The Cayman Islands Monetary Authority (CIMA) recently released the draft Statement of Guidance: Outsourcing All Regulated Entities (Excluding Regulated Mutual Funds) and a corresponding consultation paper.

The consultation paper invited the private sector to make submissions to CIMA in respect of the statement of guidance by May 11 2015. The statement of guidance is relevant to all entities that are regulated by CIMA in the Cayman Islands – for example, Cayman Islands professional corporate services providers, administrators and trustees which are regulated under Cayman Islands legislation (eg, the Banks and Trust Companies Law, the Insurance Law, the Mutual Funds Law, the Companies Management Law and the Securities Investment Business Law).

The statement of guidance excludes entities that are mutual funds regulated pursuant to the Mutual Funds Law.

Key points

Pursuant to the Monetary Authority Law of the Cayman Islands, CIMA issued the statement of guidance in order to improve its regulatory framework on outsourcing. The statement of guidance was not intended to be prescriptive or exhaustive; rather, it set out CIMA's minimum expectations on the outsourcing of material functions or activities and outsourcing arrangements.

Although CIMA acknowledged that regulated entities regularly use outsourcing arrangements to reduce costs, increase efficiencies and overcome internal capacity limitations, it was concerned by the heightened risks posed by such arrangements.

CIMA found that there are a number of risk areas where processes can be strengthened with respect to CIMA's existing regulatory policy and international standards (ie, those set by the Basel Committee on Banking Supervision, the International Organisation of Securities Commissions, the International Association of Insurance Supervisors and the Group of International Finance Centre Supervisors (GIFCS)).

CIMA acknowledged the 10 existing measures in its regulatory framework that provide guidance to regulated entities (primarily other statements of guidance) and proposed to issue the statement of guidance to consolidate these measures and address existing gaps in its regulatory policies.

CIMA noted that the draft statement of guidance was intended to provide guidance to regulated entities (including subcontractors where applicable) on the following matters:

  • appropriate due diligence of service providers;
  • contents of outsourcing agreements;
  • materiality assessments of outsourcing arrangements (ie, the impact of outsourcing arrangements on the entity and its finances, reputation and operations);
  • confidentiality and disclosure of information;
  • what governing bodies (ie, boards of directors) of regulated entities are expected to do with respect to the outsourcing of material functions or activities;
  • termination and exit strategies; and
  • expectations with respect to a regulated entity's relations with CIMA regarding the outsourcing of material functions or activities.

CIMA noted that the proposed statement of guidance was designed to align more closely with the relevant international standards as well as the GIFCS Standard on the Regulation of Trust and Corporate Service Providers.

CIMA also noted that the statement of guidance was intended to improve risk management processes and eliminate some of the risky practices seen in industry at present, and noted that "the outsourcing of functions or activities should not cause a regulated entity to be a 'shell' or 'letter-box entity'".


The issuance of the statement of guidance is a welcome step towards improving the clarity of CIMA's regulatory policy concerning outsourcing arrangements. The consolidation of this policy into one statement of guidance makes it much easier for the Cayman Islands funds industry to digest and should improve adherence to such standards.

CIMA continues to demonstrate its ongoing commitment to improving governance processes in the Cayman Islands. Although not yet finalised, the draft statement of guidance is a 'shot across the bow', and service providers that are subject to regulation by CIMA should take steps now to review their existing outsourcing arrangements and consider whether further processes or improvements should be implemented to manage the risks of such arrangements.

For further information on this topic please contact Matt Roberts at Harney Westwood & Reigels by telephone (+852 3195 7235) or email ( The Harney Westwood & Riegels website can be accessed at

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