Knowledge

All companies (save for "private trust companies", "controlled subsidiaries" and trustees of "alternative financial instrument" trusts, as to which, see below) wishing to carry on trust business from within the Cayman Islands ("Cayman"), whether or not such business is actually to be carried on in Cayman, must be licensed by the Cayman Islands Monetary Authority ("CIMA") pursuant to the Banks and Trust Companies Act (2021 Revision) (the "Act") to carry on such business. 

Types of licences

Trust licence
This permits the carrying on of trust business from within Cayman without restriction, usually by way of commercial operation.

Restricted trust licence
This permits carrying on trust business from within Cayman in respect of one family for a limited number of trusts akin to a private trust company but with the added standing attached to being licensed and regulated.

Types of structure
The two ways in which a trust company can operate in Cayman are:

• by registering an existing overseas trust company in Cayman as a foreign company and opening a branch office in Cayman; or
• by incorporating a company in Cayman.

Opening a branch office
To open a branch in Cayman, an overseas trust company must register as a foreign company and obtain a trust licence. A licence to operate a branch will not be granted unless the trust company has two individuals or a body corporate approved by CIMA and resident or incorporated in Cayman to serve as its agent in Cayman. The information required to be provided as part of the application process is set out below:

• A copy of the applicant's charter. 
• A copy of the by-laws certified by the secretary before a notary public. These should be duly certified under the public seal of the country or state of incorporation and, if not in English, accompanied by a certified translation. 
• A list of the directors, shareholders and the major corporate officers with full names, addresses, occupations and nationalities certified by the company secretary.
• Each shareholder or beneficial shareholder who is a natural person holding more than ten percent of the applicant's issued share capital or voting rights, each director, each senior officer, each manager, and each officer will be assessed with respect to their fitness and propriety to perform the relevant function. CIMA will require the following from each person for the purposes of their assessment:
  • a completed current version of the personal questionnaire; 
  • three references acceptable to CIMA, including at least two character references for the person and one reference verifying the good financial standing of the person, all being dated within six months of submission and including specific information prescribed by CIMA;
  • a police clearance certificate from the last country of residence where the person was ordinarily resident for at least twelve months;
  • details in the form of documents in the event that person responds "yes" to any of the probity questions in the personal questionnaire;
  • evidence acceptable to CIMA of the person's professional knowledge and experience for the particular function to be undertaken by the person (this may include certified copies of certificates or other records of relevant academic and professional qualifications);
  • an updated and comprehensive curriculum vitae;
  • if the person will be involved in the day to day management of the branch, a current job description;
  • a notarized or similarly certified copy of photo identification; and
  • in the case of shareholders, CIMA may request a notarized net worth statement.
• A corporate chart showing the relationship of the application to other affiliated companies, subsidiaries and any holding company.   
• The name and address of the applicant's auditors. 
• A statement giving the date for the drawing up of its annual accounts. 
• The last annual report of the applicant and its holding company. This should contain two years' figures.
• A letter to the Governor signed by the chairman/president of the applicant containing the following information:
  • the business of the applicant in outline;
  • short details of the applicant's subsidiaries and affiliates;
  • the objects of the Cayman branch; 
  • evidence acceptable to CIMA of the professional knowledge of and experience in banking or trust business, as the case may be, of the directors and managers;
  • confirmation in writing of the presiding officer of the applicant and the presiding officer of the applicant's parent company that they agree with the making of the application; and
  • requests for any exemptions from the requirements of the Act that the applicant may be seeking. 
• The annual accounts for the two years immediately preceding the year of application, of each shareholder which is a body corporate holding more than ten per cent of the applicant's issued share capital or total voting rights, together with similar accounts for the parent body, if any, of each such body corporate.
• An undertaking of the parent company to meet the liabilities of the branch. 
• References from two different international banks. 
• An undertaking not to trade in Cayman. 
• Where necessary, approval of the Central Banking Authority in the country of origin. 
• Assurances from the Central Banking Authority of consolidated supervision and good standing of the applicant. 
• Date of financial year end. 
• The application fee (currently US$8,539.00). 
• Certificate of registration. 
• The fee payable on grant of the licence (currently US$85,366.00 and the applicable annual fee thereafter).

Incorporation of a company
For a trust licence, this must be as an ordinary company, as it may carry on local business, whereas, for a restricted licence, it would normally be an exempted company as it will not be carrying on local business. In addition to the corporate information, the information for licensing purposes is set out below:

Name
CIMA must approve the name of the applicant company. The proposed name must not be similar to that of any other company carrying on business in Cayman. CIMA will not accept a name if it suggests a status or association which in the opinion of CIMA does not exist. If a personal name is to be used, the applicant should explain the reasons for its choice.

Directors, shareholders and officers
All directors and senior corporate officers and shareholders (holding more than ten per cent of the applicant's issued shares) must be approved by CIMA, who will assess these persons on their fitness and propriety for the specified role. At least one and preferably more of the directors and officers must have senior trustee experience (as may be appropriate). The information required to be submitted to CIMA for the purposes of the fitness and propriety assessment is the same for an applicant company as a branch office as set out above.

Subsidiaries
CIMA requires the names and addresses of the registered office of all subsidiary companies of the applicant, together with a statement as to how much of the capital of each subsidiary constitutes an asset of the applicant.

Sponsorship
The applicant company should normally be the subsidiary of a substantial bank or trust company elsewhere. CIMA requires a letter of recommendation from a bank or trust company and approval from the parent supervisory authority (where appropriate) and assurance from the parent supervisory authority of consolidated supervision and good standing of the applicant (where appropriate). This is not required for a restricted trust licence company.

Restricted trust licence undertaking
CIMA requires the applicant to submit an undertaking not to undertake trust business from anyone except those listed.

Capital
The applicant must submit details of the proposed paid-up capital. This should include the number and classes of shares and the number of shares of each class to be issued to each shareholder. In addition, the applicant must provide details of subsidiary companies and capital employed in those subsidiaries.

Principal office
The applicant must provide details of its own physical presence in Cayman or the name, address and consent of a service provider in Cayman to provide principal office services.

Authorised agents
Two individuals or a body corporate to act as authorized agent(s) in Cayman are necessary. These would normally be any of the directors or officers resident in Cayman. If there are no resident directors or officers then the applicant must appoint a separate agent(s) (usually another suitable licensee). The agent(s) must also provide a letter of consent.

Proposed business 
The applicant should give a detailed outline of the type of business it proposes to carry on. The outline should include:

• the business aims, and rationale for those aims, of the applicant;
• a detailed projected financial statement for the next two years;
• details of management structure and personnel; 
• details of anticipated customer base. In the case of a restricted trust licence company, the names, addresses and relationship to each other of the settlors or providers of funds of the proposed trusts; and 
• a copy of the most recent financial statements of the applicant (where available).

Year end
The applicant should state the date selected as the end of its financial year.

Auditors and accounts
The applicant must appoint approved local auditors approved by CIMA.

All applicants must submit an audited opening balance sheet to CIMA at the time of application, and annually after that within three months of their financial year end. The information contained in these is kept strictly confidential by CIMA.

Exemptions
A request for any exemption from the requirements of the Act may be made.

Constitutional documents
The memorandum and articles of association and the certificate of incorporation must be submitted.

Application and licence fee
An application fee (currently US$2,439), and the appropriate licence fee must be submitted.

Issues to note

• CIMA may waive certain requirements for a major international trust company approved by it.
• Besides these references, CIMA reserves the right to obtain further references.
• The applicant must provide details of any involvement of any shareholder, director or officer with any previous application for a licence.
• References shall be addressed to:
  The Cayman Islands Monetary Authority
  PO Box 10052
  SIX, Cricket Square
  Grand Cayman KY1-1001
  Cayman Islands
  
  
• CIMA is unlikely to approve an application for a licensee that does not intend to have a physical presence in the Cayman Islands, unless an existing 'A' licensee is to represent it.
• In preparing a statement of proposed business, applicants should include details of the following:
  • overall objectives and reasons;
  • customer base (e.g. corporate, private, related party, geographical distribution etc.);
  • asset structure (loan portfolios, investment policy, liquidity guidelines etc.);
  • management structure and overall staffing (if applicable);
  • and off-balance sheet and fee-earning activities.

Additional requirements

Minimum capital requirements
The paid-up capital required for a subsidiary trust company is at the discretion of CIMA, subject to the following statutory minima.

External official consents (not required for restricted trust licence companies)
For a financial institution wishing to establish a branch or subsidiary trust company in Cayman, CIMA will require evidence of the knowledge of the appropriate regulatory authorities in the applicant's own jurisdiction to the application. This applies even if there is no obligation in the applicant's own jurisdiction to obtain consent for such an application. The applicant must produce evidence showing either:

• that it proposes to apply for authorisation to carry on the business in the relevant jurisdiction; or
• that the provisions of local legislation require no such authorisation.

Issue and transfer of shares to the public
No licensee may issue shares or other securities to the public unless CIMA has given approval, and the applicant should include this in the original application. CIMA will only give the exemption for institutions whose shares are quoted on a recognised stock exchange. Where the shares in a proposed licensee are to be held through a privately owned company, CIMA will require undertakings from the ultimate beneficial owners that they will not issue or transfer the shares in the intermediary company without prior approval.

Regular supervision and visits
For most new licensees, CIMA will require the licensee to submit quarterly financial statements, including statements of maturity analysis, within fifteen days of the end of each calendar quarter. After the licensee is well established this may be extended. A restricted trust licence company will normally only be required to submit semi-annual or annual financial statements.

CIMA will require that a representative of management of the licensee visit Cayman every six months initially and, thereafter, at least once per year. This is to keep CIMA fully appraised of the licensee's activities, to discuss the licensee's progress and to review the guidelines established for that licensee. Where a licensee does not maintain its own local office, authorised agents must ensure that their contact with their clients enables them effectively to perform their role as intermediary between CIMA and the licensee.

Notification of changes in operations
Any significant change in the range or type of activity undertaken may necessitate a review of the status of the licence. Accordingly, institutions should discuss matters with CIMA before embarking on any major shift in policy. Licensees must have not less than two directors at all times and must obtain prior written approval for any changes in directors.

It is important that holders of restricted trust licences obtain prior approval to any planned extension to the approved list of permitted clients.

Controlled subsidiary and private trust company exceptions

Controlled subsidiaries
Under the Act, a trust company that is a "controlled subsidiary" does not require a licence to carry on the business of issuing debt instruments or to carry on other trust business that is:

• connected with the trust business of the licensee by which the controlled subsidiary is owned; and
• within the scope of the trust company's trust licence.

However, a controlled subsidiary is still required to register with CIMA and pay a registration fee (currently US$2,439). Thereafter, it is required to file an annual declaration regarding its name, its "parent" licensee, its directors and senior officers and confirmation that it continues to be a controlled subsidiary, together with the annual registration fee (currently US$8,537).

A "controlled subsidiary" is a trust company:

• that is incorporated in Cayman;
• that is a wholly owned subsidiary of a licensee; and
• whose directors and senior officers are directors and senior officers of the licensee or are otherwise persons approved by CIMA as fit and proper persons to be directors and senior officers of licensees holding licences for trust business.

Private trust companies
Pursuant to the Act, Cayman introduced the Private Trust Companies Regulations (2020 Revision) (the "PTCR") in September 2008. Under the PTCR a company that is a private trust company (a "PTC") and which is registered under the PTCR does not require a licence to carry on solely connected trust business.

"Connected trust business" means trust business in respect of trusts with a sole contributor or the contributors to the funds of which are all, in relation to each other, connected persons.

A person is a "connected person" in relation to another person if they are in a relationship listed in the Schedule to the PTCR (essentially, related by blood, marriage or adoption); one is contributing to the funds of a trust as the trustee of a trust of which the other is a contributor; each is in a group of companies; or one is a company and the other is a beneficial owner of shares or other ownership interests of that company or of any other company in the same group of companies.

Alternative financial instruments
Also under the Act, in September 2008, Cayman introduced the Alternative Financial Instruments Regulations, 2008 (the "AFIR"). Under the AFIR a person shall not be required to be licensed under the Act in relation to trust business if that person is acting as a trustee of a trust the only beneficial interests of which are alternative financial instruments; and the only beneficiaries to whom distributions can be made under the terms of that trust are the holders of those alternative financial instruments.

"Alternative financial instrument" means a transferable financial instrument that is or would be treated under the international accounting standards as a financial liability of the issuer.

If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.