Understanding Banking Operations

In Section 2 of the Banks and Trust Companies Act “banking business” is defined as:

"the practice of accepting deposits (except from a bank or trust company) and maintaining funds in accounts such as current, savings, or deposit accounts, which can be withdrawn on demand by cheque or order and can also be used for providing loans to customers or for making other investments."

Banking Business Oversight

The Monetary Authority Act and the Banks and Trust Companies Act empower the Cayman Monetary Regulatory Authority International ("Cmrai" or "Authority") to grant licenses and supervise the banking and trust industries within the Cayman Islands. 

The Banks and Trust Companies Act establishes the legal boundaries for bank and trust company operations within the Cayman Islands.

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

Types of Licences

According to the Banks and Trust Companies Act, Cmrai is empowered to 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

Information on Trust Services

This section's information (Banking Services) is applicable to both banking and trust licensees who also hold a banking licence. For specific information on trust-only services, visit the Trusts section of our website.

Regulation & Supervision Standards

Cmrai regulates banking and trust activities in compliance with:

• The relevant acts and regulations specific to banking and trust services, along with the general legislation applicable to all licensees (See Acts and Regulations for links to relevant laws);
• The rules, guidelines, policies, and procedures issued by Cmrai (Refer to Banking Index of Measures);
• International standards set by the Basel Committee on Banking Supervision and other global bodies.

The Authority is affiliated with 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), providing essential links to the Basel Committee.

In 1996, the Basel Committee and the OGBS finalized a joint accord on the supervision of cross-border banking. This agreement tackled challenges in effectively overseeing the cross-border operations of international banks and facilitated information exchange between home- and host-country regulators. Following this agreement, the Authority conducts on-site examinations of licensees where it acts as the primary (home) supervisor or the host supervisor (i.e., branches and subsidiaries of foreign banks operating in Cayman).

Capital Requirements

The Authority follows the principles outlined in the Bank for International Settlements' capital adequacy framework and has set minimum capital adequacy levels of 12% for subsidiaries under consolidated supervision and 15% for locally incorporated banks.

Supervision Process

Cmrai's Banking Supervision Division handles the processing of licence applications and provides recommendations to the Management Committee regarding their issuance. The division is also responsible for the ongoing supervision and regulation of banking activities.

A key responsibility of Cmrai is to ensure a stable financial system in the Cayman Islands. This is primarily achieved through both off-site and on-site monitoring, with regular reviews to adapt to changes in the global financial industry.

Off-site Supervision

The division continually monitors the financial condition of banks via quarterly prudential returns and annual audited financial statements. The analysis focuses on capital adequacy, loan loss experience, liquidity, and the concentration of loans and deposits. This is complemented by formal prudential interviews, generally covering strategic initiatives, adherence to prudential banking standards, compliance with the Banks and Trust Companies Act, and measures against money laundering and terrorist financing.

On-site Supervision

The on-site inspection program offers an in-depth view of a bank's risk management practices and operations. This risk-based program begins with developing a risk profile for each bank, which determines the scope of the inspection. A thorough review of the bank's risk assessment policies, procedures, and controls is central to the program. On-site activities include assessing the bank's risk management processes, control environment, and compliance with relevant laws and supervisory directives. The inspection also involves testing transactions to evaluate the effectiveness of internal controls and the quality of assets. Discussions with external auditors form part of the inspection to assess the robustness of the bank's internal controls, compliance with regulations, and the adequacy of financial provisions.