The Cayman Islands have gained quite a reputation among large multinational companies and the financial elite. Why has this British Overseas Territory located in the Western Caribbean Sea become such a major international financial centre? One reason could be the fact there is no corporate or income tax on money earned outside of the Cayman Islands territory. Instead, the government collects an annual licensing fee. Another reason could be the privacy laws, which make it possible for business owners and individuals to hide their assets with no fear of a third party finding out where they are.
But don’t be fooled into thinking this means there is no regulation of financial services providers. Forex brokers in the Cayman Islands, for example, are regulated by the Cayman Islands Monetary Authority.
What does the Cayman Islands Monetary Authority do?
Otherwise known as the CIMA, it is the leading financial regulator for the Cayman Islands’ financial services providers. It also has responsibility for the supervision of a currency board which maintains fixed exchange rates with other currencies. The CIMA actually has four main functions:
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Regulatory function
It regulates and supervises all financial services in the Cayman Islands, including CIMA-regulated brokers. It ensures that businesses are compliant with money laundering regulations, and provides regulated entities with a handbook containing policies and procedures, rules, guidance and statements of principles.
Advisory function
The CIMA acts as an advisor for the Cayman Islands government with regard to monetary, regulatory and cooperative matters.
Monetary function
The CIMA is responsible for managing currency reserves and issuing and redeeming the Cayman Islands currency, the Cayman Islands dollar (KYD).
Cooperating function
This function involves helping overseas regulatory bodies to promote the consolidated supervision of financial markets.
The Authority is wholly owned by the government according to Monetary Authority Law (2013 Revision). The Authority’s Board of Directors is appointed by the Governor, who also has the power to direct the Authority, following consultation with the board. It is also possible for the Governor to request an independent review of the Authority’s actions and performance.
All CIMA-regulated brokers are required to comply with a set of conditions
In order to become a CIMA Forex broker there are a number of requirements a firm has to comply with. These are some examples:
- Company accounts must be audited on an annual basis.
- Annual accounts have to be submitted to the CIMA, along with a certificate of compliance.
- When changes are made to company information the CIMA has to be notified.
- The internal controls of licence holders have to be independently audited.
- Current insurance details have to be provided.
- Monthly statements have to be submitted by licensed dealers/brokers.
- Balance sheet figures have to be reconciled on an annual basis.
Should you find yourself looking for a Forex broker in the Cayman Islands it is a very simple process to check via the regulator’s website. The CIMA is committed to being open, transparent and accountable, and so makes it possible for traders to check a list of Securities Investment Business Licences, as well as different types of records.
International relationships and the CIMA
The CIMA pays due regard to standards imposed on the international financial markets, and it is helped in this by its membership of a range of different organisations. These include the following:
- World Group on Cross-Border Banking
- Offshore Group on Cross-Border Banking
- Caribbean Financial Action Task Force (CFATF)
- Association of Supervisors of Banks of the Americas (ASBA)
- International Organization of Securities Commissions (IOSCO)
It also participates in the International Monetary Fund’s Information Framework, which requires statistical information to be submitted to the IMF.
The role of the IOSCO
The IOSCO, or the International Organization of Securities Commissions, brings together a number of bodies which are responsible for the global regulation of the securities and global markets. It includes more than 100 financial regulators from different countries, accounting for more than 95% of the market. The organisation meets several times a year in various locations with a view to promoting high standards of regulation, as well as providing a forum that allows members to cooperate together and allows for the involvement of other international organisations.
Choosing a CIMA-regulated broker will provide you with increased protection
Without the help of a Forex broker, it will be impossible to participate in Forex trading, and because there are a number of unscrupulous providers it’s important to protect yourself and your investment. The best way to do this is to choose a provider that meets certain standards, and this means one that is licensed and regulated.
There are a number of things to consider when choosing a Forex broker in the Cayman Islands, or anywhere else in the world, but regulation should be a feature at the top of your list of priorities. After all, as with any form of investment there are a number of risks, and finding a way to reduce them as much as possible will mean you are able to concentrate on the important aspect of trading, which is the matter of choosing which currency pairs to concentrate on.
An unregulated broker will offer you very little recourse should you find yourself in trouble, and regulatory bodies are unable to assist if you need to make a complaint. There will be minimal legal protection from fraud, and should the unregulated broker find itself in financial trouble you run the risk of losing some or all of your investment.
It is easy enough to check whether a broker is regulated, and to verify any claims it makes. You simply visit the website of the regulatory body and perform a simple search. There are many different regulatory bodies located around the world, but choosing a broker that is licensed by one of them is much better than putting your money at risk by investing with an unregulated firm.
