New Anti-money Laundering Regulations come into force
By Patrick Colegrave Harneys From ILO
Introduction
The government has adopted updated Anti-money Laundering Regulations which came into force on October 2 2017. The regulations demonstrate the Cayman Islands’ ongoing commitment to comply with the highest international standards on combating money laundering and terrorist financing, and aim to ensure consistency with the Financial Action Task Force (FATF) 2012 recommendations, in accordance with its position as a leading international finance centre. The adoption of the regulations is part of an overall update of the Cayman Islands anti-money laundering regime and follows the amended Proceeds of Crime Law which took effect earlier this year.
Key changes
The Anti-money Laundering Regulations make the following changes for anyone carrying out relevant financial business in or from the Cayman Islands.
Risk-based approach
The regulations include comprehensive procedural updates for assessing and applying a risk-based approach to money laundering and terrorist financing risks and compliance. This includes the requirement to conduct a business risk assessment of products, practices, delivery mechanisms (data) and new or developing technology in accordance with the FATF recommendations. The practical application of the risk rating methodology will be expanded on in updated guidance notes,(1) which are expected to be issued by the end of the year and are also expected to include further details of enhanced due diligence requirements for servicing new technologies, including cryptocurrencies.
Beneficial owners
The Anti-money Laundering Regulations contain specific requirements to:
identify beneficial owners for legal persons and legal arrangements; and
apply a risk-based approach in conducting client due diligence on existing relationships.
New beneficial owner definitions have been added, which closely follow the definitions in the FATF recommendations, the Foreign Account Tax Compliance Act (FATCA)(2) and the Common Reporting Standard (CRS).(3)
Penalties
The penalties applicable for breach of the Anti-money Laundering Regulations have substantially increased. This is in line with other recent and proposed changes to increase penalties for breaches of various Cayman regulatory laws (for further details please see “New enforcement powers for CIMA”).
Relevant financial business list expanded
The list of activities which are classed as relevant financial business is now contained in the Proceeds of Crime Law, rather than the Anti-money Laundering Regulations. The Proceeds of Crime Law revised the list to include an entity that is “otherwise investing, administering or managing funds or money on behalf of other persons”, bringing the classification in line with the FATCA and CRS definitions of an investment entity. As such, regulated and unregulated Cayman investment entities are now subject to compliance with the Cayman Islands anti-money laundering regime. Previously, investment funds regulated under the Mutual Funds Law were classed as conducting relevant financial business and were therefore required to comply with anti-money laundering legislation. However, non-regulated funds were not expressly covered by the definition of ‘relevant financial business’.
The list of activities also includes “underwriting and placement of life insurance and other investment-related insurance”. The amended Guidance Notes are expected to include sector-specific guidance which will help those whose activities are now classed as relevant financial business.
New competent authority for unregulated entities and possible transitional period
As the revised relevant financial business list means that various unregulated entities will be carrying out relevant financial business, a new competent authority will likely be established to supervise their anti-money laundering compliance. A transitional period may also be introduced to allow such entities time to put in place appropriate procedures to comply with their new anti-money laundering obligations.
Countries with equivalent legislation
The list of countries which are deemed to have equivalent anti-money laundering legislation (previously referred to as ‘Schedule 3’ countries) has been approved by the Anti-money Laundering Steering Group, which forms part of the attorney general’s office. This change was introduced to allow the list to be amended without having to pass formal legislation. The list is the same as the previous Schedule 3 list,(4) with the exception that Mexico, Panama and Turkey are no longer included.
Other revisions
More prescriptive definitions (previously contained in the Guidance Notes) have been added in respect of politically exposed persons, including their family members and close associates. New procedural requirements have also been added to conduct sanction checks. The Cayman Islands has implemented the United Nations Security Council Resolutions and the EU and UK sanctions measures, which are applied against countries, regimes or persons designated to be in violation of international laws.
Other expected changes
A revised draft of the updated Guidance Notes is expected to be circulated by the government for consultation in the upcoming weeks and finalised and adopted later this year.
Caribbean FATF evaluation
In accordance with FATF recommendations, financial institutions should identify, assess and understand the anti-money laundering and counter-terrorist financing risks to which they are exposed and take appropriate measures in order to mitigate those risks effectively.
The Caribbean FATF team is scheduled to make a mutual evaluation of the Cayman Islands regulatory framework during an on-site visit in December. As an integral element of its preparation, the Cayman Islands Monetary Authority (CIMA) is conducting a formal assessment of the risks present in various sectors of the financial services industry.
Affected licensees(5) are being asked to complete a self-assessment relating to their specific business risks and anti-money laundering and counter-terrorist financing controls to allow CIMA to obtain a complete and comprehensive view of each sectorial risk. The self-assessment form is available to the relevant licensees on the CIMA REEFS portal.
For further information on this topic please contact Patrick Colegrave at Harneys by telephone (+44 20 7842 6080) or email ([email protected]). The Harneys website can be accessed at www.harneys.com.
Endnotes
(1) Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands.
(2) The US Foreign Account Tax Compliance Act is the intergovernmental agreement between the United States and the Cayman Islands and the Cayman Islands Tax Information Authority (International Compliance) (United States) Regulations (as revised).
(3) The Organisation for Economic Cooperation and Development-sponsored Multilateral Competent Authority Agreement and certain bilateral agreements or tax treaties regarding the common reporting standard on the automatic exchange of information, the Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations (as revised).
(4) The Schedule 3 countries are Argentina, Australia, Austria, the Bahamas, Bahrain, Barbados, Belgium, Bermuda, Brazil, the British Virgin Islands, Canada, China, Cyprus, Denmark, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hong Kong, Iceland, India, Ireland, the Isle of Man, Israel, Italy, Japan, Jersey, Liechtenstein, Luxembourg, Malta, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Arab Emirates, the United Kingdom and the United States.
(5) Affected licensees include Category A banks, Category B banks, Class A insurance companies, Class B insurance companies that carry out long-term business, mutual fund administrators, securities investment business licensees, money services businesses, building societies and credit unions, licensed company managers and corporate services providers and licensed trust companies, restricted trust companies and registered controlled subsidiaries.
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IMAGE: Patrick Colegrave
