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We are pleased to welcome you to Conyers’ Cayman Islands
Regulatory & Risk Advisory Review, keeping you apprised of the
latest regulatory news and developments.
The past few months have been a particularly active time for
Conyers’ regulatory team, most notably relating to sanctions
advice, duties of confidentiality, breach notices and
investigations concerning data protection, queries regarding
beneficial ownership register requirements and upcoming changes to
same and economic substance reporting and compliance notice
requirements. As we discuss in this newsletter, there has been a
wave of new rules and statements of guidance from the Cayman
Islands Monetary Authority now in effect (and coming into effect)
covering areas such as outsourcing, record retention,
cybersecurity, internal controls and corporate governance.
Assisting our clients to ensure ongoing compliance and
safeguarding against enforcement actions (to include potential
administrative fines) has never been more of a priority.
The Conyers’ regulatory team is pleased to provide our
valued clients with a round-up of recent regulatory matters of
interest in the Cayman Islands. Should you have any queries or
require further information, please contact a member of the
regulatory team or your usual Conyers contact.
- CIMA RULES AND STATEMENTS OF GUIDANCE
The Cayman Islands Monetary Authority (“CIMA”)
recently issued a new Statement of Guidance on Corporate Governance
– Mutual Funds and Private Funds (the “Fund SOG”)
which serves to (i) update the current guidance applicable to funds
registered under the Mutual Funds Act; (ii) expand the scope of the
guidance to cover funds registered under the Private Funds Act; and
(iii) set out CIMA’s minimum expectations regarding the
corporate governance frameworks of regulated funds generally.
The Fund SOG took effect on 14 April 2023 and whilst not
intended to be prescriptive or exhaustive, does provide CIMA’s
views on what it considers to be sound and prudent fund governance,
the framework for which should be proportionate to the size,
complexity, structure, nature of business and risk profile of the
fund. For further details in respect of the Fund SOG please see our
recent
Alert.
Relevant to both funds and other regulated entities, CIMA has
also issued a new Rule on Corporate Governance for Regulated
Entities and a Rule and Statement of Guidance on Internal Controls
for Regulated Entities which will each come into effect within 6
months of the publication date of 14 April 2023 and in respect of
which Conyers will provide separate updates.
Other Rules and Statements of Guidance that have been recently
updated by CIMA include:
- Statement of Guidance – Nature, Accessibility and
Retention of Records; - Rule and Statement of Guidance on Cybersecurity for Regulated
Entities; and - Statement of Guidance – Outsourcing Regulated
Entities.
- INDUSTRY CONSULTATIONS
2.1 Anti-Money Laundering Regulations (2023 Revision)
(“AML Regulations”)
In early 2023, the Anti-Money Laundering Unit of the Cayman
Islands Government sought comments and feedback on proposed
amendments to the AML Regulations which aim to ensure consistency
and compliance with international standards promulgated by the
Financial Action Task Force. Proposed amendments address, amongst
other things:
(i) assessment of proliferation financing risks;
(ii) a revision to provide for a threshold amount of ten
thousand Cayman Islands dollars to trigger client due diligence
requirements in the context of one-off transactions;
(iii) updates to the provisions relevant to designated
non-financial businesses and professions in terms of monitoring
compliance, provision of information, ability for supervisors to
impose fines for breaches; updated registration requirements and
the information to be included in the register; and
(iv) ensuring that penalties and fines may be imposed on
corporations, partnerships and unincorporated associations and
certain of their officers.
2.2 The Beneficial Ownership Transparency Bill, 2023 (the
“Bill”)
The Bill consolidates the existing beneficial ownership
legislation applicable to companies, limited liability companies
and limited liability partnerships into a single act, and notably
will also bring into scope limited partnerships and exempted
limited partnerships.
As currently drafted, the Bill removes most of the exemptions
from the requirement to maintain a beneficial ownership register
under the current regime by replacing the exemptions with certain
“alternative routes to compliance”.
This will apply to legal persons that are (i) listed on the
Cayman Islands Stock Exchange or an approved stock exchange (or
their subsidiaries); (ii) funds registered under the Private Funds
Act or Mutual Funds Act; (iii) licensed under a Cayman regulatory
law (as defined); or (iv) otherwise exempted by Cabinet. These
entities will no longer be required to file a written confirmation
of exemption and must instead submit the contact name of a person
in the Cayman Islands who will be responsible for providing a
competent authority with the requisite beneficial ownership
information upon request.
Other notable provisions include:
- changes to the definition of “beneficial owner”;
- confirmation that trustees of a trust may be beneficial
owners; - registrable beneficial owner details will no longer need to be
kept on the register for five years but instead should be kept by
the corporate services provider; - the inclusion of access provisions in respect of certain
financial institutions and designated non-financial businesses or
professions; - the public access provisions may only commence pursuant to a
future resolution of the Parliament; and - enhanced responsibilities of corporate service providers to
review and verify the identity of beneficial owners through
reliable information sources.
The obligations of entities under the existing legislation will
remain in force until the commencement of the Bill which allows for
the commencement of different provisions at different times.
- CIMA POLICIES AND NOTICES
CIMA has released its Approved Stock Exchanges Regulatory Policy
which sets out, amongst other things, its criteria for approving
stock exchanges and the bases upon which approval of a particular
stock exchange may be refused.
On 22 March, 2023, CIMA published a notice announcing that it
would cease collecting annual registration fees in respect of
segregated portfolios of private fund segregated portfolio
companies. Any fees paid up until the date of the notice are to be
refunded.
- FINANCIAL ACTION TASK FORCE (“FATF”) PROGRESS
REPORT
The Cayman Islands continues to strive towards satisfying the
final recommendation for its removal from the list of countries
subject to increased anti-money laundering monitoring. Earlier this
year, the FATF expressed concerns that the Cayman Islands is still
failing to address strategic deficiencies by demonstrating that all
types of money laundering cases are being prosecuted in line with
the jurisdiction’s risk profile. The Cayman Islands will
continue to provide progress reports to the FATF Joint Group for a
decision to be made on Cayman’s status during the FATF Plenary
in June. If Cayman is to be removed from the list, it would likely
occur at the following Plenary in October 2023.
- RUSSIA – SANCTIONS AND GENERAL LICENCES
The Cayman Islands is subject to the United Kingdom’s The
Russia (Sanctions) (EU Exit) Regulations 2019 (the
“Regulations”). These Regulations prevent people from
dealing in funds or economic resources owned or controlled by, or
making funds or economic resources available to, persons or
entities listed under related sanctions orders. It is possible to
apply for general licences to be issued in order to undertake
activities which would otherwise be prohibited. The following
general licences have been issued:
- GL/2022/0001 allows 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. Originally set to expire on 4
April 2023, it was extended to 5 October 2023. - GL/2022/0002 implements the Oil Price Cap to deprive Russia of
excess oil revenues by constraining its ability to sell at global
market prices while still enabling Russian oil to flow to countries
that need it. - GL/2023/001 permits activities necessary to terminate
arrangements with designated persons in respect of trust
services. - GL/2023/002 allows, subject to conditions, any person or
relevant institution to receive payments, make payments (directly
or indirectly), process payments from or in respect of designated
persons for legal professional fees and expenses associated with
the provision of legal services.
- JUDICIAL REVIEW – VALIDITY OF CIMA FINDINGS AND
POWERS UNDER THE AML REGULATIONS
In March 2023, the Grand Court of the Cayman Islands delivered a
judgment in respect of a judicial review of CIMA’s inspections
(and resulting report and remediation requirements) of corporate
services providers Maples Corporate Services Limited and Maples
Financial Services.
It was found that whilst CIMA has statutory authority to use the
inspection process as a means of developing and sustaining
effective compliance systems and to make recommendations for
remedial steps in relation to identified shortcomings, in this
particular case certain of CIMA’s requirements for remediation
were disproportionate and unreasonable.
The Judge found in favour of the corporate services providers on
most grounds, noting that the scheme of the regulations is to
create general obligations, expressed with varying degrees of
specificity, leaving scope for obligations to be flexibly measured
applying the overarching risk-based approach on a case-by-case
basis. Whilst persons carrying on relevant financial business must
understand and obtain information on the purpose and intended
nature of their business relationships, this does not necessarily
include a requirement to obtain documentary evidence to
substantiate the information obtained in each and every case.
The Judge also concluded that there is “very arguably”
no general obligation to analyse all client documents to identify
authorised signatories; this would only be required where the
financial services provider was engaged in some way with the
authorised signatory. Ultimately, the anti-money laundering
framework is based on financial services providers self-regulating
with enforcement action to be taken by CIMA as a last resort.
- LEGISLATIVE BILLS
A range of amendment bills were gazetted in March 2023 to bring
partnerships, limited liability partnerships, exempted limited
partnerships, partners, unincorporated associations and persons
concerned in the management or control of the same into scope for
various offences under the relevant regulatory laws:
- Companies Management (Amendment) Bill, 2023
- Directors Registration and Licensing (Amendment) Bill,
2023 - Insurance (Amendment) Bill, 2023
- Monetary Authority (Amendment) Bill, 2023
- Securities Investment Business (Amendment) Bill, 2023
- Virtual Asset (Service Providers) (Amendment) Bill, 2023
- LEGISLATIVE REVISIONS AND CONSOLIDATIONS
- Anti-Money Laundering Regulations (2023 Revision)
- Beneficial Ownership (Limited Liability Companies) Regulations
(2023 Revision) - Companies Act (2023 Revision)
- Limited Liability Companies Act (2023 Revision)
- Limited Liability Partnership Act (2023 Revision)
- Special Economic Zones Act (2023 Revision)
- Companies Winding-Up Rules (2023 Consolidation)
- Insolvency Practitioners Regulations (2023 Consolidation)
- KEY DATES Q2
30 June 2023:
Audited financial statements and fund annual returns due for all
CIMA registered funds whose financial year end was 31 December.
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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