By Sandra Edun Walter
The Cayman Islands’ new Anti-Money Laundering Regulations (“the Regulations”) replace the Money Laundering Regulations and while there is a noticeable difference with the name, the Regulations mainly seek to formalise the anti-money laundering practices of the jurisdiction which have been followed by industry through the Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands (“the Guidance Notes”).
The Guidance Notes were not considered an enforceable method to assess compliance with the 40 Recommendations on Money Laundering and Terrorist Financing by the Financial Action Task Force, and as a result the measures followed by industry were not considered met as they had no real means to ensure people followed suit. However, considering the importance of the reputation of the jurisdiction and of the businesses that operate within it, compliance with the Guidance Notes was adhered to in spite of it not being enforceable. This means little change has occurred in how businesses operate as the recommendations were adhered to for several years through the Guidance Notes.
The AML Regulations are the overarching regulations that cover all people conducting relevant financial services business. It is essential to note that these capture not only regulated and unregulated financial services businesses but also designated non-financial businesses and professionals. The definition of relevant financial business resided in the Money Laundering Regulations but was last year moved from those regulations to the principal law, The Proceeds of Crime Law, as it was forseen that there would be an additional regulator to capture some of the designated non-financial businesses and professions.
The Regulations are therefore not solely specific to the Cayman Islands Monetary Authority (CIMA) as the financial regulator. It now refers to Supervisory Authorities which, according to the definition in the interpretive section of the Regulations, refers to CIMA or other bodies that may be assigned the responsibility of monitoring compliance with money laundering regulations made under the law in relation to persons conducting ‘relevant financial business’ who are not otherwise subject to such monitoring by CIMA. The Regulations also now outline all the regulatory laws that it applies to, including the Securities Investment Business Law which was not specifically referred to by name previously in the Money Laundering Regulations, and also includes the Directors Registration and Licensing Law and the Development Bank Law. The risk based approach is tantamount to any AML regime, and while this has been the approach of the Cayman Islands with guidance on to how to assess risk already outlined in the Guidance Notes, the key provisions for a risk based approach to AML/CFT has now been set out in the Regulations. The use of more consistent wording, such as simplified due diligence and enhanced due diligence, has been adopted in the Regulations and relies on the basis that a risk assessment must first be undertaken on each client to determine their rating before deciding the due diligence documentation required.
The Regulations also now contain the definition of PEP, which was listed in the Guidance Notes and is now amended to also expressly include domestic persons as well as politically exposed persons in general for the avoidance of any doubt. Another major factor in the AML Regime is the disposal of the Schedule 3 list of countries with equivalent AML legislation from the Regulations. This Schedule is now referred to as the list of equivalent countries and is issued by the Anti-Money Laundering Steering Group. The movement of this list means countries can be added and removed in a timely fashion. The list that has since been published has seen the removal of three countries that were previously in the Schedule 3 list. New products and business practices, delivery mechanisms and new or developing technologies have now been included in the Regulations and removed from the Guidance Notes. This regulation deals with the ability of the AML regime to handle new products as they come on the market. The AML world straddles so many different sectors in the financial industry that it is important to stay abreast of with all the latest offerings in the industry and find means to properly vet and onboard potential clients, an issue Compliance Officers have to deal with daily.
In addition to the above, it is also important to mention that the Eligible Introducer Regime will still continue to be used in accordance with FATF 40 Recommendation on Money Laundering and Terrorist Financing with the provision that information be forthcoming upon request and as soon as possible. The same holds true for the Nominee arrangements where when requested, information on the underlying client shall be made available. The old reference to the “Reg 8” Regime (now Regulation 23) which allowed for reliance on CDD from clients where monies were remitted through regulated bank accounts in approved countries has been clarified to ensure that CDD is received before funds are repaid. The revised Guidance Notes will provide additional guidance to the Regulations and clarify any issues arising within them