Definition of Trust Business

As defined in section 2 of the Banks and Trust Companies Law, “trust business” means the business of acting as trustee, executor or administrator.

Regulation of Trust Business

The Banks and Trust Companies Law and the Private Trust Companies Regulations give the Cayman Islands Monetary Authority the responsibility of regulating the trust industry in the Cayman Islands. This includes licensing / registration and ongoing supervision.

Licence / Registration Categories

 In accordance with the The Banks and Trust Companies Law, the following categories of trust licences / registrations may be issued:

• Trust Licence - This authorises the holder to carry on trust business (see definition above). 
• Trust Licence (Restricted)  - This authorises the holder to undertake trust business only for persons listed in any undertaking accompanying the application for the licence.
• Nominee (Trust) Licence - This authorises the holder to act solely as the nominee of a trust licensee, being the wholly owned subsidiary of that licensee.
• Registration of a Controlled Subsidiary - This authorises the registrant to provide, without a licence, trust services including the issuing of debt instruments or any other trust business connected with the trust business of its parent that holds a trust licence.
• Registration of a Private Trust Company - This authorises the registrant to provide trust services to “connected persons”. “Connected persons” is defined in section 2(2) of the Private Trust Companies Regulations.

Standards of Regulation

The Cayman Islands Monetary Authority regulates trust business in accordance with:

• The Banks and Trust Companies Law, the Private Trust Companies Regulations, and The Monetary Authority Law, as well as an array of other local laws, including The Proceeds of Crime Law;  and Companies Law;
• the relevant rules, guidance, policies and procedures issued by the Cayman Islands Monetary Authority (See  Trust Regulatory Measures);
• the Group of International Finance Centre Supervisors (GIFCS) issued the Standard on the Regulation of Trust and Company Service Providers.

Supervision

The Fiduciary Services Division is responsible for:

• processing applications for all Trust Companies not having a banking licence and making recommendations to the Management Committee on the issue (or non-issue) of a licence;
• processing registrations for Controlled Subsidiaries or Private Trust Companies; and
• ongoing supervision and regulation of the activities of the licensed Trust Companies through, for example, receipt and analysis of regular audited financial statements, meetings with the licensees' management, and periodic detailed reports or examinations by auditors on specific areas of internal controls and systems. Capital adequacy, asset quality, management capability and expertise, earnings and liquidity are all assessed on an ongoing basis.

On-site/Off-site Supervision

A primary objective of the Authority is to maintain a first class financial system and a supervisory system that reflects international supervisory standards. It does so through integrated off-site and on-site functions, the actual processes of which are reviewed continuously in light of experience and changes in the global financial industry.

On-site work includes a review of the licensees' control environment, and compliance with laws, regulations and supervisory directives. The inspection tests transactions to evaluate the effectiveness of the control environment and whether fiduciary duty is being upheld. As part of the inspection, discussions are held with the external auditors to review the licensees' strength of internal controls, compliance with legislation and prudential standards, and adequacy of provisions.

The objective of the supervisory system is to foster prudent fiduciary practices that will enhance the financial sector. In those instances where a licensee engages in conduct detrimental to the public interest or threatens the safety of clients' assets, the legislation provides remedial powers. These can include revoking or imposing conditions on the licence, and changing management and directors.