Sunday 5 April, 2020

New anti-money laundering assessment completed

The Cayman Islands continues to make strides to meet the recommendations of the Caribbean Financial Action Task Force (“CFATF”) made in its mutual evaluation report of the Cayman Islands, which was published in March 2019 (“MER”). The mutual evaluation assessed the jurisdiction’s compliance with the Financial Action Task Force 40 Recommendations relating to countering money laundering, terrorist financing and proliferation financing. 

The MER raised a concern about the potential risks posed by a type of financial institution governed by the Securities Investment Business Law (“SIBL”) that may offer securities investment services, such as portfolio management and brokerage services, to sophisticated and high net worth individuals without obtaining a licencee under that law. While these entities, known as SIBL Excluded Persons (“SIBL-EPs”), were always required to comply with the AML/CFT legislation in the Cayman Islands, they were not subject to comprehensive supervision to ensure that they fulfilled these legal requirements. 

Of note, the MER stated that the lack of data and information on this sub-sector had not permitted the Cayman Islands to fully assess the risks associated with the activities in that sector. 

“One of the core requirements of the FATF framework is for countries to know and understand their ML/TF risks and to take measures to mitigate such risks, which is why the lack of risk assessment of this sub-sector was specifically highlighted in the report”, says Attorney General Sam Bulgin. 

As a result, in 2019, the Cayman Islands conducted an assessment of the money laundering and terrorist financing risks of these SIBL-EPs. CIMA conducted a comprehensive data collection exercise for all SIBL-EPs, requiring information to be provided on 5 risk categories: nature and size of business, customer types, product and services, geographic exposure, and delivery channels. 

Of 2372 SIBL-EPs registered with CIMA, 94% provided a response to the data request, resulting in a comprehensive representation of the sub-sector. The analysis of the data concluded that the risks arising from the geographic exposures of SIBL-EPs were Medium Low. However, a Medium-High risk of ML/TF was assigned to the other risk categories. This resulted in a Medium-High rating for the entire sector. 

The risk assessment report also discusses the measures recently taken by the Cayman Islands to mitigate the risks associated with SIBL-EPs, especially the recent amendments to the SIBL to bring SIBL-EPs under the authorisation and supervisory regime of CIMA. 

As of January 15, 2020, SIBL-EPs no longer exist as a category. All entities previously operating as SIBL-EPs have to re-register with CIMA, providing information on their ownership and control structure as a part of the registration process. From January 15, 2020, such entities are known as “Registered Persons” and are subject to the same authorisation and AML/CFT supervisory engagement as any other sectors subject to CIMA’s mandate.

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