Obtaining A Banking License in the Cayman Islands

Originally posted in May, 2003

The Cayman Islands are now among the world's leading offshore banking centres and have over five hundred (500) licensed banks and trust companies, including 45 of the world's top 50 international banks. Bank and Trust companies represent 65 different countries in the world, including the United States, Canada, the United kingdom, Switzerland, Hong Kong, Japan, Germany, France, Brazil, Mexico and Portugal.

Definitions
Banking business is defined under The Banks & Trust Companies Law (1995 Revision) 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."

Trust business is defined under the Banks & Trust Companies Law as "the business of acting as trustee, executor or administrator."

License
No person may carry on banking business and no trust company may carry on trust business from within the jurisdiction of the Islands, whether or not carried on in the Islands, without a license as governed by The Banks & Trust Companies Law (1995 Revision).

Opening of Accounts
Any person, entity or association, by completing the account opening forms provided by a bank, may open an account in such currency as the bank will accept. Each bank has specific due diligence requirements whichmust be met prior to the opening of an account.

Services
Many of the major banks are full service retail banks and provide a variety of services, including the buying and selling of precious metals, securities, trading in currencies, commodities and investment in funds.

Protection of Customers' Information
The combined effect of Section 13 of The Banks & Trust Companies Law and The Confidential Relationships (Preservation) Law is to prohibit disclosure of any information whatsoever not authorized by the customer or in accordance with the law and to make such disclosure punishable by fine or imprisonment or both. This prohibition applies to banks, trust companies and professional and other persons in possession of confidential information. It is also an offence to attempt to obtain confidential information.

The Monetary Authority
There is no central bank in the Cayman Islands but there is a statutory agency created by the Cayman Islands Government, which is The Cayman Islands Monetary Authority ("the Authority"). The Authority was created to regulate and supervise the financial services industry, including the review and monitoring of all banks and trust companies on the island. The Authority also promotes and maintains monetary stability and advises the Government on banking and monetary matters.

There are no Government guarantees to depositors but most of the major banks operating in the Islands are branches or subsidiary companies of the world's leading banks. Many banks incorporated locally place their deposits with major international banks. Most of the "A" licensed full service banks and trust companies are branches or subsidiaries of Canadian and European banks and are operated and managed in a manner similar to major international banks in Canada and Europe.

Duties of the Monetary Authority
The duties of the Monetary Authority are as follows:

(a) to maintain a general review of banking practice in the Islands;

(b) whenever it thinks fit or when so required by the Governor, to examine by way of the receipt of regular returns or in such other manner as it thinks necessary the affairs or business of any licensee carrying on business in or from within the Islands for the purpose of satisfying itself that the provisions of the Law are being complied with and that the licensee is in a sound financial position and, whenever it thinks fit or when so required by the Governor, to report to the Government the results of every such examination;

(c) when required by the Governor to assist in the investigation of any offence against the laws of the Islands which it has reasonable grounds to believe has or may have been committed by a licensee or by any of its directors or officers in their capacity as such;

(d) to examine accounts and audited annual accounts required by Section 9 of the Law to be filed with the Authority and to report on them to the Governor whenever it thinks fit or when so required by the Governor;

(e) to examine and make recommendations to the Governor with respect to applications for licenses;

(f) to examine all proposals and make recommendations to the Governor in respect of the exercise of his powers under Sections 14, 15 and 16 of the Law; and

(g) to act as the adviser to the Governor and to take all necessary action to ensure the proper and just implementation of the Law.

The Authority in carrying out its duties ensures that a reasonable ratio exists between deposits, loans, debt and capital at all times and reviews quarterly reports from the various licensees.

The Authority is in constant contact with various regulatory authorities around the world and its staff attend important meetings of regulators to ensure that the Cayman Islands maintain its position as the world's leading offshore banking center.

No information given to or obtained by the Authority may be disclosed unless with the authority of an order of the Grand Court and there are severe penalties for unauthorized disclosure.

Types of Banks permitted Under the Law
The Banks & Trust Companies Law (1995 Revision) provides for the following types of banks and trust company licenses:

(1) "A" Licenses
These licenses allow banks to carry on the business of banking within and outside the Islands. This license is the most difficult to obtain and is subject to stringent regulations. As a result, the "A" license is usually issued only to branches or affiliates of established international banks.

"B" Licenses are divided into two types

(2) Unrestricted "B" Licenses
These licenses allow banks to carry on offshore banking business and are prohibit the bank from:-

(a) taking deposits from any person resident in the Islands, other than another licensee, or an exempted or an ordinary non resident company which is not carrying on business in the Islands;

(b) investing in any asset which represents a claim on any person resident in the Islands, except a claim resulting from:

i. a loan to an exempted or an ordinary non resident company not carrying on business in the Islands; or

ii. a loan by way of mortgage to a member of its staff or to a person possessing or being deemed to possess Caymanian status under the Immigration Law, 1992, for the purchase or construction of a residence in the Islands to be owner occupied; or

iii. a transaction with another licensee; or

iv. the purchase of bonds or other securities issued by the Government, a body incorporated by statute or a company in which the Government is the sole or majority beneficial owner; or

(c) without the written approval of the Governor, carrying on any business in the Islands other than one for which the "B" license has been obtained.

ii. (3) Restricted "B" Licenses
This license permits banks to carry on the business of offshore banking, subject to the same prohibitions as unrestricted "B" licensed banks with a further restriction that they may not receive or solicit funds from persons other than those listed in an undertaking which must accompany the license application; These are true private banks.

(4) Unrestricted Trust Licenses
These entitle the licensee to carry on trust business without any restrictions.

(5) Restricted Trust Licenses
These entitle the licensee to carry on trust business for named persons or entities.

(6) Nominee Trust Licenses

These entitle the applicant, which is a wholly owned subsidiary of another Licensee where the sole purpose of the subsidiary is to act as the Licensee's nominee, to carry on trust business.

Establishing a Bank in the Cayman Islands
A person, firm, entity or association who or which has large or frequent banking transactions may find it profitable and convenient to own and operate a bank in the Cayman Islands. This type of bank, usually private ("B" Restricted), has emerged as a result of the need to conduct financial transactions with as few restrictions as possible. Lending limitations, investment restrictions, reporting requirements, taxation, double taxation (where one may be taxed at home and abroad), compliance with burden-some government regulations and public disclosure of transactions all constitute restrictions which limit a businessman's ability to act as freely as he wishes.

The use of a Cayman bank enables a businessman to do business with very few restrictions. The availability of such a bank not only provides an opportunity to make tax free profits but makes daily transactions with foreign countries simple when compared to the approvals and reporting requirements necessary in some developed countries, and many persons have found that they are able to increase and expand their respective businesses beyond that of their initial expectations. Even when the Exchange Control Law was in force, there were in fact no restrictions whatsoever on foreign exchange dealings by the banks or their customers once an initial approval was obtained. The Exchange Control Law was repealed in 1980 and there are now no restrictions whatsoever on the transfer of currency to or from the Islands or on the holding of assets outside of the Islands. The benefits of using a Cayman bank as a base for operations include the ability to:

1. Conduct business free of taxation;
2. Freely exchange, trade or deal in any currency;
3. Make and switch investments through stockbrokers, mutual funds and other investment vehicles;
4. Operate bank accounts with a high degree of privacy;
5. Conduct offshore banking with reasonable but effective lending limits and investment restrictions;
6. Engage in business transactions free from excessive regulatory interference;
7. Issue letters of credit and bank guarantees.

Information Necessary to Make Application for a Bank or Trust Company License
The following is a brief listing of some of the requirements and information needed to make application for a bank or trust company license.

1. The name of the bank or trust company in respect of which the license is sought.

2. Evidence that the applicant's name has been approved.

3. If not within the Islands, the address of the principal office of the applicant and of its registered office if it is different.

4. The names and addresses of the two individuals or the body authorized to be the agents in the Islands of the applicant.

5. If the applicant is a company incorporated outside the Islands, the name and address of a person authorized pursuit pursuant to the Companies Law to accept service on its behalf of process or notices.

6. If the applicant is a company, evidence of its incorporation in the Islands, or outside them, as the case may be.

7. A copy of the memorandum and articles of association, act, statute, charter, partnership agreement or other instrument constituting and defining the constitution of the applicant verified by a statutory declaration made by one of its directors or partners or by its secretary and:

(a) in the case of an applicant which is a company incorporated in the Islands, certified pursuant to Section 26 of the Companies Law; and

(b) in the case of an applicant which is incorporated under any law other than the law of the Islands, certified and authenticated under the public seal of the country, city or place under the law of which it is incorporated and, if any instrument is not written in the English language, a certified English translation of it.

8. Where appropriate, a statement in writing in a form acceptable to the Authority from the authority responsible for the administration of the laws relating to banking or trust businesses, as the case may be, and the supervision of those businesses, in the country in which the applicant or its parent company is incorporated that the authority is aware of the application.

9. If the applicant is a company incorporated in the Islands:-

(a) the full names, address and nationality of each shareholder who holds more than two percent of its share capital;

(b) the annual accounts for the two years immediately preceding the year of application of each shareholder which is a body corporate to which paragraph (a) applies, together with similar accounts for the parent body, if any, of each such body corporate;

(c) two or more references verifying the good financial standing of each shareholder who is a natural person to whom paragraph (a) applies;

(d) the full names, addresses and nationalities of all directors, managers and officers of the applicant;

(e) two character references for each of the persons referred to in paragraph (d) and, for each person, a police or other certificate satisfactory to the Authority that the person has not been convicted of a serious crime or any offence involving dishonesty;

(f) evidence acceptable to the Authority of the availability to the applicant at all times of adequate professional knowledge and experience in the banking or trust business, as the case may be, and the names of at least two of its directors actively engaged in the business of the applicant one of whom must possess a sound professional knowledge of, and experience in, the banking or trust business, as the case may be;

(g) the names and addresses of the registered offices of all subsidiary companies of the applicant together with a statement as to how much of the capital of each company constitutes an asset of the applicant;

(h) the name and address of the firm of auditors practicing in the Islands and approved by the Authority appointed to audit the accounts of the applicant;

(i) a statement giving the date for the drawing up of the annual accounts of the applicant;

(j) business references from two banks, or two trust companies, as the case may be;

(k) details of the current business activities, if any, of the applicant and its proposed activities if the license applied for is granted including:-
i.its business aims;
ii. a detailed statement setting out its proposed initial assets and its proposed assets and expected liabilities at the end of each of the two years next succeeding the date of the grant together with an estimate of expected income;
iii. particulars of its management structure and personnel;
iv. a statement as to its customer base, including, in the case of an application for a Restricted license, the names and addresses of its clients;
v. a copy of its most recent balance sheet and details of its fee earnings, if any.

(l) Any request for exemption from any requirements of the Law sought by the applicant.

10.If the applicant is a company incorporated outside the Islands:-

(a) a list certified by its secretary containing the names, addresses and nationalities of its directors and officers;
(b) a chart showing the relationship to its subsidiaries and affiliates and any holding company;
(c) the name and address of its auditor;
(d) a statement giving the date for the drawing up of its annual accounts;
(e) a copy of its latest annual accounts and those of its holding company, if any;
(f) a letter or letters, addressed to the Governor under the hand of its presiding officer containing:-
i. a statement describing in outline the history of the applicant and its present business activities;
ii. a brief description of each of its subsidiaries and affiliates;
iii. the reasons for wishing to obtain the license sought and its business aims for the applicant;
iv. evidence acceptable to the Authority of the professional knowledge and experience in banking or trust business, as the case may be, of the directors and managers and certificates satisfactory to the Authority showing that none of them has been convicted of a serious crime or any offence involving dishonesty;
v. confirmation in writing under the hand of the presiding officer of the applicant and the officer of its parent body, if any, that they concur in making the application;
vi. any request for exemption from any requirements of the Law sought by the applicant;
(g) business references from two banks or trust companies of international repute, as is appropriate;
(h) a statement in writing in a form acceptable to the Authority accepting legal responsibility for the obligations and liabilities of the applicant executed by and binding on the parent company, if any, of the applicant.

11. In the case of application for a Restricted "B" license, an undertaking in a form acceptable to the Authority that the applicant will not receive or solicit funds by way of trade or business from persons other than those whose names and addresses are listed in the undertaking as required by Section 5(5)(d) of the Banks and Trust Companies Law.

12. In the case of application for a Restricted Trust license, an undertaking in a form acceptable to the Authority that the applicant will not undertake trust business for persons other than those whose names and addresses are listed in the undertaking as required by Section 5(5)(e) of the Banks and Trust Companies Law.

13. In the case of application for an "A", unrestricted "B" or Trust license, evidence acceptable to the Authority that it has a net worth of not less than four hundred thousand dollars or its equivalent in other currencies, or such greater sum as may be determined by the Governor.

14. In the case of application for a Restricted "B" or a Restricted Trust license, evidence acceptable to the Authority that it has a net worth of not less than twenty thousand dollars or its equivalent in other currencies, or such greater sum as may be determined by the Governor.

15. In the case of application for a Nominee (Trust) license, a guarantee in a form approved by the Authority from the licensee of which the applicant is the wholly owned subsidiary guaranteeing to meet the liabilities of the applicant up to the sum of two hundred thousand dollars. The guarantee must, among other things, expressly provide that its formal validity, effect and interpretation, and the rights and liabilities of the parties to it are governed exclusively by the law of the Islands and that the Courts (including the Court of Appeal) of the Islands will have exclusive jurisdiction in respect of all or any of those matters.

16. An application fee.

Approval in Principle
It is usual to have an attorney apply for an approval in principle for the grant of a license, submitting as much of the required information and documentation as possible. If an approval in principle is granted, the remaining requirements of the law can then be met and formal approval granted. The license will be issued on completion of all formalities and payment of the license fee.

Restriction on use of words "bank" and similar words
No person other than a licensee may use the words "Bank", "Trust", "Trust Company", "Trust Corporation", "Savings", or "Savings and Loan" or any of their derivatives either in English or any other language in the description or title under which that person is carrying on business from within the Islands whether or not the business is carried on in the Islands.

Fees
License fees depend on the type of license.