Cayman Islands: Cayman Securities Investment Business - Changes For Excluded Persons

Entities registered with the Cayman Islands Monetary Authority (CIMA) as excluded persons under the Securities Investment Business Law (2019 Revision) (SIB Law), such as Cayman-incorporated investment managers and investment advisers, should note two recent regulatory changes that require action.

AML/CFT reporting forms due by 15 August 2019

Excluded persons are required to file two forms with CIMA, via their registered offices, by 15 August 2019:

(i)         AML/CFT Inherent Risks – Securities - AIR-157-75

(ii)        AML/CFT Risk Controls – Securities - ARC-158-75

These filings are required pursuant to recently enacted legislative changes to the Anti-Money Laundering Regulations (2018 Revision) (AML Regulations).

The forms request detailed information in relation to excluded persons' activities, including:

AML/CFT Inherent Risks – Securities - AIR-157-75

  • Categorisation of clients by type (financial institutions, non-profits, government agencies, corporates etc), geography and sophistication (HNWs, sophisticated investors, PEPs)  
  • Organisational structure and geography of the excluded person and its owners and controllers  
  • Distribution channels, ie, means through which the excluded person acquired its clients (direct engagement, through eligible introducers etc)  
  • Types of securities traded for clients (shares, debt instruments, options, futures etc) and jurisdictions in which those securities are traded  
  • For investment managers, whether they have a physical presence in Cayman

AML/CFT Risk Controls – Securities - ARC-158-75

  • Details of the excluded person's AML programme, including details of board-level oversight, submission of a copy of AML policies and procedures, details of ongoing risk assessments and AML audits and details of AML training  
  • Frequency and manner of ongoing monitoring of high-risk clients and transactions  
  • Monitoring procedures for eligible introducers  
  • Sanctions screening procedures

Although Form AIR-157-75 seeks extensive data on each excluded person's "clients", entities managing or advising one or more investment funds do not appear to be required to look through these investment funds to their ultimate investors. Entities operating managed accounts for their clients or undertaking other types of business may find the forms more onerous to complete.

The forms must be submitted through CIMA's Regulatory Enhanced Electronic Forms Submission (REEFS) platform. Ogier has created editable copies of the forms so that affected entities can start the process of gathering the data required.

Failure to file

Failure to complete and submit the forms by the 15 August 2019 deadline could result in deregistration of the excluded person. 

CIMA has also made it clear that filing of these forms is a prerequisite for re-registration of excluded persons, as discussed below.

Action required

Excluded persons must pay immediate attention to their AML programme and how it is documented and implemented. All excluded persons should already have in place existing policies and procedures, but form ARC-158-75 requires that a copy be submitted to CIMA together with granular details about the date that such policies were last updated, dates and results of risk assessments (a copy of which must be submitted) and board involvement in AML matters. This is the time to ensure that all policies are up to date and consistent with the AML Regulations and that all requirements relating to reporting, AML audit and officer functions have been complied with.

This data will then need to be sent to the excluded person's registered office in Cayman at least one week before the 15 August 2019 deadline, in time for it to be input and uploaded.

We anticipate that many excluded persons will need assistance in order to confirm that they have provided AML/CFT training as anticipated in form ARC-158-75. Ogier is able to provide training appropriate to the business undertaken. Please let us know if you would like to discuss this.

Amendments to SIB Law

On 5 June 2019, the Securities Investment Business (Amendment) Law, 2019 was passed (SIB Amendment Law). This amends the SIB Law in certain important respects for excluded persons. The amendments stem from a review conducted by CIMA which identified certain regulatory and reputational risks in the excluded person regime.

Re-registration requirements

A key driver for the amendments was to give discretionary powers to CIMA in respect of an applicant for registration as an excluded person, including the power to refuse registration and to make an assessment as to whether the applicant's shareholders, directors and senior officers are fit and proper persons.

To achieve this, the SIB Amendment Law requires that all existing excluded persons re-register as "registered persons". The scope of the excluded activities has not changed, so an entity eligible to be an excluded person will be eligible to re-register as a registered person on the same basis. However, CIMA will consider such re-registration application on its merits in accordance with its new powers.

To re-register, excluded persons must, among other things, be in good standing with CIMA and complete a re-registration form. The re-registration must be completed by 15 January 2020.

Directors

A registered person will be required to have a minimum of two individual directors registered under the Directors Registration and Licensing Law, 2014 or a corporate director licensed under that law. Corresponding requirements apply to the general partner of a partnership and managers of an LLC or a registered foreign company.

Ongoing requirements

Registered persons will be required to notify CIMA within 21 days of:

  • any changes in the information filed by the registered person in its application or annual declaration;
  • the issue, transfer or disposal of shares or interests in the registered person; and
  • ceasing to carry on securities investment business (and shall thereupon deregister).

A registered person will be required to account separately for the funds and property of each client and for its own funds and property.

Examination and enforcement powers

CIMA has the power to direct a registered person to cease or refrain from the performance of acts that CIMA considers to be unsafe or unsound practices. There are material penalties for failure to comply with CIMA's directions.

Whenever it considers it necessary, CIMA may examine, by way of the receipt of regular returns, on-site inspections, auditor's reports or in such other manner as it may determine, the affairs or business of any registered person.

If CIMA knows or has reasonable grounds to believe that a registered person –

  • is unable or appears likely to become unable to meet its obligations as they fall due;
  • is carrying on business fraudulently or otherwise in a manner detrimental to the public interest, to the interest of its clients or to the interest of its creditors;
  • has contravened any provision of the SIB Law or AML Regulations;
  • has failed to comply with a condition of its registration;
  • has not conducted the direction and management of its business in a fit and proper manner or has directors, senior officers, managers or persons who have acquired ownership or control who are not fit and proper persons; or
  • has failed to comply with any lawful direction from CIMA,

then CIMA may take certain steps, including:

  • cancelling the registration;
  • imposing conditions upon the registration;
  • applying to the court for any order which is necessary to protect the interests of clients or creditors of the registered person;
  • at the expense of the registered person, requiring that an auditor's report be submitted to CIMA on the registered person's anti-money laundering systems and procedures for compliance with the AML Regulations;
  • requiring the substitution of any director or officer of the registered person or the divestment of ownership or control;
  • at the expense of the registered person, appointing a person to advise or assume control of the registered person; or
  • requiring such action to be taken by the registered person as CIMA reasonably believes necessary.

Action required

The re-registration form will shortly be uploaded onto CIMA's REEFS platform.

In the meantime, excluded persons should consider the re-registration requirements, including the need to be in good standing and the requirement for a minimum of two duly registered directors, to ensure that they can re-register by the deadline and remain in compliance thereafter.

Economic substance legislation

The SIB Amendment Law re-registration process for excluded persons will not affect the applicability of Cayman's economic substance legislation, except with respect to those excluded persons carrying on the business of managing securities (investment management).

Under Cayman's economic substance legislation, such investment management entities may fall within the category of relevant entities carrying on the relevant activity of fund management business. However, this will only be the case from the date of an excluded person's re-registration under the SIB Amendment Law. The deadline for that re-registration is 15 January 2020.

As such managers will need to comply with substance requirements from the date of their re-registration, it may therefore be preferable for investment managers to defer re-registration under the SIB Amendment Law until nearer the 15 January 2020 deadline.

We can provide separate advice as to the options available to investment managers and other entities that are or will be subject to Cayman's economic substance legislation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions