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Welcome to the third instalment of our Cayman Islands Regulatory
& Risk Advisory Review. As we cover in this issue, there have
been a number of exciting developments, including the welcome news
of the Financial Action Task Force (FATF) removal of the Cayman
Islands from its list of jurisdictions under increased monitoring
otherwise known as the FATF grey list, the Cayman Islands Monetary
Authority new Rule on Corporate Governance, Rule and Statement of
Guidance on Internal Controls for Regulated Entities, proposed
changes to the beneficial ownership regime and CIMA’s
guidance on e-kyc along with other legislative updates.
We have also included some recent articles from our wider
Conyers team which provide further insight into industry trends and
market news.
1. FATF REMOVES CAYMAN ISLANDS FROM GREY LIST
The FATF announced its decision to remove the Cayman Islands
from its list of jurisdictions subject to increased monitoring (the
“Grey List”) on 27 October 2023. The delisting process
involved an onsite FATF visit and subsequent report which was
presented at the FATF Plenary in Paris. The FATF announcement
confirmed that the Cayman Islands maintains a robust and effective
anti-money laundering/counter terrorist financing (AML/CFT)
monitoring regime. Following the decision, the Cayman Islands is
eligible to be removed from the European Union’s enhanced
AML/CFT due diligence list. Read more
2. CHANGE TO THE EUROPEAN UNION (“EU”) LIST OF
NON-COMPLIANT TAX JURISDICTIONS
The EU added Antigua and Barbuda, Belize and the Seychelles to
its list of countries whose tax systems are not deemed to be
compliant with international standards in October. The British
Virgin Islands, Costa Rica and the Marshall Islands were removed
from the list on the basis that they had, respectively, made
changes to information exchange systems and foreign source of
income regimes and achieved progress in enforcing economic
substance rules.
3. LEGISLATION UPDATE
3.1. Proceeds of Crime (Amendment) Act 2023
The Proceeds of Crime (Amendment) Act 2023 (the
“POCAA”) was gazetted on 6 October 2023 but is not yet
in force. The proposed amendments concern intelligence gathering
and investigations, conforming to international best practices,
clarifying the evidential basis for criminal property obtained
through unlawful conduct and supervisory authorities’
liability in executing their duties. Of particular note, the
proposed amendments to the POCAA also remove the defence against
money laundering where a suspicious activity report is filed or
intended to be filed. The POCAA provides for regulations to be made
to establish a framework under which persons who file suspicious
activity reports may seek or obtain a defence to specified
offences.
3.2 Beneficial Ownership Legislation
3.1. It is anticipated that the Beneficial Ownership
Transparency Bill 2023 (the “Bill”) gazetted on 30
August 2023 will be presented to Parliament in the fourth quarter
of 2023. The Bill consolidates the beneficial ownership provisions
of the Companies Act, the Limited Liability Companies Act and the
Limited Liability Partnership Act and brings limited partnerships
and exempted limited partnerships into scope of the reporting
requirements. Amendments have been made to the definition of
beneficial owner and the information required to be reported to the
Competent Authority.
Beneficial owners will be required to declare their nationality
and the way in which their control is exercised, whether by voting
rights, shareholding or ultimate effective control. The exemptions
in the current legislation will be removed, and certain
“alternative routes to compliance” will be added.
Entities “licensed under a regulatory law” will be able
to utilise an alternative route to compliance, however, entities
that are part of a fund structure but not registered with the
Cayman Islands Monetary Authority (CIMA) , and those that
previously relied upon the managed, arranged, administered,
operated or promoted by an ‘approved person’ exemption
will not be able to rely on an alternative route to compliance.
Corporate service providers will also need to comply with enhanced
responsibilities in reviewing and identifying beneficial owners
once the legislation is in effect. Accompanying regulations and
guidelines are expected to be issued in due course. The Bill
provides for a phased introduction.
4. CIMA RULES, STATEMENTS OF GUIDANCE AND GENERAL INDUSTRY
NOTICES
4.1. Rule on Corporate Governance for Regulated Entities
and Rule and Statement of Guidance on Internal Controls for
Regulated Entities Now In Effect
The Rule on Corporate Governance and Rule and Statement of
Guidance on Internal Controls for all regulated entities issued by
CIMA on 14 April 2023 came into effect on 14 October 2023. The Rule
on Corporate Governance applies to governing bodies of all
regulated entities and requires them to adopt corporate governance
frameworks commensurate with the size, complexity, structure,
nature of business and risk profile of their operations. In
particular, regulated entities must ensure that their corporate
governance frameworks address risk management, outsourcing and
internal controls in accordance with specific minimum requirements
outlined in the Rule. Governing bodies of regulated entities must
also comply with expanded responsibilities concerning governance,
oversight and internal controls in accordance with the Rule and
Statement of Guidance on Internal Controls for Regulated Entities.
These new Rules and Statements of Guidance supersede the former
Rules and Statements of Guidance relating to corporate governance
and internal controls, which have been repealed with effect from 14
October 2023.
4.2. Rule and Statement of Guidance – Nature,
Accessibility and Retention of Records – Company
Managers
New licensees under the Companies Management Act, Banks and
Trusts Companies Act, Mutual Funds Act and Insurance Act which are
conducting the business of company management will be in scope of a
new Rule and Statement of Guidance issued on 31 August 2023. For
existing licensees conducting the business of company management,
the new Rule and Statement of Guidance will come into effect on 1
April 2024. The Rule and Statement of Guidance establishes minimum
requirements regarding the maintenance of records to promote
accessibility, retention and appropriate security.
4.3. General Industry Notice – Regulated Fund
Filings
Due to a systemic issue in the filing of audited financial
statements and FAR forms for Funds with a financial year end
(“FYE”) of 31 December 2022, CIMA announced in a
general industry notice on 1 September 2023 that no penalties will
be levied for late filings. Filings were facilitated through
CIMA’s REEFS Portal up until 30 September 2023. Funds with
FYEs subsequent to 31 December 2022 are still obligated to file
within 6 months of the FYE or submit an extension request with the
requisite fee.
5. AML GUIDANCE NOTES – E-KYC AMENDMENTS
Amendments to the Guidance Notes on the Prevention and Detection
of Money Laundering, Terrorist Financing and Proliferation
Financing (“AML Guidance Notes”) concerning electronic
‘Know Your Customer’ (“e-KYC”) practices,
remote client due diligence (“CDD”) and ongoing
monitoring were published on 30 August 2023. The amendments support
recommendations issued by the FATF concerning digital
identification and clarify that technological means for remote CDD
and e-KYC is permitted beyond the context of circumstances
surrounding CIMA’s related e-KYC advisory issued during the
Covid-19 pandemic. The AML Guidance Notes also state that financial
service providers must conduct verification through a risk-based
case by case approach, dependent upon the particular risk factors
and scenarios and provide guidance concerning customer
identification and verification methods, the risk assessment of
technology solutions, video conferencing, non face to face
relationships and required policies and procedures.
6. GENERAL LICENCES
6.1. General Licence 2022/0001 (“GL 2022/0001”) was
originally issued on 4 October 2022 under the Russia (Sanctions)
(EU Exit) Regulations 2019 (as extended to the Cayman Islands) to
allow a Relevant Investment Fund or Fund Manager to redeem,
withdraw or otherwise deal with an Investment Interest and make
payments for basic needs, routine holding and maintenance and legal
fees from frozen accounts. After previously having been amended to
extend to 5 October 2023, GL 2022/0001 was further amended on 6
October 2023 to extend its application to 6 October 2024.
7. IMPORTANT DATES
31 December 2023: Registered mutual and private funds wishing to
deregister with CIMA must ensure the fund is in good standing with
CIMA (up to date with payments of fees, audits and any other
required filings) and file deregistration documents with CIMA by
this date to avoid registration fees for 2024.
7. CONYERS INSIGHTS
The following articles and alerts may be of general interest and
can be found at the links below on the Conyers website:
FATF Removes Cayman Islands from Grey List
An Overview of Cayman Islands Private Trust
Companies
Cayman Islands’ Corporate Governance Rule
and Internal Controls Guidance and Rule
Cayman Islands Shareholder Remedies: Stays in
Favour of Arbitration
New Rules on Corporate Governance and Internal
Controls Coming into Effect on 14 October 2023
Orienteering Change: Navigating Restructuring
Under the New Cayman Islands Regime
Revamped Cayman Islands Restructuring Regime Takes
Shape
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.
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