The Cayman Islands Monetary Authority (‘CIMA’) has published amendments (‘Amendments’) to its December 2017 Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands. The following is a brief overview of the principal changes.
Reliance and Delegation
The amendments at Part II s.2C para.s 8-14 and part clarify the obligations of Financial Service Providers (‘FSP’s) when they appoint outside parties to carry out the compliance function.
FSP responsibility - FSPs remain responsible for compliance with the applicable obligations on anti-money laundering (‘AML’) and combatting the financing of terrorism (‘CFT’) and cannot contract out of their obligations or transfer responsibility for them to another party.
The difference between Reliance and Delegation - FSPs must appoint a natural person at managerial level as their AML Compliance Officer (‘AMLCO’) and at the same time, or subsequently, they may either:
‘Delegate’ a person for performance of the compliance function to the FSP’s exact specifications in accordance with the policies and procedures which the FSP has drafted, and subject to the FSP’s control, (and subject to the guidance on delegation principles provided under Part II, section 10 C ('Outsourcing') of the Guidance Notes), or
‘Rely’ on a person to perform the compliance function in accordance with their own procedures, provided the FSP has assessed the policies and procedures which the person they are relying on will be using and is satisfied they are consistent with the FSP’s nature of business and that, were they followed, they would ensure the FSP would comply with its Cayman Islands (‘Cayman’) AML/CFT obligations. In this situation the FSP must:
I. ensure that the person on whom reliance is being placed has adequate and appropriate knowledge and expertise to perform the function; and
II. conduct a risk assessment of the person before entering into an agreement, and
III. where the person operates from a country outside the Cayman Islands, the FSP must document and demonstrate its considerations for country risk; and
IV. have a formalised agreement with the person on whom reliance is being placed, setting out the responsibilities of each party; and
V. review the policies and procedures of the person prior to entering into the reliance agreement and test them, from time to time; and
VI. ensure that the person adopts the Cayman standards when performing the function; and
VII.ensure that the person is capable of performing the function and where any risks cannot be effectively managed or mitigated then the FSP must not rely on the person.
Reliance by managed FSPs - Amendments at Part II s.4.B Identification Information and Verification Procedures provide that where a managed FSP relies on a person for any function it should follow the Guidelines set out under ‘Rely’ above. However, where an FSP relies on an Eligible Introducer under regulation 25 of the AMLRs it should adopt the principles set out under ‘Procedure for Introduced Business’ at s.5 E of the Guidance Notes.
Simplified Due Diligence Measures
The amendments to Part II s.5 address when simplified measures on the verification of identity for payments, which are allowed for under Regulation 23 of the Cayman Anti-Money Laundering Regulations (2018 Revision), can apply to payments where a low risk has been identified. These amendments set out the circumstances when verification of the client identity can be deferred and the records to be kept in such circumstances. The amendments also provide when simplified measures are not allowed, such as where the circumstances of the payment give rise to knowledge, suspicion, or reasonable grounds for knowing or suspecting that the applicant/customer is engaged in Money Laundering (‘ML’) or Terrorist Financing (‘TF’) or the transaction is on behalf of someone who is engaged in ML/TF.
MLROs and DMLROs
Requirements - In a slight re-arrangement of the content of sections, the requirement that a Money Laundering Reporting Officer (‘MLRO’) or Deputy MLRO (‘DMLRO’) have enough time to efficiently carry out that function, is expanded at Part II s.9 B2 to read:
The FSP should ensure that the person acting as MLRO/DMLRO:
(1) is a natural person;
(2) is autonomous (i.e. the MLRO is the final decision maker as to whether to file a SAR);
(3) is independent (meaning no vested interest in the underlying activity);
(4) has and shall have access to all relevant material in order to make an assessment as to whether the activity is or is not suspicious; and
(5) can dedicate sufficient time for the efficient discharge of the MLRO function, particularly where the MLRO/DMLRO has other professional responsibilities.
Where there are no Cayman employees for MLRO/DMLRO role
Section 6, which deals with the situation where an FSP might not have employees in Cayman to be the MLRO/DMLRO, sets out that an FSP should designate a person it has identified as meeting the criteria set out in s.9 B2 and it may then choose to delegate the performance of the MLRO function to a person or rely on a person to perform the MLRO function in accordance with regulation 6 3(2) of the AMLRs. The amendment also expands the requirement that where an FSP is looking to rely on third parties it should check Part II, Section 10. C. (‘Outsourcing’) for guidance, and to include checking Part II, Section 2.C. 8 for guidance on placing reliance on third parties.
Mutual Funds and Administrators
The amendments to Part VI, Section 1 (Sector Specific Guidance: for Mutual Funds and Mutual Funds Administrators) clarify and update the ‘General’ section of G (Internal Controls And Ongoing Monitoring).
Solomon Harris has many years’ experience in the preparation of all types of Cayman investment vehicles and advising on their management and regulation. We are able to assess and advise on regulatory or legal issues which may affect those vehicles contact Solomon Harris Partner Richard Addlestone or Senior Associate Tom Wright.
The information contained in this article is necessarily brief and general in nature and does not constitute legal advice. Appropriate legal or other professional advice should be sought for any specific matter.