This update takes a look back at the key legal and regulatory developments which occurred during 2023. It also considers key legal and regulatory developments which will affect persons, including financial services providers (FSPs) operating in and from within the Cayman Islands during 2024.
The CIMA influence on regulatory developments is particularly evident in this briefing, with the publication of a noteworthy quantity of updated regulatory measures, supervisory circulars etc. The DITC has also been active during this review period. Links to the underlying CIMA and DITC publications, as well as related Appleby published briefings and e-alerts are available throughout this document. The information provided is “as of” 22 February 2024.
Topics covered in this update:
UPCOMING CIMA FILING DEADLINES
UPCOMING AEOI FILING DEADLINES
CAYMAN ISLANDS MONETARY AUTHORITY (CIMA) PUBLICATIONS
FINANCIAL SANCTIONS (LICENSES)
DEPARTMENT FOR INTERNATIONAL TAX COOPERATION (DITC) PUBLICATIONS
2023 PUBLISHED BRIEFINGS AND E-ALERTS
UPCOMING CIMA FILING DEADLINES
Audited financial statements for mutual funds and private funds with a FYE of 31 December 2023: 30 June 2024
FAR Form for mutual funds and private funds with a financial year end of 31 December 2023 FAR Form: 30 June 2024
UPCOMING AEOI FILING DEADLINES
IRS Form 1065 filing: 15 March 2024 (for partnerships).
DITC portal registration for all FATCA/CRS reporting financial institutions: 30 April 2024 (This registration requirement applies to any in-scope entity which commenced carrying on business activities during the 2023 calendar year).
CRS Filing declaration: 31 July 2024
FATCA reporting: 31 July 2024
CRS Compliance form: 15 September 2024
KEY LEGISLATIVE DEVELOPMENTS
BENEFICIAL OWNERSHIP TRANSPARENCY ACT 2023
The Beneficial Ownership Transparency Act 2023 (BOT Act) was passed by Parliament on 23 November 2023. The BOT Act will require a commencement order (not yet published) to bring it into force specifying a commencement date. As of today’s date, the existing Cayman Islands beneficial ownership regime remains in place. The passing of the BOT Act is just the first step in implementing the revised beneficial ownership regime. Implementation is expected on a phased basis, commencing with guidance and updated regulations being published for consultation during Q1 2024. Implementation of the revised regime is expected to commence from Q2 2024 onwards.
Key changes
Public access: the BOT Act has passed without permitting members of the public access to beneficial ownership registers. However, the BOT Act provides a framework under which the Cayman Islands Government (Government) can make regulations permitting public access at a later date (should it wish to do so). On 15 December, 2023, the Ministry of Financial Services & Commerce (Ministry) issued a press release named “Cayman Proactively Advances Its Beneficial Ownership Framework” (available here) stating that “we are currently progressing to provide access to those members of the public who meet the “legitimate interest test” in conformity with the judgment of the Grand Chamber of the European Court of Justice dated 22 November 2022 (WM (C-37/20 and Sovim SA v Luxembourg Business Registers). Accordingly, to date, the BVI, Cayman, Jersey, Guernsey and the Isle of Man have all indicated they are taking the “legitimate interest” approach in the debate on whether or not registers of beneficial owners should be made public.
Removal of current exemptions: certain exemptions applying under the existing regime will no longer apply. For example, unless a surviving exemption continues to apply, an entity registered under the Securities Investment Business Act or the Virtual Service Providers Act will be required to maintain a beneficial ownership register. Additionally, a Cayman Islands based general partner of a CIMA registered mutual fund or private fund will be required to maintain a beneficial ownership register (again, unless another ground for exemption or an alternative route to compliance exists).
Definition of “beneficial owner”: the BOT Act has amended the definition of “beneficial owner” to align more closely with the definition of beneficial owner contained in the Anti-Money Laundering Regulations (AML Regulations). However, the trigger threshold percentage will remain at 25% for beneficial owners under the BOT Act and 10% for beneficial owners under the AML Regulations.
Increased scope: limited partnerships, exempted limited partnerships and foundation companies will be subject to the BOT Act. Those entity types are not subject to the current beneficial ownership regime.
Next steps
At this stage, industry is waiting for the draft guidelines and implementing regulations to be published for consultation with some clients starting to think about who will be a “beneficial owner” under their existing legal structures. Once we have sight of the draft rules and guidance, we can advise with more certainty on the implications of the new rules when we work through these with the relevant industry bodies (e.g., AIMA Cayman[1]).
PROCEEDS OF CRIME (AMENDMENT) ACT (POCA AMENDMENT ACT)
The POCA Amendment Act was published in the Cayman Islands Gazette (Gazette) on 6 October 2023, and, with the exception of sections 11, 12 and 13 has been operative from 31 January 2024 by virtue of the Proceeds of Crime (Amendment) Act 2023 (Commencement) Order 2024.
Sections 11, 12 and 13 meaningfully alter the offences of “concealing, etc”, “arrangements” and “acquisition, use and possession” respectively. These sections will come into force on 30 April 2024.
The POCA Amendment Act applies to all entities incorporated or formed in the Cayman Islands. The development of this amending legislation is noteworthy. When the bill was originally circulated, the text would have removed in its entirety the existing statutory defence of reporting a suspicious activity report (SAR) to avoid committing a money laundering offence by the filing a suspicious activity report. However, after further consultation with industry at the prompting of Appleby and other concerned stakeholders, the SAR defence regime was amended, rather than removed in its entirety. Under the amending legislation as actually passed, sections 11, 12 and 13 retains the SAR defence provided that disclosure is made to the Financial Reporting Authority (FRA) and the person has the “consent” of the FRA to proceed with the action that gave rise to the suspicion. Additional guidance on this new “consent” approach is expected prior to the effective date of these provisions.
MONETARY AUTHORITY (AMENDMENT) ACT 2023
On 26 May 2023, the following Acts were published in the Gazette to extend CIMA’s administrative fines regime to apply to exempted limited partnerships, limited liability partnerships, unincorporated associations and persons concerned in their management or control:
- Companies Management (Amendment) Act 2023;
- Directors Registration and Licensing (Amendment) Act 2023;
- Insurance (Amendment) Act 2023;
- Monetary Authority (Amendment) Act 2023;
- Money Services (Amendment) Act 2023;
- Securities Investment Business (Amendment) Act 2023; and
- Virtual Asset (Service Providers) (Amendment) Act 2023.
The Monetary Authority (Amendment) Act 2023 also strengthens CIMA’s information exchange powers to facilitate the sharing of confidential information with CIMA.
[1] Alternative Investment Managers Association, Cayman Islands.
FOREIGN LISTS
THE FINANCIAL ACTION TASK FORCE (FATF) LIST
The FATF confirmed at its June 2023 plenary that the Cayman Islands satisfied all 63 FATF recommended actions and was eligible to be removed from the list of countries the FATF is monitoring for deficiencies in their anti-money laundering and countering the financing of terrorism regimes, subject to successful completion of an onsite FATF visit. In September 2023, FATF assessors visited the Cayman Islands to meet in person with local stakeholders in order to assess the operation of its AML-CFT action plan and its sustainability. Following that visit, the FATF announced at its October 2023 plenary that the Cayman Islands would be removed from the FATF’s grey list of countries under increased monitoring for AML-CFT compliance purposes. This decision arose after the Cayman Islands demonstrated its commitment to satisfying the FATF’s recommended actions and the successful completion of an on-site visit. A copy of the Ministry’s press release is available here.
THE EUROPEAN UNION LIST
On 12 December 2023, the European Commission (EC) adopted the Commission Delegated Regulation (EU) of 12.12.2023 amending Delegated Regulation (EU) 2016/1675 (Regulation). The Regulation had the effect of removing the Cayman Islands, amongst other countries, from its list of countries identified as having deficiencies in their AML-CFT regime. The Regulation entered into force on the 7 February 2024. The publication of the Regulation follows publication by the FATF of an updated list of “jurisdictions under increased monitoring” following its October 2023 plenary. In light of the FATF’s removal of the Cayman Islands from its list of jurisdictions under increased monitoring, the EC conducted its own assessment in accordance with the Fourth Anti-Money Laundering Directive and concluded that the Cayman Islands no longer have any strategic deficiencies in its AML-CFT regime. The removal of the Cayman Islands from this European Union list had the effect of restoring the jurisdiction to its place as the preferred jurisdiction for issuers establishing securitization special purpose entities for the purposes of Article 4 of the EU’s Securitisation Regime.
THE UNITED KINGDOM LIST
On 5 December 2023, the Government of the United Kingdom officially removed the Cayman Islands from its list of high-risk third countries for deficiencies in its AML-CFT regime. This removal follows the removal by the FATF of the Cayman Islands from its list of countries under increased monitoring for their AML-CFT regimes as mentioned above.
CONSULTATIONS
AML GUIDANCE
On 16 December 2022, CIMA published a consultation paper proposing to amend the guidance notes on the “Prevention and Detection of Money Laundering, Terrorist Financing, and Proliferation Financing in the Cayman Islands” (AML Guidance). One key change is to provide guidance for licensees and registrants using technological solutions to onboard customers digitally using e-KYC and digital ID technological solutions. The consultation closed on 1 February 2023. Following consultation, CIMA published a feedback statement on 11 August 2023 capturing the key findings and exceptions set out by CIMA for remote onboarding and ongoing client monitoring. On 31 August 2023, CIMA published the AML Guidance which has been welcomed by FSPs as it moves to align the Cayman Islands with the FATF guidance on digital identification and further enhances Cayman’s reputation as having a business first-approach to regulation. The AML Guidance was subsequently updated in February 2024 to provide additional guidance to virtual asset service providers. A link to the guidance is available here.
MANDATORY DISCLOSURE RULES
In April 2023, the Ministry published a consultation seeking industry feedback on the draft Tax Information Authority (Mandatory Disclosure) Regulations 2023 (MDR Regulations). This follows a commitment made by the Government to the Chair of the EU’s Code of Conduct Group on the implementation of OECD-style model rules. The MDR Regulations follow the OECD model rules in order to ensure a consistent application of the rules between implementing jurisdictions. The consultation closed in May 2023. The Ministry published its feedback statement on 30 January 2024. Cabinet approval may now be sought to publish the MDR Regulations in conjunction with other jurisdictions that have made similar commitments to implement the OECD’s mandatory disclosure rules framework evidencing the Government’s commitment to implement to the EU’s Code of Conduct Group regime to identify and monitor attempts by certain entities to avoid the Common Reporting Standard.
CIMA PUBLICATIONS
January 2023: CIMA circular to SIB Licensees and Registered Persons: In January 2023, CIMA issued a circular to all SIB licensees and registered persons. The circular sets out CIMA’s expectations for regulated entities to undertake internal audits of their controls and infrastructure and to provide CIMA with a schedule of internal audits reviews covering 1 January 2023 to 31 December 2023. The circular further stated that CIMA expected to receive internal audit reports within three months of completion.
January 2023 – Statement of Guidance for Insurance Companies: In January 2023, CIMA published a “Statement of Guidance on Asset Management & Investment Strategy for Insurance Companies”. This guidance provides a high-level overview of requirements imposed on insurance companies relating to (i) asset and liability management; (ii) segregation of assets; (iii) the investment process; (iv) the investment strategy; (v) operational issues; (vi) monitoring and control and (vii) audit. A link to that guidance is available here. As a general comment, the Cayman Islands has experienced a big surge in the number of captive insurance companies and reinsurers licensed by CIMA during 2023. A link to some related commentary on this growth industry published by Appleby’s Re(Insurance) team is available here.
April 2023: CIMA’s Administrative Fines Regime: In April 2023, the judgment (dated 30 March 2023) in the case of Maples Corporate Services and Maples FS Limited judicial review challenge against Cayman Islands Monetary Authority was publicly published. On 4 April 2023, CIMA published a press release in response to the judgment, available here.
April 2023: Revised Regulatory Measures: Following industry consultation and feedback circulated on 31 March 2023, the following measures were published in the Gazette on 14 April 2023:
- Rule and Statement of Guidance on Internal Controls for Regulated Entities (Internal Controls Guidance and Rule);
- Rule on Corporate Governance for Regulated Entities (Corporate Governance Rule);
- Statement of Guidance on Corporate Governance for Mutual Funds and Private Funds; and
- Amendment to certain Regulatory Measures to apply to Virtual Asset Service Providers and other Regulated Entities:
- Statement of Guidance – Outsourcing Regulated Entities;
- Rule – Cybersecurity for Regulated Entities;
- Statement of Guidance – Cybersecurity for Regulated Entities; and
- Statement of Guidance – Nature, Accessibility and Retention of Records (together, the New Regulatory Measures).
The New Regulatory Measures came into effect on 14 April 2023 (with the exception of the Corporate Governance Rule and the Internal Controls Guidance and Rule, each of which came into effect on 14 October 2023).
Related Appleby publications
- May 2023: Appleby published part I of a publication series covering the Outsourcing guidance, the Internal Controls Guidance and Rule and the Corporate Governance Rule (available here).
- June 2023: Appleby published part II of that series considering the additional New Regulatory Measures (available here); and
- October 2023: Appleby published an e-alert summarising the corporate governance/internal controls measures (available here).
May 2023 – Enforcement: In May 2023, CIMA published a notice stating that it has withdrawn the discretionary fine imposed against Sterling Asset Management International Limited for the amount of CI$299,050.00. A copy of the CIMA notice is available here.
June 2023 – Stress Testing for Insurers: In June 2023, CIMA published a supervisory circular, “Stress Testing for Insurers”. This circular applies to all categories of insurers licensed by CIMA to conduct (re)insurance business and provides guidelines to follow in developing and implementing its stress testing activities and implementation of stress testing activities. This circular also provided examples of the type of stress testing scenarios that CIMA expects class A insurers, and class B(iii) and D insurers carrying on reinsurance business to consider. A link to that circular is available here.
June 2023 – Cybersecurity: In June 2023, CIMA published its “Thematic Cybersecurity Review Report” (Cybersecurity Report) following its cybersecurity thematic view of twelve regulated entities from the banking, insurance and securities sectors. The thematic inspections were carried out between April 2022 and December 2022. The purpose of the inspection was to examine an FSP’s control environment (including policies and procedures) designed to detect and prevent cybersecurity breaches as well as ensuring there is effective board oversight. The Cybersecurity Report highlighted areas where “Best Practices” were observed and “Areas for Improvements” where weaknesses were identified. A copy of that report is available here.
July 2023 – Financial Sanctions Screening: In July 2023, CIMA published a supervisory circular on financial sanctions screening. While the circular was primarily aimed at trust and corporate services providers (TCSPs), CIMA stated that all FSPs should take note of the CIMA identified deficiencies to ensure that their targeted financial sanctions programme complying with the financial sanctions obligations as contained in the AML Regulations and the related guidance notes. A copy of the circular is available here.
August 2023/2024 – Company Managers: In August 2023, CIMA published a new rule and guidance on record retention specifically aimed at entities conducting the “business of company management” in the Cayman Islands. The rule and guidance applies to persons conducting the “business of company management” as defined in the Companies Management Act (as revised). The new measures have immediate effect for entities carrying on the “business of company management” since 30 August 2023 but there are grandfathering arrangements for an in-scope entity licensed prior to 30 August 2023, whereby the new measures will apply from 1 April 2024. A link to the rule and guidance is available here.
November 2023: CIMA General Industry Notices – Observations and Changes for REEFS Investment Strategy Selections: On 8 November 2023, CIMA published a general industry notice outlining the changes to the Investment Strategy selections available within the REEFS portal for the mutual and private fund applications and FAR filings. Within the REEFS portal certain general Investment Strategy categories have been removed, and more granular classifications added. The naming of some Investment Strategy categories have now also been revised for clarity. A link to the notice is available here.
December 2023: CIMA Supervisory Circular on AML-CFT Remediation: On 29 December 2023, CIMA published a supervisory circular setting out how CIMA monitors AML-CFT remediation carried out by FSPs. CIMA recommends that FSPs use the circular to enhance its compliance programmes and ensure any remediation activity undertaken meets regulatory requirements. A link to the circular is available here.
FINANCIAL SANCTIONS (LICENSES)
General License 2022/0001 (Non-Designated Person): This license permits a fund or an investment manager to redeem, withdraw or otherwise deal with an investment interest and make payments for basic needs, routine holding and maintenance and legal fees from frozen accounts. The Governor of the Cayman Islands (Governor) further amended the timeline of this license originally which originally took effect on 4 October 2022 and was extended to 6 October 2024. Apart from extending the timeline, there was no other change to the license terms.
General License 2023/0002 (Legal Services): The license permits, subject to certain conditions, the payment of reasonable professional legal fees (subject to a cap) and expenses (subject to a cap). This license took effect on 15 November 2023 and expires on 15 May 2024.
General License 2023/0001 (Trust Services): Subject to satisfying certain conditions and providing certain information to the Governor, this license permits the continued provision of trust services being provided to a “Designated Person”. This license has been effective since 21 March 2023 and may be varied, revoked or suspended by the Governor at any time.
DITC PUBLICATIONS
March 2023 – Economic substance: In March 2023, the Cayman Islands Tax Information Authority (TIA) updated its economic substance enforcement guidelines replacing the previous version of the guidance published in August 2022. These guidelines detail circumstances where the TIA has the authority to impose administrative penalties under the Economic Substance Act. The TIA continued to issue penalties during 2023 for missed reporting and failing to pass the economic substance test. It is important that an entity is classified correctly and that filings are completed within the specified deadlines. A link to the latest guidance is available here.
March 2023 – Common Reporting Standard (CRS): In March 2023, the TIA also updated its CRS enforcement guidelines replacing an earlier version published in August 2022. These guidelines set out the circumstances where the TIA has the authority to impose administrative penalties under the Common Reporting Standard Regulations. The TIA continued to issue penalties to in-scope entities during 2023 so it is essential that all entities register on the DITC’s portal and comply with all required reporting obligations. A link to the latest guidance is available here.
April 2023 – CRS: In April 2023, the TIA published an advisory updating the lists of “CRS Participating Jurisdictions and CRS Reportable Jurisdictions”. A link to the updated list is available here.
May 2023 – Economic Substance: The TIA updated its “Economic Substance – Practice Points” continuing to provide helpful practice points on using the DITC portal. A link to the latest set of practice points is available here.
2023 PUBLISHED BRIEFINGS AND E-ALERTS
During 2023, Appleby published the following Briefings and E-alerts on our website. These were also sent directly to client subscribers:
February: Appleby Cayman Islands Regulatory Update – Spring 2023 (here)
February: Offshore AML Regulation and Enforcement in the Cayman Islands (here)
March: Cayman Islands Regulatory Alert: CIMA Complaints Handling Survey for SIB Licensees (here)
April: New Changes to CIMA’s and the FRA’s powers (here)
April: 2023 FATCA & CRS Alert – Upcoming Registration Deadline: Cayman Islands (here)
May: Part I: New and Updated CIMA published Rules and Statements of Guidance (here)
May: 2023 FATCA & CRS Alert – Upcoming registration deadline: Cayman Islands (here)
June: Part II: CIMA Published New and Updated Rules and Statements of Guidance (SOG) for Regulated Entities (here)
June: New CIMA Rule and Statement of Guidance on Reinsurance Arrangements (here)
July: Deadline for submission of FATCA & CRS Reports is 31 July 2023 (here)
September: CIMA confirms e-KYC and remote CDD for Cayman (here)
September: 15 September 2023 – Are you ready to file your CRS Compliance Form? (here)
October: Cayman Islands Removed from the FATF “grey” List (here)
October: Cayman Islands Regulatory Update – The December 2023 Economic Substance Return filing deadline (here)
October: Deadline looms – New CIMA Rules and Guidance on Corporate Governance and Internal Controls come into force next week (here)
December: The Beneficial Ownership Transparency Bill (here)
2024 HORIZON SCANNING
We look ahead to the trends and new requirements (published to date) that we may see over the next twelve months for clients operating regulated businesses.
CAYMAN ISLANDS LEGISLATIVE UPDATE – ACTS AWAITING COMMENCEMENT
Beneficial Ownership Transparency Act 2023 (BOT Act)
Date signed into law: 23 November 2023
As mentioned above, the BOT Act requires a commencement order to bring it into force. The first step will be to publish draft guidelines and regulations for implementation, proposed for Q1 2024 with implementation expected to commence from Q2 2024 onwards.
Companies (Amendment) Bill 2024
Date signed into law: Scheduled to be heard by Parliament on 26 February 2024
The Companies (Amendment) Bill 2024 (Bill) is on the agenda for the next Cayman Islands parliament meeting scheduled for 26 February 2024 and will cover a number of commercially desirable updates to the law, including:
- a new procedure for reducing share capital; and
- conversions of an LLC or foundation company to an exempted company.
A provision allowing a written special resolution to be passed by a majority of a company’s members, rather than unanimously, was included in the original bill as tabled but will undergo further refinement before being passed into law. We will publish a client update when the Bill has passed stating its effective date together with any further amendments.
Anti-Money Laundering Regulations (AML Regulations)
Following industry feedback in February 2023 and further internal consultation with the AML/CFT supervisors including CIMA, the amended AML Regulations have been finalized and are due to be addressed to Parliament in mid-February 2024.
CIMA Updates
AML-CFT Activity Report
In January 2024, CIMA published its 2022 AML-CFT activity report with some interesting findings. As of 31 December 2022, CIMA reported 94 registered banks and trust businesses. During 2022, a total of eleven AML/CFT specific CIMA inspections were conducted by CIMA of licensed banks. CIMA identified a number of deficiencies requiring remediation (e.g., inadequate policies and procedures, inadequate controls, inadequate training) and published a supervisory circular to help improve compliance standards in the AML-CFT sector. A link to this CIMA report is available here.
CIMA’s “Records Management” Thematic Review Report
On 5 February 2024, CIMA published the results of its thematic review performed on a number of regulated entities from across the banking, fiduciary, insurance, investments and securities sectors. The report highlights “Best Practices” for regulated entities’ record keeping arrangements. The report also identifies expectations with respect to the retention, maintenance, security, preservation and accessibility of all relevant documentation and records. It also highlights a number of “Areas for Improvement” in relation to record management policies and procedures, turnaround times for submitting documents to CIMA etc. CIMA will expect this report to be discussed by boards of regulated entities to ensure they have robust and sufficient record management arrangements are in place. A copy of the report can be viewed on the CIMA’s website here.
2024 Climate Survey
On 1 February 2024, CIMA published a press release announcing that it will send a survey to all regulated entities focusing on climate change and environmental related risk. The objective of this survey is to obtain information identifying challenges to climate change and environmental risk management in the financial services sector and will be used to develop regulatory frameworks to address such challenges. On 7 February 2024, CIMA published a link to that survey applying to all regulated entities (i.e., licensees and registrants). A link to the survey is available here.
AML GUIDANCE
As mentioned earlier, in February 2024 published its updated AML Guidance providing sector-specific guidance to an entity registered with CIMA as a virtual asset service provider. A link to the guidance is available here.
2024 BRIEFINGS & E-ALERTS (TO DATE)
January: Cayman Islands Removed from The EU AML List (here)
February: Results of CIMA’s “Records Management” 2023 Thematic Review Published (here).
HOW WE CAN HELP
Keeping up to date with new and proposed legislation and regulation is an ongoing challenge for businesses. Our regulatory team monitors and analyses proposed and upcoming legislative and regulatory developments, to determine the practical implications for our clients.
Our regulatory team has seen increased demand from clients for advice on and assistance in complying with CIMA’s requirements and DITC requirements. During the course of 2024, we will continue to:
- monitor Cayman Islands legal and regulatory developments;
- produce client focused briefings and e-alerts tracking new developments;
- contribute to various industry consultations covering legal and regulatory developments affecting our client’s businesses; and
- provide training to clients to support their existing compliance framework.
Please get in touch if we can be of assistance. To subscribe to our regulatory news and updates, please click here.
For further information, please contact:
Simon Raftopoulos, Partner, Appleby
sraftopoulos@applebyglobal.com
