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09 July 2020
CIMA advisory regarding AML/CFT compliance during COVID-19 pandemic
Registered persons under Securities Investment Business Law
CIMA on-site inspections
The COVID-19 pandemic has triggered a number of operational and administrative challenges across the global legal and economic landscape. This article summarises some of the latest developments and the key issues relevant to financial institutions with legal and regulatory links to the Cayman Islands.(1)
Numerous questions have arisen as to the validity and enforceability of electronic signatures under Cayman law (for further details please see "Use of digital contracts and electronic signatures"). Electronic signatures are generally acceptable and enforceable under Cayman law provided that they and their method of creation:
The Cayman Islands Monetary Authority (CIMA) remains fully operational and continues to operate on a remote working basis.
CIMA recently issued an advisory to all regulated entities concerning anti-money laundering (AML) and countering the financing of terrorism (CFT) compliance during the COVID-19 pandemic. This advisory covers issues relevant to regulated entities in the current environment, such as:
Unfortunately, the Passport and Corporate Services Office, which administers apostille services in the Cayman Islands, is currently unable to accept documents for apostilling. As an alternative, the Passport and Corporate Services Office has set up a process where anyone seeking to rely on the signatory of a Cayman-licensed notary can contact it to confirm the authenticity of the notary's signature.
As of January 2020, the regulation of securities investment business in the Cayman Islands evolved. The changes were a significant development in the securities investment business regime. The core change was the abolition of the excluded person concept and the adoption of the registered person regime. CIMA continues to process applications for re-registration by entities that were previously excluded persons but some financial institutions will have received confirmation that their applications have been successful.
The registered person regime places certain additional obligations on registered persons (which were not placed on excluded persons). For example, registered persons must:
These obligations are in addition to any that a registered person may have under any other Cayman regulatory law (eg, the Banks and Trust Companies Law, which will be relevant to those registered persons that are also Class B bank licensees) and are also outside the scope of any relevant exemptions granted under such other regulatory laws.
In addition, CIMA's enforcement powers under the Securities Investment Business Law have been expanded, such that it now has the full range of enforcement powers available in respect of registered persons (which were previously available to CIMA only in respect of licensees). As a result, registered persons must be aware of, and comply with, their new obligations under the Securities Investment Business Law.
In January 2019 the Cayman Islands adopted legislation requiring certain legal persons carrying on certain activities to have demonstrable economic substance in the Cayman Islands (Economic Substance Law). Institutions should be familiar with their requirements under the Economic Substance Law and should have undertaken the analysis required to complete the requisite filings by 31 January 2020 (the first filing deadline). A February 2020 amendment to the law now clarifies that all legal persons, not just those to which the Economic Substance Law applies, must make a filing with the registrar of companies before filing their annual return with the registrar (normally required by 31 January annually). In particular, where a legal person is relying on an exemption under the Economic Substance Law, certain information must still be filed, including evidence of foreign tax residency where the entity is relying on the tax resident exemption.
The Department for International Tax Cooperation recently published a form for entities that are relying on an exemption from the Economic Substance Law on the basis of tax residency in another jurisdiction. This form (titled "Form for an Entity Tax Resident in Another Jurisdiction") is the means through which an entity can evidence to the Tax Information Authority that it is tax resident outside the Cayman Islands. The 2020 deadline for submission of the form is 31 December 2020.
CIMA recently published a short summary of the on-site inspections that it conducted at licensees during 2019.
Some observations of note are as follows:
CIMA continues to conduct on-site inspections, albeit remotely via teleconference. Licensees should expect CIMA to continue to place an emphasis on AML/CFT and sanctions risk as part of the on-site inspections and ensure that they comply with these obligations and other applicable obligations arising under Cayman law and regulations.
In May 2020 the Banks and Trust Companies Law was amended to provide CIMA with the ability to impose administrative fines on bank and trust company licensees as part of its enforcement powers.
For further information on this topic please contact James Heinicke, James Lydeard or Cornelia Zhu at Ogier by email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Ogier website can be accessed at www.ogier.com.
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