Cayman Islands Investment Funds AML Update: Natural persons must be appointed as AML officers

The Cayman Islands Monetary Authority (CIMA) has confirmed that Cayman Islands investment funds must appoint natural persons as their money laundering reporting officer, deputy money laundering reporting officer and AML compliance officer (AMLCO/MLRO functions). Many funds currently delegate performance of these functions to their administrator or another service provider that is regulated for AML in an equivalent jurisdiction, especially where the fund itself does not have any individual employees, and there has not historically been a requirement in those situations to appoint a natural person to hold those offices. CIMA has confirmed that funds can subsequently delegate the AMLCO/MLRO functions, as long as they have designated suitable natural persons to the roles.

Most funds will therefore now need to appoint natural persons to these roles, review their fund administration agreements to make sure that the delegation of the function is dealt with and update their documentation and procedures regarding anti-money laundering compliance generally. This represents a substantial change in practice and comes after discussions between CIMA and the Cayman Islands funds industry to clarify some parts of the updated AML guidance notes1 published by CIMA in December 2017.

What are the key dates for compliance?

From 1 June 2018: all new regulated investment funds registering with CIMA must confirm who has been designated as MLRO, DMLRO and AMLCO, as part of their registration application on CIMA’s REEFS portal.

On or before 30 September 2018: all existing regulated investment funds must designate an MLRO, DMLRO and AML CO and submit details of them to CIMA via the REEFS portal.

All unregulated investment funds (eg private equity funds, hedge funds exempt from registration with CIMA) also have to comply with Cayman Islands AML obligations by 31 May 2018 (see our earlier alert for more details), which will mean appointing natural persons as MLRO, DMLRO and AMLCO, by the same dates as regulated funds, ie 1 June 2018 for new funds, 30 September 2018 for existing funds. Unregulated investments funds do not currently have to notify CIMA via the REEFS portal of the names of those who have been appointed.

Additional clarifications

Having appointed a natural person as an AMLCO, MLRO and DMLRO, delegation of the AMLCO/MLRO functions will remain subject to the outsourcing principles set out in the Guidance Notes which includes ensuring that the delegate:

  1. has adequate and appropriate knowledge and expertise to perform the functions;
  2. has adopted Cayman Islands AML standards where the function is being performed outside the Cayman Islands and the relevant AML standards are lower;
  3. is risk assessed and subject to a formal agreement; and
  4. is subject to appropriate AML policies and procedures which should be regularly tested.

CIMA is updating the Guidance Notes on these points and also to clarify AML requirements for payments from banks in equivalent jurisdictions and under what circumstances a gap analysis is needed when delegating AML functions. CIMA is also expected to consult further with the Cayman funds industry on issuing tailored guidance to unregulated investment funds on their AML compliance obligations. Cayman funds and their managers should keep in mind that CIMA can impose potentially substantial administrative fines for breach of the Cayman Islands AML regulations.

Please contact your usual Harneys contact if you would like advice on these changes and how to implement them or advice on any other aspect of the AML regime in Cayman and how to comply with it or if you have any other questions or visit harneys.com.

 

 


1 Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands, 13 December 2017 (Guidance Notes)