INTRODUCTION

The regulatory environment continues to remain active and this
update from Appleby’s Cayman office takes a closer look at
the significant developments in the past quarter, including the new
regulatory procedures from the Cayman Islands Monetary Authority
(CIMA), the EU’s
“new” position¹ on public
access to beneficial ownership registers and developments regarding
the imposition of sanctions. We hope you will find its contents
useful.

HOT TOPICS

LIMITED LIABILITY COMPANIES ACT

The Cayman Islands Limited Liability Companies Act was amended
on 19 October 2022 by the Limited Liability Companies (Amendment)
Act, 2022 (LLC Amendment Act) which came into operation on that
date.

The LLC Amendment Act no longer requires an LLC to file a
certificate of amendment on membership changes with the Registrar;
however, the LLC is still required to maintain at its registered
offices, the names and addresses of each person who is a member,
date they became/ceased to be a member(s) and the nature of their
voting rights.

ECJ SAYS PUBLIC ACCESSS TO BENEFICIAL OWNERSHIP
REGISTERS INVALID

The European Court of Justice’s
(ECJ)² recent judgment held that a
directive³ requiring Member States to ensure that
beneficial ownership information of corporate and other legal
entities were accessible in all cases and to any member of the
general public was invalid. The directive was held to be invalid as
it was incompatible with Articles 7 and 8 of the Charter of
Fundamental Rights of the European Union
(Charter).

The ECJ’s decision has cast serious doubts on whether
mandated public access to beneficial ownership registers can remain
in force as they are incompatible with the fundamental rights to a
private and family life (Article 7 of the Charter) and the right to
the protection of personal data (Article 8 of the Charter).

This decision does not bind the UK or the Cayman Islands as
since Brexit, ECJ decisions are not binding on
English courts and the Charter was not incorporated into UK law as
part of the European Union (Withdrawal) Act 2018. However, English
courts and the UK government will need to consider this decision as
the right to a private and family life remains in UK law as part of
the 1998 Human Rights Act and beneficial ownership registers have
featured heavily in the government’s policy and approach to
the reduction of financial crime. In the Cayman Islands the right
to Private and Family Life is also enshrined within Article 9 of
the Constitution.

As a result of the judgment, EU Member States have reportedly
already started to restrict access to their beneficial ownership
registers for companies.

The Cayman Islands Government is currently considering industry
feedback in relation to the Beneficial Ownership Transparency Bill,
2022 and associated regulations, which propose to consolidate all
beneficial ownership legislation into one act. On the 30 November
2022, the Cayman Islands Ministry of Financial Services
(MFS) stated that in line with the request of the
United Kingdom, and with the assistance of external counsel, they
were currently reviewing the ECJ judgment to determine if
there are any implications with respect to the proposal to
introduce public beneficial ownership
registers⁴.

We shall have to wait and see what the Cayman Islands
government’s final position is in light of the ECJ
decision.

NEW RESTRUCTURING REGIME

The Companies (Amendment) Act, 2021 came into force on 31
August 2022.

The amendments create a new standalone restructuring regime,
separate from the existing company winding-up procedures. Under the
new regime, directors will be empowered to petition the Court for
the appointment of a restructuring officer if the company is (or is
likely to become) unable to pay its debts and intends to present a
compromise or arrangement to its creditors.

The directors will be empowered to do so without the sanction of
a resolution of the company’s members or an express power
permitting such action in the company’s articles of
association.

The filing of the petition will trigger an automatic moratorium
on claims against the company. Leave of the court would be
required to bring any action, proceeding or resolution for the
winding up of the company once the petition has been
filed. The moratorium will apply not only to proceedings
brought against the company in the Cayman Islands, but also to any
proceedings brought in a foreign jurisdiction. However, the
position of secured creditors would not be impacted by the
amendments; a secured creditor remains free to enforce its security
in accordance with the terms of the security documents without
having to seek leave of the court.

The amendments also amend the existing company winding-up
procedures so that where expressly provided for in the articles of
association of a company, the directors of a company incorporated
before 31 August 2022 have the authority to (a) present a winding
up petition; or (b) where a winding up petition has been presented,
apply for the appointment of a provisional liquidator, on behalf of
the company without the sanction of a members’ resolution,
provided that the articles of association of the company may
expressly remove or modify this directors’ authority in
respect of (a) and/or (b).

INVESTMENT FUNDS & SANCTIONS

NEW CIMA RULE & REGUATORY PROCEDURE FOR THE
CANCELLATION OR DEREGISTRATION OF A FUND

CIMA issued a new 
Rule and Regulatory Procedure in August 2022 for the
cancellation of licences or deregistration of regulated Mutual
Funds and registered Private Funds (regulated
funds).

The principal aim of the changes is to streamline the process
for the cancellation and deregistration of regulated funds.

Regulated funds must be in good standing with CIMA when they
file their deregistration application under the new
Rules. Good standing requires that funds must have paid all
prescribed fees and submitted all required audited financial
statements and must not have any outstanding queries or regulatory
filings with CIMA.

Consistent with the previous rules, regulated funds must still
notify CIMA when they intend to cease carrying on business or have
ceased carrying on business within 21 days from the date the fund
cease to carry on business. CIMA may levy
an administrative fine for failure to
comply with this requirement. Accordingly, please reach out to
Appleby at the early stages whenever you are considering a
restructure or whether to cease carrying on business as a regulated
fund.

For further information click this 
link.

GENERAL LICENCE GRANTED UNDER THE RUSSIAN SANCTIONS
REGIME

On 4 October 2022 the Governor of the Cayman Islands issued
General Licence 
GL/2022/0001 (GL)⁵ for ‘Relevant
Investment Funds’.

A ‘Relevant Investment Fund’ is an investment fund
whose assets are frozen under the Modified
Regulations⁶ due to its assets being 50% or more
owned or controlled by a Designated Person.

Where a ‘Relevant Investment Fund’ has a Designated
Person (a Designated Person being a sanctioned investor) which has
been identified and confirmed by the fund, the fund manager or by
its administrator, the Relevant Investment Fund must: (i) freeze
the assets and funds of the Designated Person; (ii) report the
issue to the Cayman Islands Financial Reporting Authority; and
(iii) not take any action which could be considered to be
‘dealing’ with the assets of the sanctioned investor,
nor make any funds or economic resources available to them.

The GL does not assist where there are minority holdings in a
fund held by a Designated Person. Further, the GL does not assist
most funds as it provides only for the redemption/withdrawal of
non-designated persons or non-sanctioned investors.

As a result of the above, once the Designated Person has been
identified the Relevant Investment Fund has few options that it can
take in respect of that investor once it has frozen the assets.

The GL, subject to certain conditions, allows a Relevant
Investment Fund or the fund manager to:

• redeem, withdraw or otherwise deal with an investment interest
  of a person that is not a Designated
  Person or owned or controlled directly or indirectly by a
  Designated Person.




• make payments for the basic needs of the Relevant Investment
  Fund, including the payment of insurance premiums, accounting fees,
  registered office fees, corporate & regulatory fees,
  directors’ fees and of course legal fees or any other
  reasonable routine expense from frozen accounts.




• make payment for reasonable fees or reasonable service charges
  arising from the routine holding and maintenance of the Relevant
  Investment Fund’s frozen funds or economic resource

Where the GL is relied upon, the following notification
requirements apply:

• The Governor’s Office must be notified by email
  to Cayman@fcdo.gov.uk as
  soon as practicable the first time the GL is relied upon.




• Monthly reporting to the Governor’s Office on the 16th of
  each month after the initial notification in (i) above, setting out
  the use of the GL in the preceding month.




• If the Relevant Investment Fund is regulated by CIMA, they must
  also notify CIMA of the use of the GL within three business days.
  Notifications to CIMA should be e-mailed to: generallicencenotification@cima.ky.

The GL is currently in effect and will expire on 4 April
2023.

COMMON REPORTING STANDARD (CRS)

DITC REQUEST FOR INFORMATION & ISSUING BREACH NOTICES

In recent months Appleby have become aware that the Cayman
Islands Tax Information Authority’s Department for
International Tax Cooperation (DITC) have issued requests for
information and subsequent breach notices where this information
has not been provided. These requests and breach notices were
issued where there had been a failure to respond appropriately to
the DITC.

The DITC generally communicate and send requests for information
via e-mail and as a result a request for information is generally
sent to the email address provided as the principal point of
contact (PPoC) on the DITC Portal. Information requests may also be
sent to the entity’s Authorising Person (AP) as provided on
the DITC portal. Do keep these e-mail contact addresses up-to-date
and monitored regularly.

Failing to respond appropriately to a request for information
from the DITC is a breach of the (Common Reporting Standard)
Regulations (2021 Revision) and can result in an administrative
penalty of CI$10,000 (approximately US$12,195).

THE CAYMAN ISLANDS MONETARY AUTHORITY

ADMINISTRATIVE FINES

CIMA continues to impose administrative fines for both
prudential and AML breaches, with four fines being imposed on both
individuals and companies during this quarter. In this current
regulatory environment, it is now more important than ever to seek
regulatory advice from Appleby’s regulatory and industry
experts as early as possible.

During Q4 the Cayman Islands Grand Court presided over
two matters that involved CIMA imposing administrative fines on a
regulated entity. These matters are reported in brief
below.

INTERTRUST SETTLES ADMINISTRATIVE
FINE WITH CIMA

Under the terms of a consent order filed on the 10 October 2022,
and published by the Grand Court on 7 November 2022, Intertrust
Corporate Services (Cayman) Limited has agreed to pay fines
totalling approximately US $5.1 million imposed on them by CIMA for
a series of breaches of the AMLRs.

STERLING ASSET MANAGEMENT INTERNATIONAL

On the 6 May 2022 CIMA imposed
discretionary administrative
fines against Sterling Asset Management International
Limited (Sterling) totalling approximately US
$359,000 for breaches of the AMLRs.

On the 11 November 2022, the Grand Court of the Cayman Islands
granted Sterling leave to appeal its fine, with the fine being
stayed pending the appeal.

In his judgment and whilst granting leave, Justice Ian Kawaley
stated that CIMA as a statutory body must provide reasons or an
explanation for: (i) imposing a fine and exercising its fine
discretion; and (ii) the quantum of the fine as the
“regulations seemed to require a quasi-judicial
explanation.”

In addition, Kawaley J. further stated that CIMA as a statutory
authority is subject to section 19 of the Cayman Islands
Constitution which creates a constitutional right for Sterling or
anyone else in their dealings with CIMA to receive reasons for
administrative decisions, which made it arguable that reasons for
rejecting matters should be explained.

This case has highlighted the legal requirement of CIMA needing
to give reasons for all administrative decisions. We will be
watching this case very closely.

2021 REVIEW OF TCSPs COMPLIANCE WITH THE AMLRs: SANCTIONS
SCREENING POLICIES AND PROCEDURES

On the 17 June 2022 – CIMA published an 
information circular reminding all Trust and Corporate
Service Providers (TCSPs) of their role in the prevention of
financial crime. This includes ensuring that the TCSP’s
clients – whether fund vehicles, virtual asset service
providers, correspondent banks or other legal persons and
arrangements – are not subject to, or seeking to circumvent,
targeted financial sanctions (“TFS”).

When establishing a business and on an ongoing basis, TCSPs are
required by the AMLRs to assess whether the client, its directors,
shareholders, beneficial owners, and other related parties are, or
are involved with, persons or entities designated under the TFS
applicable in Cayman Islands. Upon identification of such persons
or entities, TCSPs and other financial institutions are required to
freeze such accounts, funds or economic resources and report to the
Governor, through the Financial Reporting Authority
(“FRA”).

NEW BANK ACCOUNTS FOR CIMA

On 17 August 2022, CIMA published an 
information notice informing regulated entities of changes
to its bank account numbers for the payment of all fees.

Effective immediately, all electronic fee payments to CIMA
should be processed using the new bank account numbers for domestic
electronic transfers and wire transfers.

As of 1 October 2022, CIMA will no longer accept fee payments to
the previous bank accounts (RBC # 06975-1141266 KYD & RBC
#06975-2632008 USD). Please note that payments currently in
transition via the previous bank account number(s) will still be
accepted and recorded accordingly.

Footnotes

1 The Court of Justice of the European Union

2 [2022] EUECJ C-37/20 – 22 November 2022,
Luxembourg

3 Directive (EU) 2015/849 (as amended)

4
https://www.mfs.ky/news/statement-on-eu-court-of-justice-ruling-on-business-registers/

5 The GL was issued under Regulation 64 of the UK’s
Russia (Sanctions) (EU Exit) Regulations, 2019, as extended to the
Cayman Islands, with modifications, by the Russia (Sanctions)
(Overseas Territories) Order, 2020 (the Modified
Regulations).

6 Russia (Sanctions) (EU Exit) Regulations, 2019, as
extended to the Cayman Islands, with modifications, by the Russia
(Sanctions) (Overseas Territories) Order, 2020 (Modified
Regulations)

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.