 Supervision and Regulation
Banking - Insurance - Investment Services - Compliance - Fiduciary Services - Legal - Currency - Policy & Research
Banking Supervision
The Banking Division is responsible for processing applications for bank, and bank and trust company licenses, and for making recommendations to the Governor in Council for the issue (or non issue) of a license. The division is responsible for both off-site and on-site supervision of the banks, and bank and trust companies. Licensees are required to provide the Authority with annual audited accounts and quarterly reporting schedules, these are examined and analysed by the division in order assess capital adequacy, asset quality, management capability and expertise, earnings and liquidity. On-site supervision focuses on the risk management practices of banks and enables the Authority to monitor and control these risks. The Authority aims to maintain a level of supervision which reflects international supervisory standards.
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Insurance Supervision
As with banking and trust company applications, the applications by insurance companies, insurance managers, brokers, agents or sub-agents are carefully considered and a recommendation made to the Governor-in-Council. Special attention is paid to the Business Plan, including the level of solvency to be maintained. Subsequent changes to the Business Plan must be agreed with the regulators. Ongoing requirements include the filing of annual audited financial statements along with a certificate of compliance.
One very important element in the administration of the insurance industry is the role of the Insurance Managers. The Insurance Law stipulates that every captive must appoint an Insurance Manager resident in the Cayman Islands to be responsible for maintaining proper records of its business. The Insurance Manager is called upon to ensure the captives are complying with the provisions of the Insurance Law to maintain timely communications with the Authority.
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Investment Services Supervision
The Investment Services Supervision is responsible for the supervision and regulation of mutual funds and mutual fund administrators.
This division processes applications for mutual fund administrator licenses and puts forward recommendations to the Governor-in-Council. Applications for the licensing or registration of mutual funds, which are subject to the Monetary Authority's approval, are also processed by this division.
As with all other sectors, funds and administrators are required to file audited financial statements which are examined and analysed by the division. The Mutual Funds Law, however, places some of the supervisory obligation in the hands of the private sector, specifically the Mutual Fund Administrators and External Auditors of funds and Administrators who have reporting obligations to the Authority under certain circumstances.
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Compliance
The Compliance Division is responsible for the centralisation of the enforcement efforts and due diligence of all the divisions of the Authority. The work of the division is primarily in the areas of investigation and analysis. One of the primary aims of the division is to expand the intelligence-gathering capability of the Authority and improve the general supervisory capabilities of the Authority.
The Head of Compliance acts as the central reporting officer for the Authority to the Financial Reporting Unit regarding any suspicion of money laundering identified in the course of the Authority's supervisory activities. In addition the division is responsible for the dissemination of documents and information in response to overseas requests.
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Fiduciary Services
The division is responsible for the supervision, regulation and guidance of all company managers and trust companies that do not have a banking licence or banking affiliation. The division will be working closely with the Banking division in the provision of technical support with regard to on-site inspection.
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Legal
The Legal Division is responsible for the provision of advice to the Board, the Managing Director, and all the divisions within the Authority. The division has a central role in all cases involving the provision of formal assistance to overseas regulatory authorities, and it will provide support on all aspects of the Authority's responsibilities to combat money laundering. The division aims to ensure that the Authority's procedures permit it, at all times, to act within the spirit and to the letter of the regulatory laws, and that all laws are kept under review to ensure that they remain effective.
The division also assists with civil litigation and drafting legal documents such as directives, memoranda of understanding, and instructions for amendments to existing legislation, and assists in the review of applications for licensing from financial institutions.
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Currency
The Monetary Authority is the issuing authority of the Cayman Islands Dollar which is the sole legal tender currency in the Cayman Islands. The Currency Operations division of the Authority is responsible for the issue and withdrawal of notes and coins, which is done primarily through the seven local retail banks.
The Cayman Islands Dollar is backed 100% by the United States Dollar. This takes the form of local and overseas US Dollar Investments such as Treasury Notes and Bills, Cerificates of Depoisits, etc.
Currency Operations is also responsible for the issue and redemption of numismatic coins. The Authority participates in numismatic coin programmes which commemorate significant events locally as well as internationally.
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Policy And Research
The Policy and Research Division is responsible for researching topics relating to the financial industry and regulation, and for drafting policy. The division, for example, analyses papers and policy statements coming out of the Basle Committee on Banking Supervision, on areas such as capital and risk management and, if necessary, draft policy relevant to Cayman's banking industry. Policy, when formulated, will be discussed with the industry and then issued in formal written policy statements. Through the work of this division and the issue of formal policies, the industry will be informed of the Monetary Authority's position on a number of key areas (licensing, capital adequacy, etc.) The division will also be responsible for the production of statistics on Cayman's financial Industry.
On-Site Inspections
The Monetary Authority adopted a strategic initiative to upgrade supervisory capabilities to international best practice levels by implementing on-site inspections in 1998. The on-site inspection represents the fact-finding part of the supervisory function, which is complemented by the analytical work of the off-site division. On-site inspections are carried out for all of the Authority's licenses, covering banks and trust, insurance companies, company managers and mutual funds.
A major objective of the inspection program is to gain a thorough understanding of a financial service provider's operations, the risks it faces and how these risks are managed. The inspection reviews the roles performed by the board of directors and senior management in establishing risk levels, and the internal control mechanisms employed to monitor these risks. Risk categories broadly relate to credit, market, liquidity, operational and reputational risk.
On-site work includes a review and assessment of Lyle institution's risk management policies and procedures, control environment, and compliance with laws, regulations and supervisory directives. During the inspection, individual transactions are tested to evaluate the effectiveness of the control environment.
Integral to the effective monitoring of internal controls is an independent audit function. In order to avoid duplication of effort, the inspection endeavours to rely on the work of the internal auditors. As part of the inspection, a basis for reliance upon the work of the internal auditor is established.
The inspection process relies on the work of the external auditors with respect to the fairness of the financial statements. During an inspection, bilateral discussions are held with the external auditors to review the strength of the institution's risk management processes, internal controls, compliance with legislation, and adequacy of loan loss provisions.
The overall inspection objectives are to:
- understand the registrant's business activities and operatingenvironment;
- detect problems of compliance with the Law or Regulations and
- gather information on matters identified as requiring policy consideration.
The inspections are intended to improve regulatory efficiency and effectiveness.
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