A number of key deadlines and regulatory updates have hit milestones in the third quarter. Here is a snapshot of the most pertinent. As always, please seek professional advice or contact us.
CIMA Cancels DRLA registrations
In August 2023, CIMA issued warning notices to directors in breach of section 6(2) of the Directors Registration and Licensing Act, 2014 (as amended) for failure to provide to the Authority information in the prescribed form and for failing to pay to the Authority the prescribed annual fees on or before the 15 January of each calendar year.
This serves as a cautionary tale to directors registered under the Act for failing to keep up with reporting requirements.
Cayman Companies Act updated
The Cayman Companies Act (2023 Revision) has been updated, with some significant amendments. These came into force on July 19, 2023.
The most recent legislative update to the Act includes amendments made by the Companies (Amendment of Schedule 4), Order, 2023, which replaced the list of approved stock exchanges set out in Schedule 4 to the Companies Act (2023 Revision).
This is particularly relevant in the context of beneficial ownership regulations. The amended list adds the TSX Venture Exchange (a subsidiary of the Toronto Stock Exchange) and removes the Moscow Stock Exchange.
The previous update included amendments made by the Companies (Amendment) Act, 2021, in force 31 August 2022 by the Companies (Amendment) Act, 2021 (Commencement) Order, 2022.
This updated Companies Act Compendium reflects the Companies Act (2023 Revision) consolidated and revised 31 December 2022.
Financial Action Task Force updates
The Financial Action Task Force (FATF) confirmed in July that the Cayman Islands has successfully fulfilled all the FATF Recommended Actions (RAs). This acknowledgment recognizes the jurisdiction’s robust and effective regime against money laundering and terrorist financing.
The FATF made the announcement after conducting a thorough assessment of the measures implemented by the Cayman Islands to fully comply with the FATF’s 63 RAs.
The decision by the FATF is a positive acknowledgment of the Cayman Islands’ commitment to adhering to international standards.
After a successful on-site inspection by the FATF, the Cayman Islands is expected to become eligible for removal from the FATF ‘grey list’, which is officially known as the “Jurisdictions under Increased Monitoring” list. This list identifies countries that have deficiencies in their AML/CTF (Anti-Money Laundering/ Combating the Financing of Terrorism) systems, but which have committed to working with the FATF to address these deficiencies. The removal from this list is anticipated to occur at the FATF’s October 2023 plenary session.
Consequently, it is expected that the jurisdiction’s removal from the EU’s AML/CFT List will follow in due course. The Ministry of Financial Services & Commerce of the Cayman Islands is actively engaging in direct discussions with EU officials to advance the necessary enhancements to the regulatory framework, facilitating the removal from the EU’s AML/CFT List.
Beneficial Ownership Transparency Bill 2023
In March 2023, the Ministry of Financial Services and Commerce released a Beneficial Ownership Transparency Bill for consultation. Changes to the framework included: bringing limited partnerships and exempted limited partnerships into scope of the reporting requirements; amendments to the definition of ‘beneficial owner’; introduces the removal of exemptions / “alternative routes to compliance” and updates to the information that is required to be reported to the Competent Authority for Beneficial Ownership.
Mutual and Private funds will now need to comply with an alternative route to compliance. There is also a requirement to be able to address information requests from the competent authority within 24 hours. Furthermore, the contact details of a licensed fund administrator or other person must be listed.
On August 30, 2023, the result of the consultation was made public, and the final wording of the act published. The Act is intended to fulfil the commitment made by the Cayman Islands in 2019 concerning the introduction of public registers of beneficial ownership information. It will also help prepare for the fifth round of the Financial Action Task Force (FATF) evaluation process due in 2025.
The finance ministry will now introduce the Bill in the fourth quarter of 2023. If it is passed, the existing legal obligations will remain in place until the new provisions are phased in.
CIMA allows remote on-boarding (e-KYC)
Following consultation, on 30 August 2023 the Cayman Islands Monetary Authority (CIMA) issued updated Guidance Notes on the Prevention and Detection of Money Laundering, Terrorist Financing and Proliferation Financing in the Cayman Islands. These replaced the previous version issued by CIMA on 5 June 2020, as supplemented in February 2021 and May 2021.
One key change is that financial service providers are now permitted to undertake remote on-boarding and ongoing monitoring of business relationships, including by way of e-KYC and digital identification systems, provided that the guidance in the Updated Guidance Notes is followed.
However, before adopting e-KYC or remote onboarding, financial service providers must conduct a risk assessment of the technology used and consider cyber security and fraud risks.
It is significant because this now permits financial service providers to establish new business relationships via technology solutions and non-face-to-face means where the customer is not physically present. They can also conduct ongoing monitoring of business relationships, including by way of e-KYC methods and digital ID systems, provided that the guidance in the Updated Guidance Notes is followed.
Notably, video conferencing is permitted to identify natural persons, however, as this is non-face-to-face business, it is expected that additional verification would be undertaken to ascertain the veracity of the CDD provided.
The move has broadly been welcomed by industry as it provides increased flexibility and efficiency for financial service providers and their customers.
Considerations for terminating Cayman entities
Fund managers considering winding up a Cayman vehicle should think carefully about the best legal solution to achieve their aims – doing so can save on annual fees and costs for 2024.
There are different methods of terminating a vehicle, but the process can take time. If it drags into 2024, the vehicle will again incur full annual government registration and registered office fees. Our advice is: get good advice, but also act quickly.
The most common method used when terminating a vehicle is voluntary liquidation. At the beginning of this process, all investors should have been, or are in the process of being, redeemed, all assets being liquidated and distributed to investors.
Within 28 days of resolutions being passed to wind up an entity, documents need to be filed with the Registrar and placed in the Cayman Islands Government Gazette. Notices can only be filed on certain dates, however.
We recommend that entities that have already completed a CIMA deregistration process, get into a position to commence liquidation by December 1, 2023. This will allow sufficient time to meet statutory filing and statutory notice obligations and to close the voluntary liquidations by the deadline of 31 January 2024, to minimise annual registration and registered office fees for 2024.
The other option for an entity that is dormant and/or has never traded is to terminate by way of strike-off. This process is more cost effective and generally faster than voluntary liquidation, but it has the downside that it lacks the finality of voluntary liquidation.
To achieve an effective strike-off date of 31 December 2023, the entity should be in a position to file the strike-off application via its registered office by 1 November. All operational and regulatory matters must be complete prior to submitting the application. The next available effective strike-off date is 31 March 2024, in which case it should be noted that 2024 fees and expenses may be payable, so accruals for such expenses should be considered prior to filing the strike-off application.