The Cayman Islands Monetary Authority has released a draft statement of guidance on outsourcing for public consultation. The statement intends to improve the regulatory framework for regulated entities, except mutual funds, that outsource key functions and activities to third parties.
While CIMA recognizes the benefits of outsourcing in terms of costs, efficiencies and capacity for license holders, the authority said it is concerned about the regulatory risks posed by outsourcing arrangements.
The statement of guidance will apply to all entities regulated by CIMA in the Cayman Islands, except mutual funds, and aims to improve risk management processes. It also notes that “the outsourcing of functions or activities should not cause a regulated entity to be a ‘shell’ or ‘letter-box entity.’”
CIMA concluded that as a result of self-assessments it has conducted, processes can be strengthened in a number of risk areas with regard to the authority’s existing regulatory policy and standards set by international regulators.
The statement of guidance represents the authority’s minimum expectations, for instance in terms of the appropriate due diligence of service providers; assessing the impact of outsourcing arrangements on a firm’s finances, reputation and operation; confidentiality and disclosure of information; and the content of outsourcing arrangements.
A CIMA consultation paper invites the private sector to make submissions to the authority and comment on the statement of guidance by May 11.