Cayman’s new rules disrupt anti-money laundering services

Cayman’s fund industry is facing significant changes under new regulations to fight money laundering and the financing of terrorism.

The latest Anti-Money Laundering Regulations, designed to bring Cayman’s regime in line with FATF recommendations and global practice, extended their application to all relevant financial businesses.

These are entities that conduct a business of “investing, administering or managing funds or money on behalf of other persons” or “investment related insurance” in or from Cayman. As a result, the definition now includes certain previously unregulated, closed-ended investment funds and structured finance vehicles, local media outlet The Cayman Islands Journal reports.

One of the biggest changes is that the regulations now determine that both regulated and unregulated funds have until Sept. 30 to nominate three types of anti-money laundering (AML) officers. New funds were already expected to have appointed the designated AML officers since June 1.

Crucially, the money laundering reporting officer, the deputy money laundering reporting officer and the AML compliance officer must be natural persons, rather than a service provider entity.

Until now most regulated funds delegated the AML functions to their administrator or another service provider, especially in cases where a fund did not have any employees.

In addition to appointing natural persons to these roles, funds must review their service provider delegation agreements to make sure that the delegation of the AML function is properly taken care of and update their documentation and internal anti-money laundering compliance policies and procedures.

Although the new rules will mean some added costs, the industry expects clients are sophisticated enough to understand this regulation is going to be global.

“We are not doing anything that is different from other jurisdictions and if you participate in financial services globally, you are going to have to comply with [those] regulations,” LaNishka Farrington-McSweeney, a partner in EY’s Financial Services Organization told the publication.

At the same time, the potential penalties for non-compliance have increased.

Cayman’s financial regulator can impose administrative fines of up to CI$1 million for breaches of AML requirements. Auditors will pick up on any shortcomings.

“Under the Mutual Funds Law, we are required as auditors to report non-compliance to the regulator,” the EY partner said.


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