As many of our readers will be very aware, existing Cayman Islands investment funds are getting ready to comply with the new anti-money laundering (AML) rules and new funds need to comply before they launch. So what is it all about?
In short, Cayman Islands investment funds now need to appoint natural persons as AML officers and role of those officers has been expanded.
Until the recent clarification by the Cayman Islands Monetary Authority (CIMA), there was some debate as to the interpretation of the AML regulations and whether investment funds were required to appoint natural persons as officers to carry out anti-money laundering functions. A majority of investment funds delegate AML functions in respect of investor due diligence to their administrator or other service providers and, despite some uncertainty, it was generally recognised in practice that Cayman Islands investment funds were not required to appoint natural persons to carry out AML compliance roles.
CIMA has now confirmed that Cayman Islands investment funds must appoint natural persons as their money laundering reporting officer (MLRO), deputy money laundering reporting officer and anti-money laundering compliance officer.
Although these positions must all now be held by a natural person, the functions of these officers can still be delegated to an outside service provider. The natural persons to act as the AML officers can also be provided by the fund’s service providers.
The new AML rules make it clear that the AML compliance officer will be required to have oversight of a fund’s activities, going beyond investor related AML issues and compliance and extending to the fund’s downstream investment activities. The AML compliance officer will need to have direct access to the board and will be responsible for ongoing monitoring of and receiving regular reports from the fund’s service providers. This is a significant change in practice and positions the Cayman Islands at the front of international best practices.
The deadline for complying with the new AML rules for registered and unregistered Cayman Islands funds existing prior to 1 June 2018 is 30 September 2018 and from 1 June 2018, new entities must be able to demonstrate compliance.
Will this also affect BVI investment funds?
In the BVI there is already a requirement for a fund to appoint a natural person as a money laundering reporting officer but there is guidance which, arguably, suggests this is not necessary where AML functions are delegated. Although the BVI Financial Services Commission has yet to confirm the position, we expect clarification on this soon. In the meantime, industry practice will be moving towards the position in the Cayman Islands and we would, as a minimum, advise BVI investment funds who have not yet appointed a natural person as MLRO to consider doing so now.
Finding an appropriate person with the necessary experience to appoint to these roles has previously been difficult for funds but the industry is adapting quickly and administrators and other service providers are now expanding their services to the provision of natural persons as officers. AIMA has very usefully provided a list of administrators who will and will not be offering individuals to act in the AML officer roles and we know that, even since that announcement, some of the other administrators and service providers that we work with have decided to provide the service.
If you would like advice on these changes and how to implement them, or you are interested in the AML compliance consultancy services that Harneys offers, please get in touch with one of the blog team members.
The author of this post is no longer with Harneys. For more information on this topic, please reach out to the author listed above.