Cayman Islands: Offshore Business Sectors
Cayman banks must be licensed under the Banks and Trust Companies Law (2009 Revision) (formerly the Banks and Trust Companies Law 1995, as amended in 2001 and 2003). The astonishing Cayman Islands banking industry had 226 banks under the supervision of the Banking Supervision Division at the end of December 2012, of which 15 held Class A licenses permitting local and offshore business activity, while the remainder hold Class B licenses, permitting only offshore business - a local office is allowed, but only very limited transactions can be carried out with Cayman Islands residents. Banks do not need to be incorporated locally: a foreign bank can register as a foreign company and then obtain a license. For further details of licensing requirements and procedures and fees payable see Law of Offshore and Offshore Legal and Tax Regimes.
As of December 2012, total assets were reported at USD1.433 trillion, down from USD1.607 since the same period of the previous year.
A very wide range of services is offered: the 93,612 offshore companies registered in Cayman include many treasury management or investment management subsidiaries of multinationals taking advantage of the excellent banking environment and absence of taxation. Evidently, private banking is a major component of the industry: asset protection rather than tax avoidance as such is the driving force, so that the stability of Cayman alongside stringent banking secrecy and its sophisticated investment environment are very attractive to wealthy individuals, particularly those from the US where Cayman has a very good reputation.
Cayman Islands' banks are supervised by the Cayman Islands Monetary Authority (CIMA), which concentrates on banks for which Cayman is the home-country supervisor. CIMA recently extended its bank inspection programme to on-shore subsidiaries of Cayman banks.
Cayman signed a Memorandum of Understanding on cross-border banking supervision with Brazil in 1999, and intended to create a network of such agreements with all the countries whose banking supervisors evince interest in Cayman's banking sector.
Following KPMG's independent report to the UK Government on the regulatory regime in the Cayman Islands and other offshore financial centres in the autumn of 2000, CIMA made a ruling on private 'shell' banks that have no effective supervision because they are not units of established international banks, subject to stringent regulation in their home jurisdictions. Such mainly US banks had no physical presence in the Cayman Islands.
In 2000, the Cayman Islands introduced additional due diligence procedures for banks when they were required to comply with fresh Know Your Customer regulations. The original deadline of December 31, 2002 for the provision of information about customers to the authorities was extended, and the new rules came into force in March 2004.
The due diligence rules require both new and long-standing account holders in the jurisdiction to provide proof of identity and physical address, in addition to an explanation of their banking activities. The rules have provoked criticism from some quarters, particularly from those who have banked in the Caymans for many years, who argue that they are intrusive and unnecessary.