"Cayman domiciled entities must act now to consider how they will comply with the AML Regime, or if certain functions will need to be outsourced."

Regulatory Update: Changes to the Cayman Islands' AML legislation

16 Oct 2018

Those with Cayman domiciled investment vehicles need to act now to ensure they are compliant with recent changes to the Cayman Islands' Anti-Money Laundering (AML) Regime.

The changes strengthen the Financial Centre's integrity and positioning among its international counterparts and as a result of the recent US tax reform, Cayman is presenting itself as a formidable domicile for Investment Fund structuring in addition to other leading centres, such as Jersey, Guernsey and Luxembourg.

Having come into force in October 2017, the new Cayman Islands Anti-Money Laundering (AML) 'Regime' ('the AML Regime') has been implemented in a response to Financial Action Task Force (FATF) recommendations. Previously, only investment funds registered with the Cayman Islands Monetary Authority (CIMA) were in scope of AML rules; however, the new AML Regime now broadens the scope of compliance to many Cayman domiciled entities that may not have previously been included.

What has changed?

The changes to the AML legislation have:

  • Enhanced existing AML procedures, including a requirement for the appointment of natural persons - of managerial level - to carry out the 'Designated Roles' of Anti-Money Laundering Compliance Officer (AMLCO), Money Laundering Reporting Officer (MLRO) and Deputy MLRO. The same person may act as both the AMLCO and MRLO, although the deputy MRLO must be a separate individual. These changes now apply to all entities in scope of the AML Regime.
  • The breadth of the AML Regime has been extended to apply to unregulated investment entities that are not registered with the CIMA. This includes venture capital, private equity or other closed-ended investment funds, structured finance and investment related insurance entities.

What action is required?

CIMA have recently announced that whilst regulated funds must have appointed the Designated Roles by 30th September, they have until 31st December to notify CIMA; whereas unregulated entities have until 31st December 2018 to appoint persons to the Designated Roles. Since 1st June 2018, any new entity must immediately be able to demonstrate compliance. Failure to comply with the changes in legislation could result in punitive fines and/or imprisonment.

Cayman domiciled entities must therefore act now to consider how they will comply with the AML Regime, or if certain functions will need to be outsourced. It should be noted that the Designated Roles do not have to be carried out by individuals resident in the Cayman Islands.

Non-CIMA registered entities which now fall under the AML Regime - and have delegated maintenance of AML procedures on behalf of the entity to a Fund Administrator - should check that the scope of delegation to its Administrator or Investment Manager is sufficiently broad to cover the requirements of the AML regulations.

Entities which have not appointed a Fund Administrator (e.g. because the Investment Manager maintains the AML procedures on its behalf) should check the same matters outlined above and additionally, whether or not the delegate (e.g. the Investment Manager) has the requisite personnel (in terms of numbers, training, and experience) to maintain the AML procedures on the entity's behalf. The extent to which (i) the maintenance of AML procedures on behalf of the entity; and (ii) the possibility for the Designated Roles to be delegated to a third party service provider, should also be considered.

Enhancing its appeal

The change in the AML regime is welcome news and formalises the framework that many structures will arguably, already have been following as a matter of good practice. Although the regulatory requirement to comply brings with it the burden of financial cost, the upside of enhancement of standards will suit sophisticated investors seeking improved regulation.

Finding the suitable personnel 

Ocorian has suitably qualified and experienced employees that are able to fulfil the functions of the Designated Roles. Working with clients' professional advisors, our team can assist with implementing the appropriate framework in accordance with advice. 

In the event that clients do not already have advisors engaged, they are able to leverage off our extensive network of professionals who can advise on the most effective way to comply with the new legislation.

Find out more about our Cayman offering here.

Related Article: 'International Fund Structures: Could the Cayman Islands 'Trump' Delaware?'