Securities Investment Business (Financial Requirements and Standards) Regulations, 2003

Summary

This is a 2003 Cayman Islands regulation made under the Securities Investment Business Law that sets out the financial requirements and standards applicable to persons licensed to conduct securities investment business (SIB licensees). It applies to all such licensees unless the Cayman Islands Monetary Authority (CIMA) waives or modifies requirements because the licensee is already subject to equivalent financial reporting obligations under another regulatory law (e.g. banking, insurance or mutual funds legislation).

Core Financial Requirements

• Maintain adequate financial resources and risk management systems.
• Use only Cayman Islands or US dollars as their reporting currency, absent CIMA approval otherwise.
• Keep adequate accounting records.
• Perform regular reconciliations of bank, intermediary and margin account balances.
• Submit specified periodic financial reports to CIMA, including monthly or quarterly reporting statements, an auditor's opinion on internal controls, and annual reconciliations alongside audited accounts.

Financial Resources Calculation

Schedule 1 sets out the method for calculating a licensee's financial resources and financial resources requirement, comprising a base requirement, counterparty risk requirement and position risk requirement, while Schedule 2 defines how 'relevant annual expenditure' is calculated for base requirement purposes. Licensees must at all times hold financial resources exceeding this calculated requirement.

The regulations also require CIMA's prior consent for certain capital, share acquisition and merger/sale transactions affecting a licensee.

Key obligations

• A licensee shall maintain adequate financial resources to meet its securities investment business commitments and withstand business risk (reg 4).
• A licensee's reporting currency shall be Cayman Islands dollars or United States dollars, and any other currency requires CIMA's prior approval (reg 5).
• A licensee shall maintain adequate and current accounting records and adequate internal systems, controls and risk management processes for its business (reg 6(1)).
• A licensee shall maintain accounting records covering the 5 years immediately preceding the date its licence was first granted (reg 6(2)).
• A licensee shall reconcile all balances with banks or building societies at least once every 5 weeks and correct differences forthwith (reg 7(a)).
• A licensee shall reconcile all balances and positions with securities investment business intermediaries at least once every 5 weeks and resolve differences on a timely basis (reg 7(b)).
• A licensee shall reconcile its own margin accounts with securities investment business intermediaries at least once every business day (reg 7(c)).
• A licensee shall submit an auditor's opinion on its internal controls to CIMA at the same time as its audited accounts (reg 8(1)(a)).
• Broker-dealers must submit a monthly reporting statement, and all other licensees a quarterly reporting statement (in the Schedule 1 format), within 15 business days of the end of the relevant month or quarter (reg 8(1)(b)).
• A licensee shall submit an annual reconciliation between its audited balance sheet and its monthly/quarterly reporting statement, with an explanation of differences, at the time of submitting audited accounts (reg 8(1)(c)).
• Where a licensee has subsidiaries, it must submit each subsidiary's audited accounts and consolidated audited accounts along with its own, unless CIMA otherwise permits (reg 8(2)).
• A licensee shall calculate its financial resources and financial resources requirement in accordance with Schedule 1 and any relevant CIMA guidance (reg 9(1)).
• A licensee shall at all times maintain financial resources in excess of its financial resources requirement (reg 9(4)).
• A licensee shall obtain CIMA's written consent before reducing or changing the nature of its issued capital or the rights and obligations of shareholders (reg 10(a)).
• A licensee shall report to CIMA the acquisition of 10% or more of the voting shares of another company (reg 10(b)).
• A licensee shall obtain CIMA's prior written consent before agreeing to sell or merge the whole or any part of the licensee with a third party (reg 10(c)).

Applies to

securities investment business licensees, broker-dealers, market makers, securities managers, securities investment business intermediaries

Deadlines

• 29 July, 2003: Commencement date of the regulations.
• within 15 business days of the end of the month or quarter: Deadline for broker-dealers (monthly) and other licensees (quarterly) to submit their reporting statement to CIMA.
• at least once every 5 weeks: Required frequency for reconciling balances with banks/building societies and with securities investment business intermediaries.
• at least once every business day: Required frequency for reconciling a licensee's own margin accounts with securities investment business intermediaries.