The Cayman Islands Monetary Authority ("CIMA") has released updated Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands (the "Guidance Notes").
The principal effect of the update is to bring the Guidance Notes into line both with various CIMA notices and FAQs released since the last iteration of full guidance (released in December 2017), and to resolve certain apparent ambiguities with regard to the Anti-Money Laundering Regulations (2018 Revision) (the "Regulations") and the December 2017 version of the Guidance Notes.
In particular, in the service provider context, the Guidance Notes now articulate the difference between "delegation" and "reliance", where "delegation" represents an arrangement where the delegate applies the policies and procedures of the principal (i.e. the fund or other financial services provider) (the "Principal") and "reliance" represents an arrangement where the person upon whom reliance is placed applies its own policies and procedures (which may be in accordance with the anti-money laundering regime of a non-Cayman jurisdiction). The latter is the historical model for Cayman Islands investment funds, but the nomenclature is new.
In the context of "delegation", Principals must apply the relevant sections of the CIMA Statement of Guidance on Outsourcing, which are already set out in the Guidance Notes.
In the context of "reliance", the Guidance Notes now set out explicitly the criteria that must be assessed by the operators of a Principal when determining whether or not to rely on the application by a service provider of that service provider's own AML/CFT policies and procedures. The salient aspect is that there be engagement by the operators when considering the adequacy of a potential service provider by assessing, at a minimum, the service provider itself, the "country risk" applicable to the jurisdiction in which the service provider operates, the service provider's policies and procedures and whether the standards in the service provider's jurisdiction are at least equivalent to those in the Cayman Islands.
Where there are specific differences between the analogous requirements of the Cayman Islands and overseas AML/CFT regimes, we understand that CIMA does not expect that any given specific requirement must be performed or applied to Cayman Islands standards in all cases simply because the Cayman Islands standard may be more exacting. Rather, operators should ensure that they are aware of key jurisdictional differences and assess the risks arising from those differences in the context of a holistic analysis of the overseas AML/CFT regime.
Pending further legislative change and/or guidance, service providers should, at a minimum, be subject to the AML regime of their home jurisdiction in order for it to be appropriate that such service providers apply their own policies and procedures. Where that is not the case, policies and procedures designed to meet Cayman Islands requirements ought to be applied by the service provider.
The revisions to the Guidance Notes do not address all of the outstanding issues and we expect there to be further revisions to both the Guidance Notes and the Regulations in the forthcoming months.
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