13 September 2021 - The Cayman Islands (“Cayman”) is widely recognized as the leading jurisdiction of choice for globally managed investment funds thanks to its established regulatory framework, developed financial services sector and professional service providers.
The decision by the Financial Action Task Force (“FATF”) to add Cayman to its list of jurisdictions on 25 February 2021 has inevitably resulted in increased scrutiny by all industry stakeholders responsible for implementing Cayman’s anti-money laundering/counter terrorist and proliferation financing regimes.
FATF’s primary reason for including Cayman on its list is for Cayman to demonstrate the effectiveness of its enforcement regime. It did not identify significant issues with Cayman’s legal framework, or the operational manner in which the agencies involved in anti-money laundering (AML) carry out their functions. Notably, the FATF listing is not a call for the application of enhanced due diligence (EDD). Instead, it encourages its members to take into account the information presented in FATF’s risk analysis.
It also recognized that Cayman has satisfied 60 of 63 recommended actions that were prescribed by the Caribbean Financial Action Task Force (“CFATF”) back in March 2019. CFATF rates Cayman as compliant or largely compliant on 39 out of 40 technical compliance requirements. In fact, Cayman scores very favorably in comparison to that of the G7 countries.
As a jurisdiction under increased monitoring (the “grey list”), FATF has given Cayman an action plan comprising three items, relating to FATF’s Immediate Outcomes (IO).
The Cayman Islands action plan includes:
- applying sanctions that are effective, proportionate and dissuasive, and taking administrative penalties and enforcement actions against obliged entities to ensure that breaches are remediated effectively and in a timely manner;
- imposing adequate and effective sanctions in cases where relevant parties (including legal persons) do not file accurate, adequate and up to date beneficial ownership information; and
- demonstrating that it is prosecuting all types of money laundering in line with the jurisdiction’s risk profile and that such prosecutions are resulting in the application of dissuasive, effective, and proportionate sanctions.
As Cayman reaffirms its commitment and work on the action plan, industry participants should expect increased scrutiny – and possible fines for those found to be breaching the rules – as the authorities demonstrate their enforcement capability.
However, because Cayman’s compliance frameworks that support these actions already exist, they are familiar to industry and clients. Once the FATF is satisfied that the three action items have been addressed, Cayman could be removed from the grey list by the October 2022 FATF Plenary.
Since 2018, the Anti-Money Laundering Regulations (“AML Regulations”) require, inter alia, that entities carrying out relevant financial business to appoint named individuals to the roles of Anti-Money Laundering Compliance Officer (“AMLCO”), Money Laundering Reporting Officer (“MLRO”) and Deputy Money Laundering Reporting Officer (“DMLRO”). Collectively, the “AML Officers”.
Crucially, in a notice dated 7 June 2021, the Cayman Islands Monetary Authority (“CIMA”) reminded all persons carrying out relevant financial business (“Licensees and Registrants”) of their obligation to ensure that their AML Officers are aware of their respective duties and responsibilities under the AML regulations and act in accordance with them. CIMA further reminded Licensees and Registrants that the “appointed AML Officers must be fit and proper to conduct their role and must be, inter alia:
i. suitably qualified and experienced;
ii. persons at a management level who report directly to the Board of Directors or equivalent;£
iii. natural persons;
iv. autonomous (meaning the AML Officer is the final decision maker as to whether to file a suspicious activity report); and
v. able to have access to all relevant material in order to make an assessment as to whether the activity is or is not suspicious.”
CIMA further reiterates that the AML Officers must be able to dedicate sufficient time for the efficient and effective discharge of their respective functions.
How Citco can help
As the regulatory landscape continues to evolve, it can be difficult to keep up with important developments. Citco Fund Services (Cayman Islands) Limited, Citco Bank and Trust Company Limited and Citco Trustees (Cayman) Limited (collectively “Citco”) can help lessen this burden by providing experienced staff as appointees to perform the various AML Officer roles as required under the Cayman AML regulations.
Our AMLCO, MLRO and DMLRO appointees are managerial level personnel with extensive knowledge and expertise in AML/regulatory issues and the investment funds industry. They have unimpeded access to - and detailed knowledge - of Citco’s AML systems, compliance software and Know-Your-Customer (“KYC”) database.
They also have direct access to Citco’s systems and records (which are not available to third parties for security reasons) which facilitates seamless operations and efficient reporting.
This can therefore help avoid duplication of reporting and other inefficiencies, which may arise if third parties are appointed instead.