CIMA's Thematic Review on Outsourcing: Are you compliant?

• The Cayman Islands Monetary Authority identified in its Thematic Review on Outsourcing that outsourcing agreements and accountability were the primary weaknesses across the reviewed entities, with missing contractual provisions and insufficient Board oversight accounting for most of the findings. 

• Regulatory responsibility cannot be outsourced. Governing bodies and senior management remain ultimately accountable for all outsourced material functions and regulatory obligations.

• Cayman Islands regulated entities that outsource material functions should proactively review and update their outsourcing frameworks against the Cayman Islands Monetary Authority’s requirements in its Statement of Guidance on Outsourcing and the weaknesses and good practices identified in its Thematic Review to mitigate potential supervisory action.

In January 2026, the Cayman Islands Monetary Authority ("CIMA" or the "Authority") published its Thematic Review on Outsourcing (the "Report"), setting out the findings from its 2025 cross-sector review of outsourcing practices among sixteen regulated entities in the Cayman Islands. The review assessed governance structures, risk assessment practices, and oversight controls relating to outsourcing arrangements, with particular attention to whether entities had implemented the Authority's Statement of Guidance on Outsourcing: Regulated Entities (the "Outsourcing SOG"), which was revised and made effective in April 2023.  This advisory summarises the key findings, highlights areas of good practice, and sets out practical steps for regulated entities seeking to strengthen their outsourcing frameworks.

Key findings

The Report reveals weaknesses in four thematic areas which accounted for 85% of the weaknesses. Deficiencies related to outsourcing agreements accounted for 34% of all findings, making it the largest single category. Accountability weaknesses followed closely at 33%, risk management weaknesses at 10%, and assessing service providers at 8%. The remaining 15% of findings related to materiality assessments, conflicts of interest, intra-group arrangements, relations with the Authority, the outsourcing framework, termination and exit strategy, and confidentiality. 

Outsourcing Agreements. Of the weaknesses identified in this category, 98% related to missing provisions in outsourcing agreements, whilst two 2% concerned a lack of legally binding agreements. The most common missing provisions included performance monitoring and metrics, and conflicts of interest (each at 12%), followed by supervisory access for the Authority, regular reviews and reporting, material impact disclosures, subcontracting arrangements, and insurance coverage (each at 9%). Data security and breach notification provisions were absent in seven percent (7%) of cases, with business continuity and contingency plans missing in six percent (6%).  CIMA emphasised in the Report that outsourcing agreements should be regularly reviewed and updated to ensure they accurately reflect all services procured and include all Outsourcing SOG‑required provisions.

Accountability. 22% of accountability-related weaknesses concerned insufficient reviews of policies and procedures by the Board of Directors. Several entities were unable to provide evidence of annual Board review and amendment or re-adoption of outsourcing policies. A further 10% related to entities not evidencing mechanisms for the frequency of expected comprehensive assessments, including realistic thresholds for performance, and another 10% related to a failure to ensure independent reviews or audits to assess compliance with outsourcing policies. 

Risk Management. 36% of risk management weaknesses related to risk assessments that did not take into consideration all minimum risks required by the Outsourcing SOG, including country, strategic and exit risks. 21% related to inadequate outsourcing policies regarding risk management, such as ensuring limits on the level of authority required for approval of outsourcing material functions. A further 14% related to entities not evidencing risk assessments prior to the initiation of outsourcing arrangements, with another 14% relating to a lack of consistent annual risk assessments. 

Assessing Service Providers. 37% of weaknesses in this area related to an inadequate assessment scope, with due diligence assessments not covering required elements such as the service provider's human, financial, and technical resources, ability to safeguard confidentiality, corporate governance, risk management and internal controls, business continuity arrangements, and knowledge of the Cayman Islands legal framework. The Authority also noted instances where assessments were based on simple "Yes" or "No" responses without supporting evidence. 45% of weaknesses arose from entities not evidencing due diligence assessments either prior to, or regularly after, the commencement of outsourcing arrangements. 

Good practices observed

The Authority commended several good practices observed across the selected entities. These included regular review and Board approval of outsourcing policies and procedures on at least an annual basis, maintenance of logs of material outsourcing arrangements, and independent reviews or audits of the outsourcing framework. Clear communication procedures between entities and service providers were also noted positively. 

In relation to outsourcing agreements, good practice was observed where agreements were duly signed, dated, and legally binding, with detailed scope of arrangements covering services, rights, responsibilities, expectations, reporting requirements, and fees, along with provisions for regulatory compliance, insurance coverage, dispute resolution, and data breach notification. In respect of risk management, several entities demonstrated adequate risk management frameworks, systems, policies, and processes to assess, control, and monitor material outsourcing arrangements, together with feasible contingency plans and evidence of risk assessments completed both prior to initiation and regularly thereafter.

Good practice was further observed in relation to conflicts of interest, where entities had established policies and procedures to identify and manage conflicts and obtained annual conflicts of interest declarations from service providers. Comprehensive confidentiality clauses, detailed terms of engagement and privacy notices, and data protection policies updated to reflect changes across relevant jurisdictions were also recognised. 

The Authority identified additional good practices across the remaining thematic areas and further detail on these can be found in the Report.

CIMA's regulatory expectations

The Report reaffirms a number of important regulatory expectations. The Authority reminds all regulated entities that outsourcing does not diminish regulatory responsibility. Governing bodies and senior management remain ultimately responsible for all outsourced material functions, ongoing regulatory obligations, and interactions with the Authority. Regulated entities must maintain the same level of oversight and accountability over outsourced functions as they would over internal ones, ensuring that obligations to clients remain unchanged and that outsourcing does not materially increase the entity's net risk. 

The Authority expects regulated entities to regularly review their outsourcing agreements, updating them where gaps are identified to ensure that they accurately reflect all services procured and contain all required provisions as stated in the Outsourcing SOG.  Risk assessments must be completed prior to initiation of an outsourcing arrangement and regularly thereafter, at least annually, including an assessment of jurisdictional risk where service providers are located outside the Cayman Islands. 

Entities are further expected to ensure documented evidence of initial due diligence assessments, perform regular assessments of service providers at least annually, apply an adequate scope for due diligence, and establish processes to verify that service providers maintain comprehensive insurance coverage throughout the outsourcing arrangement. Entities that are part of wider corporate groups may rely on group-level governance structures, provided these frameworks are suitable for local operations and compliant with Cayman-specific requirements; a gap analysis must be performed and, where gaps exist, tailored arrangements developed.
The Authority also expects entities to establish measures and control mechanisms for notifying CIMA on the approval or termination of outsourcing arrangements, and to ensure that termination and exit strategies are formalised. The outsourcing framework for each regulated entity should be commensurate with the size, complexity, structure, nature of business, and risk profile of its operations. 

Practical considerations and next steps

It is vital to ensure CIMA has a full understanding of how your business operates to assess whether the outsourcing frameworks of regulated entities are proportionate to the size, complexity, structure, nature of business and risk profile of their operations. In our experience, this approach can significantly reduce what CIMA might otherwise consider to be compliance discrepancies. 

Clarity is key when establishing and documenting outsourcing arrangements. Ideally, regulated entities would be able to present a simple wagon wheel of outsourcings with compliant, written, outsourcing agreements forming the spokes of the wheel. We know that in practice it is difficult to always maintain so straightforward a picture. For intra-group arrangements in particular, we are conscious that it can feel artificial having such written agreements in place. However, CIMA, in common with other regulators, looks at the regulated entity itself and not at the group. It is not sufficient to know that functions are performed for the regulated entity within the group as a whole. The regulated entity needs to demonstrate which group entities have been outsourced to and that the regulated entity has considered each specific outsourcing.  

Based on the findings in the Report, regulated entities should consider undertaking the following granular steps as a matter of priority:

1. Agreement review and remediation: Conduct a comprehensive review of all existing outsourcing agreements against the Outsourcing SOG, addressing any gaps in provisions on performance monitoring, conflicts of interest, supervisory access, subcontracting, insurance coverage, data security, business continuity and audit rights and termination.
2. Governance and accountability enhancements: Ensure that outsourcing policies and procedures are subject to regular Board review and approval, that outsourcing logs are complete and up to date, and that independent reviews or audits of the outsourcing framework are scheduled and documented.
3. Strengthening risk management: Ensure risk assessments cover all minimum risk categories required by the Outsourcing SOG (including country, strategic, and exit risks). Embed risk assessment into pre-engagement due diligence and annually for review.
4. Due diligence and monitoring: Review due diligence procedures for service providers, ensuring appropriate scope and rigour, and moving beyond simple checklist-based approaches where necessary. This should include verification of service providers' insurance coverage and business continuity arrangements.
5. Intra-group arrangements: Review intra-group outsourcing arrangements (if applicable) to ensure that fully executed agreements are in place; exit strategies are documented; and appropriate policies, procedures, and processes for monitoring and oversight of these arrangements are established.
6. Regulatory engagement: Ensure that procedures are in place to notify CIMA of the approval or termination of material outsourcing arrangements in a timely manner. 

How We Can Help

Our team has extensive experience advising Cayman Islands regulated entities across all sectors on the design, implementation and enhancement of outsourcing frameworks that are compliant with CIMA’s current expectations, including:

• Conducting gap analyses against the Outsourcing SOG and the Thematic Review findings. 
• Review and drafting of outsourcing policies, frameworks and agreements (including intra‑group documentation). 
• Design and enhancement of materiality assessment, risk assessment and due diligence of outsourced service providers. 
• Preparation of Board reporting packs and documentation to evidence compliance and support engagement with CIMA. 

To assist with you in navigating these requirements, please register here to obtain a free outsourcing checklist. We encourage you to contact us to discuss any how the findings of the Report may affect your operations and how we can support you in strengthening your outsourcing framework.

Further information & Contacts

For more information, please get in touch with any of the individuals listed below.