By Lucy Frew and Michael Padarin From Walkers

27 October 2016

The Cayman Government is proposing legislative changes which would give the Cayman Islands Monetary Authority (CIMA) significant new powers to impose administrative fines on licensed and regulated individuals and entities. These range from non-discretionary fines of $5,000 (or potentially $20,000) for a minor breach to $1 million for a very serious breach. CIMA would be able to impose cumulative fines of up to $20,000 for a single minor breach.

It is important that individuals and entities take note, as the proposed changes mean that potentially contraventions or failures to act could give rise to fines.

Another key point is that directors of mutual funds regulated under the Mutual Funds Law or companies registered as excluded persons under the Securities Investment Business Law would be amongst those persons liable for fines, irrespective of whether or not that director is resident in the Cayman Islands.

The draft legislation is in the form of a bill which is approved subject to a third and final reading in the Legislative Assembly. This Advisory focuses on the principal proposed changes in CIMA’s powers.

New Powers

The relevant bill, namely the Monetary Authority (Amendment) Bill 2016 (the Bill) seeks to amend the Monetary Authority Law to empower CIMA to impose administrative fines for breaches of prescribed provisions of regulatory laws, the money laundering regulations¹ or the Monetary Authority Law itself (the definition of which is expanded to include regulations and rules made under it).

The “regulatory laws” will include the Banks and Trust Companies Law, the Building Societies Law, the Companies Management Law, the Cooperative Societies Law, the Insurance Law, the Money Services Law, the Mutual Funds Law, the Securities Investment Business Law, the Development Bank Law and the Directors Registration and Licensing Law.

The Bill inserts the new definitions of “breach”, “fine”, “prescribed provision” and “rules”. It is important to note that “breach” is defined broadly and includes not only positive actions but also failing to act or allowing a state of affairs to exist.

The Bill proposes that Regulations made by Cabinet will specify the provisions to which fines apply and govern the procedure for imposing fines and appeals against them, interest on outstanding fines, enforcement, evidentiary provisions for proceedings and any other matters required, permitted, necessary or convenient to give effect to the new provisions.

1 Currently the Money Laundering Regulations (2015 Revision), made pursuant to the Proceeds of Crime Law.

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Levels of Fine

CIMA’s powers would not depend on the breach in question being an offence (although if the breach is an offence, it would be able to impose an administrative fine additional to any criminal penalty). For a breach prescribed as minor the proposed fine is $5,000. However, CIMA would also have power to impose further fines of $5,000 (up to a maximum of $20,000 in total, including the initial fine) each, at intervals it decides, until the breach stops or is remedied or payment of the initial fine and all continuing fines imposed for the breach is made.

For serious breaches, the maximum fine would be $50,000 for an individual or $100,000 for a body corporate. For very serious breaches, the maximum fine would be $100,000 for an individual or $1 million for a body corporate. Only for breaches prescribed as serious or very serious would CIMA have discretion in deciding whether or not to impose any fine and the amount of the fine. In these cases CIMA shall consider the need to promote and maintain a sound financial system in the Cayman Islands and also the principles of disgorgement, discipline and deterrence (as defined in the Bill). CIMA may issue rules about factors relevant to making fine decisions and aggravating and mitigating factors for fines, as well as about administrative matters including, for example, publishing fines imposed. Such rules will have no effect until they are gazetted.

Limitation

The Bill provides for a new limitation period for exercising the power, which would start when CIMA first becomes aware of the breach. For minor breaches the period is six months. For serious or very serious breaches it is two years. The Bill also provides that CIMA cannot levy fines in respect of breaches occurring prior to the amendments to the Monetary Authority Law coming into effect.

Driver for the proposals

The Bill maintains the jurisdiction’s adherence to international standards. The amendments proposed in the Bill will also help to pave the way for ESMA to complete its assessment process and open up the EU marketing passport under the Alternative Investment Fund Managers Directive to the Cayman Islands.

Next steps

The Bill is approved subject to a third and final reading in the Legislative Assembly. The Bill provides a framework which will be further developed by Regulations to be made by Cabinet and CIMA rules. We understand that these will be subject to public consultation and will be staying close to developments.

SOURCE: http://www.walkersglobal.com/images/Publications/Advisory/2016/10.28.2016_Walkers_Enforcement_Powers_CIMA.pdf