
• Effective market discipline in financial markets.
• Close monitoring of emerging trends and risks, identifying challenges and opportunities, and taking appropriate actions for enhancing the supervisory regime.
• A comprehensive regulatory framework for providing an appropriate level of protection of the Cayman Islands’ financial services industry and its consumers.
• Efficient financial markets.
• Participation in international conferences, meetings and forums, ensuring that we maintain high standards while delivering a robust yet sensible regulatory framework.
• Government’s commitment towards improving our financial services as an industry, product and economic driver for our islands and the ability to keep pace with international regulatory and commercial standards, thus creating a strong business environment.

As previously noted, confidence in Cayman comes also from the long-established fact that we are the leading jurisdiction for healthcare captives and hedge funds, and the second largest domicile for captive insurance. We are also home to more than 40 of the top 50 banks worldwide, including all major accounting firms in addition to leading international law firms and fiduciaries.

Based on this growth and success, CIMA is confident that the Cayman Islands will continue to be a leading financial services centre with a robust and sensible supervisory regime in which to do business for many years to come.

IFC: What challenges and opportunities lie ahead for Cayman’s financial services industry; and where can we expect CIMA to focus its efforts during 2022?

CIMA: As previously noted, CIMA conducted a series of comprehensive self-assessments against core principles in the insurance, banking, and securities sectors. The outcome of this exercise will be the driving force for enhancements to the supervisory framework for these sectors over the next two to three years.

Consultation documents relating to multiple industry sectors such as corporate governance and internal controls, are expected to be released over the coming months.

The virtual asset sector will be a major area of focus with rules for virtual assets exchanges and custodians being finalised as well as rules for virtual asset issuances being consulted on. Additionally, it is recognised that the ‘Travel Rule’ has been a significant challenge for both regulatory authorities and industry globally. CIMA will, therefore, continue to maintain constant dialogue with industry to ensure compliance in this area by implementation of the VASP Travel Rule by 1 July 2022.

The world is also on high alert with the ensuing Russian-Ukraine conflict. In light of this, CIMA has issued several notices to registrants and licensees under the international financial sanctions regime to help them decide whether they are associated with Russian individuals or entities that may be subject to financial sanctions. CIMA will continue to monitor the situation and will advise of any changes that may affect the industry. See also Cayman Islands Government’s statement on Russian Sanctions.[i]

Other future initiatives will include the implementation of measures governing the liquidity framework of banks, continued work on building a virtual asset issuance and sandbox frameworks, revisions to the way that re-insurance arrangements and investment strategies are undertaken as well as preliminary research into the enhancement of the securities sector. A key focus will also include the assessment of cybersecurity frameworks which will be conducted through a series of thematic reviews in addition to being assessed through the regular onsite inspections. ​

With identified risks being the common driving force, CIMA will also continue its vigorous oversight of AML/CFT obligations to promote and safeguard the integrity of the Cayman Islands’ financial services industry, thus demonstrating the robustness of our regulatory framework.

 

Footnotes:

[i] https://www.gov.ky/news/press-release-details/cayman-islands-government-statement-on-russia-sanctions