Legislative changes have been published to amend two Cayman Islands (‘Cayman’) laws which will provide an ‘opt-in’ regime to allow Cayman-domiciled funds and fund managers with European Union (‘EU’) connections to be included in the passport regime under the EU’s Alternative Investment Fund Managers Directive (‘AIFMD’). The Cayman Islands Government and the Cayman Financial Services regulator (the Cayman Islands Monetary Authority – ‘CIMA’) have been working with the European Regulator (the European Securities and Markets Authority (‘ESMA’) to keep Cayman at the forefront of the global mutual funds sector.

The UK government’s Budget on 8 July 2015 includes provisions that, from April 2017, it intends to bring all UK residential Property (‘UKRP’) held directly or indirectly by foreign domiciled persons into charge for inheritance tax (‘IHT’) purposes, even when the property is owned through an indirect structure such as an offshore company or partnership. The draft legislation is expected to be ready for the 2017 Finance Bill, following a consultation process with interested parties and stakeholders. This leaves time for those affected to take advice on the options available to them before the legislation comes into force (currently expected to be 6 April 2017).

Here we look at the proposals as announced in the budget and how they affect the way individuals not domiciled in the UK or trustees of excluded property trusts (see below) might hold UKRP  - for example where the property is beneficially owned through companies incorporated outside the UK (such as the Cayman Islands (‘Cayman’)).

Primeo Fund (in Official Liquidation) v Michael Pearson as Additional Liquidator of Herald Fund SPC (in Official liquidation) (‘Primeo’)

What happens if a company goes into liquidation after a shareholder (‘Investor’)  has asked for their shares to be redeemed but before payment is made?  A recent decision in the Cayman Islands Grand Court clarifies this point.

The Cayman Islands (‘Cayman’) Tax information Authority (‘TIA’) has issued version 2.1 of the Guidance Notes on the International Tax Compliance Requirements of the Intergovernmental Agreements between the Cayman Islands and the United States of America and the United Kingdom, Version 2.1.. The minor updates follow consultation with the Cayman Islands Foreign Account Tax Compliance Act/ Common Reporting Standard Working Group (‘FATCA’/CRS’).

In an industry advisory accompanying the new version of the Guidance Notes the TIA also provided a list of the key updates, which is repeated below.

The much telegraphed UK new rules on capital gains tax (‘CGT’) on the disposal of residential property by non-resident individuals and entities have now come into effect. After 5 April 2015 CGT may be payable on UK residential property disposals. There has been a change to Private Residence relief for UK residents and a reduction in the threshold for properties owned by non-natural persons. Here we highlight some of the significant changes, whilst pointing out that there are qualifications, exemptions and reliefs which are complex and should be considered in detail with UK tax advisors before any disposal or acquisition of UK residential property by a non UK resident.

The Cayman Islands Ministry of Financial Services (‘the Ministry’) has advised Financial Institutions (‘FI’s) to prepare for new local regulations for the Common Reporting Standard (‘CRS’) which are expected by October 2015. The Ministry recommends FIs consider getting their IT and administrative systems ready to deal with the requirements for new account opening procedures from 1 January 2016, and the due diligence which will be required for 2016/2017 (see the Timetable below).

The Organisation for Economic Co-operation and Development ('OECD') has announced that a further seven countries have signed the template agreement for its automatic information exchange standard. Australia, Canada, Chile, Costa Rica, India, Indonesia and New Zealand are the latest additions, bringing the total to 61. When the agreed form of the Standard was announced at the Global Forum in October 2014, the Cayman Islands (‘Cayman’) signed up to be a member of the Early Adopters Group (‘EAG’).

On May 15th the Cayman Islands Money Authority published a public reminder that the pooling of monies for remittance, constitutes money services business and that such pooling requires a licence pursuant to the Money Services Law (2010 Revision).

Section 4 (1) and 4 (2) of Money Services Law (2010 Revision) states – “Subject to sections 3(2) and 31, any person who carries on money services business without first obtaining a licence under section 5, is guilty of an offence. A person guilty of an offence under subsection (1) is liable on summary conviction to a fine of ten thousand dollars and to imprisonment for one year and, in the case of a continuing offence, to a fine of one thousand dollars for each day during which the offence continues.”

For information on how to obtain a Licence under the Money Services Law (2010 Revision), please contact us on info@solomonharris.com.

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A new regime is being finalised which will make the Cayman Islands (‘Cayman’) Alternative Investment Fund Manager Directive (‘AIFMD’)-compliant. The regime seems likely to be adopted before 22 July 2015, when the European Securities and Markets Authority (‘ESMA’) makes its recommendation to the European Commission on whether to extend the Alternative Investment Fund Managers Directive (‘AIFMD’) passporting regime to third countries (those outside the European Union (‘EU’)). The Cayman Islands Monetary Authority (‘CIMA’) is also working with the Ministry of Financial Services (the ‘Ministry’) on the possible framework for a new category of ‘AIFMD fund’.

30 April 2015 Deadline

On 27 April 2015 the Cayman Islands (‘Cayman’) Ministry of Finance circulated an Industry Advisory in which the Department for International Tax Cooperation (‘DITC’) reminded the financial services industry that Notifications are required to be submitted through the Automatic Exchange of Information (‘AEOI’ Portal) by Thursday, 30 April 2015. However whilst reminding Financial Institutions (‘FI’s) that should make every effort to conduct their notifications by the 30 April due date, the Advisory also stated that Notifications received on or before Tuesday 12 May 2015 ‘will not attract any adverse compliance consequences or enforcement measures’.

The Cayman Islands Monetary Authority (‘CIMA’) has proposed a new Statement of Guidance (‘SOG’) on Outsourcingfor all regulated entities (excluding regulated mutual funds).  Although this proposed SOG is expressed to exclude regulated mutual funds it will catch other entities regulated by CIMA in the Cayman Islands (‘Cayman’) including administrators, banks, insurance companies and those  entities regulated under the Securities and Investment Business Law.

Schroder Cayman Bank and Trust Company Ltd. v Schroder Trust A.G.

Trustees of a Cayman Islands (‘Cayman’) trust purported to make appointments of trust capital to trusts in Jersey. Both Cayman and Jersey have legislation which provides that their own law is the only (‘proper’) one which can be applied when making decisions on trusts created within their jurisdiction. On 9 March 2015 the Cayman Chief Justice gave his judgment that the appointments were void. Here we look at that decision and his decision that Cayman law was the proper one to apply.

Rathbone Brothers PLC & Anor v Novae Corporate Underwriting Limited & Ors [2014]

A personal trustee working as a consultant for a large trust management company faced claims by beneficiaries that he and his other trustees breached their professional and fiduciary duties by making poor investment decisions. Among the issues raised was whether the excess insurer was only liable after other sources of insurance and indemnity had been exhausted, including the trust company’s £40m contractual indemnity to its consultant (‘Rathbone Indemnity’). The issue concerned a Jersey trust but was heard on appeal by the English Court of Appeal and would be persuasive argument in the Grand Court in the Cayman Islands. Here we look at the arguments raised and the drafting issues that trust management companies should consider for their insurance policies and employee indemnities.

Reporting of Savings Income Information (European Union) Law (2014 Revision)

With the attention given to the introduction of new measures to improve global tax information exchange (‘TIE’) it is easy to forget that Cayman Islands legislation designed to combat tax fraud and ensure transparency has been in effect for some time. The European Union (‘EU’) Savings Tax Directive  (‘Directive’) came into force in 2005, and in March 2014 it was revised to bring it in line with other international initiatives such as the US’s Foreign Account Tax Compliance Act (‘FATCA’) and the OECD’s Common Reporting Standard (‘CRS’). The Cayman Islands (‘Cayman’) was one of the first countries to introduce legislation to implement TIE agreements with EU Member States (‘EU States’) under the 2005 Directive. On 10 October 2014 it updated that legislation to take account of the changes in the Directive with the new Reporting of Savings Income Information (European Union) Law (2014 Revision) (‘ROSII’).

The Cayman Islands Anti-Money Laundering Unit (‘AMLU’) is strongly encouraging private sector responses to its sector-specific National Risk Assessment (‘NRA’) questionnaires before the online survey closes on Tuesday, 30th March 2015. It considers that completion of the anonymous online questionnaires ‘in an honest and timely manner’ is key to ensure the Cayman Islands’(‘Cayman’) Anti- money laundering/Combating the Financing of Terrorism (‘AML/CFT’) regime is able to be robustly reviewed  before the 2017 Caribbean Financial Action Task Force (‘CFTF’) mutual evaluation. The relevant laws, regulations and guidance were last looked at just over 2 years ago and it is particularly important to complete the technical compliance and effectiveness assessment to identify whether there are any issues that require attention so they can be addressed  as soon as possible.

Report from the Cayman Alternative Investment Summit – February 12-13, 2015

 

Solomon Harris partner Richard Addlestone was an Industry Speaker at the the Cayman Alternative Investment Summit, held on February 12-13, 2015 at The Ritz-Carlton, Grand Cayman. Among those attending the alternative investment industry’s introspective and honest conversation about itself were keynote speaker Al Pacino, the award winning actor and director, and special guest speaker Sir Richard Branson founder of Virgin Group.

On 12 February 2015 the Court of Appeal of the Cayman Islands (‘CICA’) produced its judgment on an appeal by two former directors (‘Directors’) of the Weavering Macro Fixed Income Fund Limited (‘Weavering’), a Cayman Islands incorporated hedge fund. The appeal considered whether the Directors’ conduct could be classed as ‘wilful neglect or default’, which would leave them personally liable for a US$111 million award of damages.  Here we look at the appeal and some of the issues it raises for directors’ liability and the standard of care required of a Cayman Islands director.

The decision of the court in the matter of Caledonian Bank (In Voluntary Liquidation) has been published.

A resolution by shareholders of Caledonian Bank and Caledonian Securities to put the companies into voluntary liquidation in an apparent attempt to stymie regulatory action locally has been rejected by the Chief Justice of the Cayman Islands.

Please click here for the full ruling.

Related Articles:

Solomon Harris Represents Caledonian Bank Depositors in Aftermath of SEC Claims

What Control Does a Cayman Controller Have?

The Cayman Islands Monetary Authority (“CIMA”) placed Caledonian Securities Limited and Caledonian Bank Limited into controllership after the U.S. Securities and Exchange Commission (“SEC”)  filed a lawsuit against the bank and its brokerage arm and Clear Water Securities Inc., Legacy Global Markets SA, Verdmont Capital SA in Panama alleging that they offered and sold stocks to investors in the U.S. without the registration required for the shares to be publicly tradable and used a “pump and dump scheme” to sell the shares, thereby fraudulently netting US$75 million, according to the Complaint.

A Cayman Islands Monetary Authority appointed Controller under Securities Investment Business Law (2011 Revision)  and Banks and Trust Companies Law (2013 Revision) such as that appointed for Caledonian Securities Limited and Caledonian Bank Limited has the following powers:

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