May 24, 2019

Cayman Islands insists money laundering reporting cannot be delegated to third party

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From STEP

Cayman Islands investment funds must, from 1 June, appoint natural persons as their anti-money laundering () reporting officers, rather than delegating their functions to corporate bodies.

New AML regulations came into force on 2 October 2017, making both regulated and unregulated investment entities, as well as insurance entities and finance vehicles, subject to the AML regime and mandatory procedure obligations. The reforms were necessary in order to comply with the Caribbean Financial Action Task Force’s inspection at the end of 2017.

In November 2017, a temporary exemption was granted to unregulated entities, which had warned that they might not be able to achieve compliance with the amended legislation quickly enough. As a result, they were given a grace period until 31 May 2018. Funds launched from 1 June 2018 must now have AML officers in place when they begin operations, though funds already in existence before that date are allowed until 30 September 2018 to appoint their AML officers.

Even so, several points in the AML regulations remained unclear. Some of these have now been cleared up by guidance issued on 6 April by the Cayman Islands Monetary Authority.
In particular, each fund has to designate a natural person to act as its AML compliance officer, AML reporting officer and deputy reporting officer. This applies equally to unregulated investment funds and regulated ones.
This requirement represents a significant development in the Cayman market, and is causing some confusion and concern amongst regular users of Cayman vehicles, according to law firm . Many funds currently delegate performance of these functions to their administrator or to another service provider that is regulated for AML in an equivalent jurisdiction. This is especially common where the fund itself does not have any individual employees, and there has not historically been a requirement for them to appoint a natural person to hold these offices.

The sudden jump in demand for competent AML officers will pose problems, as each fund will need to designate at least two individuals. However, the requirements of ‘independence’ will not be as stringent as some feared. Persons who have an existing relationship with the fund or its service providers will not be prima facie disqualified from the fund’s AML roles. Employees of investment managers or the administrator, or a fund director affiliated with the investment manager, could be designated in one or more of them.

Nor will there be a limit on the number of AML officer appointments that a single individual can take on, provided the workload is within their capabilities and the officer is ‘autonomous in carrying out his or her function’.

Sources
CIMA (PDF)
Mourant Ozannes (PDF)
Maples and Calder
Harneys (Nov 2017)
Maples and Calder (Oct 2017)
STEP International News 30 May 2017: Cayman publishes updated money laundering strategy

For more on this story go to: https://www.step.org/news/cayman-islands-insists-money-laundering-reporting-cannot-be-delegated-third-party

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