Rule and Statement of Guidance – Recovery Planning

Summary

This Rule and Statement of Guidance sets out CIMA's requirements for Recovery Planning, aligned with Financial Stability Board standards, as part of the crisis management framework for systemically important deposit-taking institutions and other entities CIMA considers pose a financial stability risk. It requires covered entities to design, maintain, test and periodically submit a Recovery Plan explaining how they would restore financial health and viability following severe stress, without requiring government assistance.

• Scope: Applies to all Cayman Islands licensed banks (including local or overseas branches and subsidiaries), all CIMA-supervised cooperative societies such as credit unions and building societies, the Development Bank of the Cayman Islands, and any other Regulated Entity CIMA determines poses a financial stability risk.
• Required components: A Recovery Plan must at minimum include: an overview of the entity and plan; governance arrangements (Board, Senior Management, Internal Audit, Control Functions); scope and strategic analysis of core business lines and critical functions; a Triggers/Early Warning Indicator framework; stress testing against at least three scenarios (market-wide, idiosyncratic, combined) describing the Point of Near Failure; recovery options with execution timelines; and a communication plan.
• Proportionality: Plans should be proportionate to the entity's size, complexity, structure, business nature and risk profile, and for group entities must address upward/downward coverage to parent and subsidiary levels.
• Supervisory follow-up: After reviewing a submitted Recovery Plan, CIMA may require an entity to revise the plan, review recovery option risks, hold higher capital or liquidity, improve operational preparedness, or strengthen governance and internal controls; identified gaps must be remediated without undue delay or within a CIMA-prescribed timeframe.

The Rule becomes effective twelve months after publication in the Cayman Islands Gazette, giving entities a total of roughly twenty-four months from Gazette publication to develop and submit their first Recovery Plan. Breaches are addressed under CIMA's Enforcement Manual and its powers under the Monetary Authority Act.

Key obligations

• Develop a functional, usable Recovery Plan commensurate with the entity's size, complexity, structure, business nature and risk profile
• Ensure the Recovery Plan contains all seven required components: overview, governance, scope and strategic analysis, triggers/early warning indicators, stress testing (minimum three scenarios), recovery options with execution timelines, and a communication plan
• Submit the Recovery Plan to CIMA within twelve months of the Rule's Effective Date, and whenever updates or changes adversely impact the plan or CIMA otherwise requires it
• Submit a Board-approved Action Plan simultaneously with the Recovery Plan within twelve months of the Effective Date, and with every subsequent revised Recovery Plan
• Submit a Board-approved annual attestation confirming no material adverse changes to the Recovery Plan, in a manner prescribed by CIMA
• Conduct Fire Drill exercises within the first eighteen months of the Effective Date and every three years thereafter, or sooner if there is an earlier change to the business model or risk factors
• Remediate any deficiencies or gaps identified by CIMA's supervisory assessment without undue delay or within the timeframe CIMA prescribes
• Where part of a financial group, ensure the Recovery Plan's scope covers upward to the parent entity and downward to subsidiaries and branches in proportion to materiality and risk

Applies to

banks, cooperative societies (credit unions, building societies), the Development Bank of the Cayman Islands, other Regulated Entities determined by CIMA to pose a financial stability risk

Deadlines

• 12 months after publication in the Cayman Islands Gazette: Effective Date of the Rule and Statement of Guidance
• within 12 months of the Effective Date: Deadline for Regulated Entities to submit their first Recovery Plan to CIMA (and the Board-approved Action Plan submitted simultaneously)
• within 18 months of the Effective Date: Deadline to conduct the first Fire Drill exercise testing the Recovery Plan
• every 3 years thereafter: Recurring requirement to conduct Fire Drill exercises, unless an earlier change to business model or risk factors requires sooner testing
• annually: Submission of a Board-approved attestation confirming no material adverse changes to the Recovery Plan