AFA Client Briefing Note - Cayman Islands Anti-Money Laundering Regulations, 2017

AFA Client Briefing Note - Cayman Islands Anti-Money Laundering Regulations, 2017
Apr 25, 2018

Advanced Fund Administration (Cayman) Ltd. and its affiliate AFA Legal Services (Cayman) Ltd. (collectively, “AFA”) operating under the Young & Young Financial Services Group banner are pleased to forward this client briefing note on the new Cayman Islands Anti-Money Laundering Regulations, 2017 (“AML Regulations”).

In an effort to align itself more closely with the FATF's anti-money laundering and combatting of terrorist financing legal framework ("AML/CFT")  the Cayman Islands has adopted the recommendations of the FATF and other global practices now embodied in its new anti-money laundering regulations, 2017 ("AML Regulations").  This was Gazetted in Cayman on the 20th of September 2017, and came into force on October 2nd, 2017. While we are yet to receive the official "Guidance Notes" from the Cayman regulators on the above piece of legislation, we expect that this will be provided to the industry in short order.  A significant change brought about by the AML/CFT regime under the AML Regulations requires both regulated and unregulated investment entities, insurance entities and finance vehicles to be subjected to the AML Regulations and the mandatory procedures. Another key part of the legislation provides for a separate competent authority, other than the Cayman Islands Monetary Authority ('CIMA") to supervise AML/CFT compliance for specific unregulated entities. However, it is conceived that CIMA will continue to provide oversight over all investment and insurance entities.

While the Cayman Islands has already adopted a risk based approach to AML/CFT previously, the new legislation provides for a more expanded approach, and calls for enhanced due diligence where deemed necessary based on certain guidelines and current circumstances of the case. For instance, emphasis is now placed on beneficial owners and politically exposed persons. It is very clear that the terms and requirements adopted are largely based on the FATF's recommendations, and to a greater extent, the requirements as provided for under FATCA, and Common Reporting Standards (FATCA/CRS). As you are aware, those standards require due diligence to be conducted on the beneficial owner, or controlling individual(s), based on certain criteria. What this means is that each beneficial owner or controlling individual must be identified. This is perceived to be very much a part of the adopted "risk based" approach to AML/CFT procedures.

With the new legislation there are specific AML/CFT procedures that are required, and include but not limited to the following:

  • Client identification and verification;
  • Designation of an AML compliance officer (CO);
  • Internal controls and communication - this procedure requires an internal audit process to be in place and the continued monitoring of clients' AML/CFT information;   
  • Internal and external reporting and the appointment of a money laundering reporting officer (MLRO); 
  • Continued training of all staff members to include firm's executives and directors as it relates to the AML/CFT requirements

Under this new adopted legislation, there are two specific areas of due diligence a) Enhanced Due Diligence and b) Simplified Due Diligence:

Simplified Due Diligence

Under the simplified version, if the AML risk is assessed at the lower level, the due diligence procedure will be less burdensome, and the full process of verification can be avoided.

Enhanced Due Diligence

Under the enhanced version, it means that if certain relationships are assessed to be high risk, then such a relationship would be subjected to enhanced due diligence procedures, which would be a step up beyond the simplified requirements as outlined  above.
It is important to note the "Guidance Notes" will provide greater clarity and specificity on the requirements for each approach set out above, and in line with the requirements of the AML Regulations.

Jurisdictions with Equivalent AML/CFT legislation

Previously, CIMA's acceptance of other jurisdictions' AML/CFT procedures was based on a "Schedule 3 listing" which formed part of the predecessor legislation to the AML Regulations.  However, this has been set aside for what is now classified as "Jurisdictions with Equivalent AML/CFT legislation". Nevertheless, for the simplified version of AML/CFT procedures, reference to the old Schedule 3 jurisdictions may still apply in specific circumstances.
We strongly feel that given the scope of the changes contained within the AML Regulations, it is important that every client seeks guidance from his/ her own AML compliance professional provider and most importantly, to obtain a copy of the Guidance Notes as soon as they become available. 

For additional information on the AML Regulations please contact:

Peter M.O. Young President and COO of AFA
pyoung@afaservices.com
+1 (345) 747-4232
 
Wilton G. McDonald II Attorney at Law and Director of AFA Legal
wmcdonald@afaservices.com
+1 (305) 851-2549/ +48.608.274.583

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