It has been a busy first quarter for regulatory changes and other updates in the Cayman Islands with some important changes to Cayman’s EU AML status, regulatory changes and sanctions stemming from the war in Ukraine. Here, we run through some of the most important changes funds and investment professionals need to be aware of.

Sanctions related to Russia’s invasion of Ukraine 

In response to Russia’s invasion of Ukraine, the UK, US and EU have instigated a wide range of sanctions. These are extended by Statutory Instrument to the British Overseas Territories, including the Cayman Islands, to ensure they are effectively implemented. They will apply to any person or body incorporated or instituted in the jurisdiction, as well as any British citizen or subject ordinarily resident in the jurisdiction.

The sanctions are designed to prevent persons from dealing in funds or economic resources owned or controlled by, or making funds or economic resources available to, persons or entities listed under the Order.

We expect there to be great scrutiny of these sanction lists and financial services providers must ensure that an effective screening tool is being used by administrators or those conducting customer due diligence to appropriately address any persons and entities that are sanctioned and follow all required reporting and asset freeze procedures.

As such, all Cayman Islands entities should ensure they comply with the Sanctions Orders and ensure that they also take note of potentially applicable sanctions imposed by other jurisdictions (including the US and EU) as part of their wider AML/CFT/CPF and Sanctions compliance framework.

Firms should urgently consider how an asset freeze on Designated Persons might affect both incoming and outgoing investments; how they will identify sanctioned persons; their statutory reporting obligations; and how they can demonstrate robust sanctions policies and procedures.

Updates can be obtained from the following sources to stay abreast of changes.

Financial sanctions targets: list of all asset freeze targets – GOV.UK (www.gov.uk)

FINANCIAL SANCTIONS GUIDANCE (fra.gov.ky)

Implications of being added to the EU AML Blacklist 

On March 13, 2022, following the European Commission’s proposal in January, the Cayman Islands will be added to the EU’s Anti-Money Laundering (AML) ‘blacklist’, along with eight other jurisdictions.

This is a result of the Cayman Islands being included by the Financial Action Task Force (FATF) on a ‘grey’ list in February 2021. Even though in October 2021, the Cayman Islands was deemed by FATF to be compliant or largely compliant with all of the 40 FATF Recommendations to prevent money laundering and terrorist financing, it remains on this “Grey” list whilst it addresses some remaining action points.

The expectation is that the Cayman Islands will be removed from the FATF ‘grey list’ in October 2022 given the positive progress and improvements made to address strategic deficiencies. In the meantime, being on both the EU’s AML blacklist and the FATF grey list, does have implications. It means EU entities will apply enhanced due diligence (EDD) to Cayman Islands counterparties. It will also impact SPVs under EU Securitization Regulation.

However, the addition to the EU AML list will not prevent Cayman Islands investment funds from being marketed into the EU under the national private placement rules under the EU AIFMD (proposed amended AIFMD expected 2024).

DITC update 

As of February 2022, the Department for International Tax Cooperation (DITC) has made some changes to the categorization of entities as Financial Institutions as well as reporting requirements under FATCA and CRS.

DITC has reached out to registered office providers to make contact with entities that have GIIN numbers with the IRS but have not completed notification/registration with DITC.

In addition, the DITC portal has been updated to permit deactivations for those entities which cease to be a financial institution. As part of that process, an explanation and evidence is to be submitted. This can only be completed once an entity has been terminated.

It has also made an update to reportable jurisdiction list. Jamaica, Kenya and Morocco have been added to the list and Kuwait has been removed.

Further information can be obtained via the DITC website by clicking here.

The VASPS regime 

Finally, in line with a growth in the cryptocurrency/token space, we are expecting CIMA to approve more applications in this space under the The Virtual Asset (Service Providers) Act, 2020 (VASP Act).

The VASP Act was enacted on in October 2021, following consultation with the Financial Action Task Force. It is designed to provide a framework for the regulation and oversight of virtual asset service providers (VASPs), while also positioning Cayman as a technology-driven jurisdiction, making it easy for VASPs to operate here within a clear and workable framework.

The growth of this sector would be an exciting one for Cayman and we expect further announcements from CIMA on its growth in the coming months.