New Cayman Islands AML regulations

Bovill

The Cayman Islands’ Anti-Money Laundering Regulations, 2017 (new AML Regulations) came into force in October 2017, and is a revised version of the previous AML regulations, in which their regulatory remit and scope have now been expanded, as well as the penalties and obligations for financial entities.

Applicability for the new AML regulations

The new AML Regulations continue to apply to persons carrying out “relevant financial business” (RFB), but this is now defined in the Proceeds of Crime Law (2017 Revision) (the PCL) instead of the new AML Regulations, and the definition of RFB includes traditional financial services providers (FSPs) such as banks, trust service providers and regulated fund managers as in the previous AML regulations, and has expanded the coverage to also include unregulated investment entities that are not registered with the Cayman Islands Monetary Authority, particularly private equity funds.

As such, investment entities that are classified as so under FATCA and CRS definitions will also be subject to the new AML Regulations. However, firms must also be mindful of the activities they undertake, as whether they will be in-scope of the new AML regulations or not will depend on their nature and business, and whether they fall within the definition of RFB in the PCL.

Financial entities that are captured under the new AML Regulations will need to comply with the same starting from 31 May 2018.

Obligations on financial entities

Under the revised AML regime, enhanced obligations are imposed on financial entities, such as the requirements to:

  • apply a risk-based approach to monitor financial activities and have in place adequate systems and controls to identify risks
  • keep abreast of the non-compliant countries on FATF’s lists
  • screen employees when hiring to ensure they are of higher standards and
  • designate a Deputy Money Laundering Reporting Officer (DMLRO) in addition to the Money Laundering Reporting Officer (MLRO).

Financial entities are allowed to delegate their AML/CFT functions to a third-party service provider, and can rely on them to maintain the AML policies and procedures on their behalf. Also, the Anti-Money Laundering Compliance Officer (AMLCO), MLRO and DMLRO function can be delegated as well. However, these appointees must be natural persons, and must have adequate knowledge and expertise to perform the designated functions.

Regarding the risk-based approach on AML/CFT, financial entities will need to identify, understand and address the ML/FT risks that they are facing, such as customer risk, product risk, channel risk and geographical risk. They will also need to conduct risk assessments and keep proper records of them, and carry out simplified due diligence (SDD) or enhanced due diligence (EDD) based on the level of ML/FT risks that is identified. In this regard, financial entitles can again delegate their AML functions to third party service providers. However, heed must be paid to the robustness and effectiveness of their delegates’ AML policies and procedures, as financial entities will still be ultimately responsible for their AML responsibilities.

The customer due diligence requirements have also been expanded, and a new section regarding SDD in low risk cases is added into the new AML Regulations. Additional requirements on EDD and PEP related screening have also been included in the new AML Regulations.

Fines and penalties

Penalties for breaching the new AML regulations have also increased substantially, from a fine of CI$5,000 in the previous AML regulations to up to CI$500,000 on summary conviction in the current AML regime, or unlimited fine and imprisonment for 2 years on conviction on indictment.

Way forward

The new AML Regulations aim to align Cayman Islands’ AML regime with international standards, especially FATF recommendations. The risk-based approach as introduced by the new AML Regulations has already been adopted in many other jurisdictions with a robust AML/CFT regulatory regime, and financial entities are reminded to update their AML policies and procedures before 31 May 2018 in order to comply with the new AML Regulations.

For the appointment of AMLCO, MLRO and DMLRO, financial entities that are in existence prior to 1 June 2018 will need to have it done before 30 September 2018, whereas for new financial entities that are established on or after 1 June 2018, there will be no grace period and firms must comply with the new requirements immediately.

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