FATF Update
At the FATF Plenary meeting of 23 June 2023, the FATF have made the initial determination that the Cayman Islands have substantially completed its action plan and warrants an on-site assessment to verify that the implementation of the AML/CFT reforms has begun and is being sustained, and that the necessary political commitment remains in place to sustain implementation in the future.
The Cayman Islands has made the following key reforms, including:
(1) 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;
(2) 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
(3) demonstrating that they are 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.
The Cayman Islands Ministry of Financial Services has issued the following press release to note that the Cayman Islands will need to pass an onsite visit before a decision will be made whether to remove the Cayman from the FATF “grey list” in October 2023.
The Attorney General has noted that preparations are already underway for the onsite visit of the Americas Joint Group – a subgroup of the FATF’s International Cooperation Review Group (ICRG), acknowledging that “the FATF process is rigorous with reason. Its purpose among other things, is to ensure that local authorities can effectively deter, detect, investigate and prosecute serious crimes.”
https://www.mfs.ky/news/cayman-satisfies-fatf-action-plan-onsite-visit-authorised/
CIMA Statement of Guidance and RULE Updates
In April 2023, CIMA released a series of updated and new regulatory measures for regulated entities. A Rule is a CIMA directive creating a regulatory obligation and a breach may lead to a fine or regulatory action. A Statement of Guidance ("SOG") is a measure for CIMA to assess compliance with a Rule or the law.
Statements of Guidance (“SOG”) have been issued in respect of:
- Outsourcing[1]
- Nature, Accessibility and Retention of Records
- Cybersecurity[2]
- Corporate Governance for Mutual Funds and Private Funds
In addition to the above, CIMA has also published Rule in respect of Corporate Governance and a SOG and Rule on Internal Controls.
Rule and SOG – Internal Controls for Regulated Entities
The governing body of a regulated entity is ultimately responsible for ensuring that an adequate and effective system of internal control is established, documented and maintained.
The five key components that an internal control framework should address are:
- the control environment;
- risk identification and assessment;
- control activities and segregation of duties;
- information and communications; and
- monitoring activities and correcting deficiencies.
Delegation to, or reliance on, other service providers through outsourcing arrangements is permitted, as is relying on the internal control systems of other entities within the same group, subject to such control systems meeting the requirements within the new Internal Controls Rule and SOG and generally under Cayman Islands laws and regulations.
There are also additional requirements such as enhanced risk assessment and response measures for governing bodies, senior managers (where applicable) and those performing control functions. Regulated entities should carefully examine these requirements in keeping with the size, complexity, structure, nature of business and risk profile of their organisations.
These changes and assessments are to be documented.
Rule on Corporate Governance
This Rule requires an entity to establish, implement and maintain a corporate governance framework commensurate with its size, complexity, nature of business, structure, risk profile and its operations.
The corporate governance framework of a regulated entity must address, at a minimum:
- its objectives and strategies;
- structure and governance of the governing body;
- appropriate allocation of oversight and management responsibilities;
- independence and objectivity;
- collective duties of the governing body; duties of individual directors;
- appointments and delegation of functions and responsibilities;
- risk management and internal control systems;
- conflicts of interest and code of conduct;
- remuneration policy and practices;
- reliable and transparent financial reporting;
- transparency of communications;
- duties of senior management; and
- relations with CIMA.
Regulated entities are required to improve their documentation requirements, so that governing bodies of regulated entities are required to meet, at least annually, to review and revise, as necessary, aspects of their corporate governance and internal control practices and frameworks to ensure there are no gaps in compliance with CIMA's published measures.
https://www.cima.ky/investment-funds- regulatory-measures
FATCA and CRS Updates
In June 2023, the Department for International Tax Cooperation (“DITC”) issued an updated bulletin for the upcoming CRA and FATCA reporting deadlines (see useful dates for these deadlines).
CRS Reporting
Reporting FIs are required to make a reasonable effort to obtain the TIN(s) and Date of Birth for Accounts by the end of the second calendar year following the year in which the Accounts were identified as Reportable Accounts.
DITC Portal Update
Financial Institution Deactivation
The DITC Portal now has the functionality to deactivate a Financial Institution (FI) from the DITC Portal where the entity has ceased to exist or is otherwise no longer a Cayman Reporting FI. A form is available to the Principal Point of Contact (“PPoC”) to request an FI deactivation.
Evidence of dissolution
Where an FI has ceased to exist, its PPoC must submit evidence that supports this claim. Examples include:
- Certificate of Dissolution, Strike-Off, or equivalent
- Trust deed that clearly indicates the FI Name and date of termination
- Directors resolution to terminate a cell of an SPC
FIs in liquidation
An Entity does not cease to be classified as a Cayman Reporting FI for the sole reason of being in liquidation.
Trends
We would like to remind our clients to consider:
- Environmental crime indicators, specifically in relation to the following sectors:
- Commodities including country risk across the origin of commodities
- Forestry, mining, waste related services, trade finance, gold and precious metals
- Transaction and portfolio level exposure, particularly in light of the current exposure to Russia
- Transaction flows to circumvent Russian sanctions, including through virtual assets
Useful Dates and Reminders
July 31 Date by which the annual report of Reportable Accounts for FATCA/ CRS for the 2022 reporting year must be filed with the DITC (including CRS nil returns).
July 31 Date by which the Annual AML Survey needs to be filed (applicable to persons registered with CIMA under the Securities Investment Business Act).
September 1 Date by which strike off application must be submitted for an Entity to be dissolved by 31 December 2023.
September 15 Date by which the CRS Compliance Form for the year ending 31 December 2022 must be filed with the DITC.
December 1 Date by which an Entity must be put into voluntary liquidation to avoid 2024 annual fees.
December 1 Date by which a strike off application must be submitted for an entity to avoid 2024 fees.
December 31 Economic Substance Returns due to the DITC for Relevant Entities carrying on a Relevant Activity with 31 December 2022 financial year end.
How Apex Can Help
- Assistance with developing and monitoring virtual assets Business Risk Assessments
- Supply chain & vendor diligence solutions
- Managed due diligence- investee/ portfolio level diligence solutions
- Apex ESG AML Business Risk Assessments
- Apex ‘Green KYC’ Policies and Procedures
- Apex ESG Training Modules
- AML/CFT Training
Staying Ahead
If you think any of your colleagues would also find this information useful, they can subscribe to our updates here.
Apex Group has also created an interactive hub that allows you to easily keep track of the regulatory and compliance updates that matter, both past and present. You can access our Global Regulations Tracker here.
For further information about our compliance services, please contact the team here.
You can access copies of CIMA’s AML/CFT newsletter (“The Anchor”) here.
[1] regulated mutual funds and private funds are exempt
[2] regulated mutual funds and private funds are exempt
