The deadlines for filings covering the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) is July 31 – and firms have been warned of new enforcement guidelines applicable to firms that miss the deadline.

Last month, The Cayman Islands Department for International Tax Cooperation (DITC) published its CRS enforcement guidelines, which now represent an added incentive for firms to comply with the regime – and file things on time.

The guidelines set out indicative penalties for over 20 distinct potential breaches of the CRS regime, with fines for body corporates ranging from CI$5,000 to CI$37,500.

Fines can be issued for a number of offences including failure to implement and comply with written policies and procedures, failure to register on the DITC Portal by the notification deadline, and failure to correctly classify as reporting.

Here at Paradigm Governance Partners, we always do our best to keep clients informed of deadlines and reporting requirements and ensure nothing is ever missed. Given the new enforcement guidelines, this is clearly more important than ever for our clients.

CIMA calls for education on ESG risks

The Cayman Islands Monetary Authority (CIMA) has published a circular that set out its support of the principles of Environmental, Social and Governance (ESG) considerations, or sustainable investing, and the rapid growth of funds embracing these principles, while also noting some concerns.

CIMA noted that, as with any emerging trend, as a regulator it is required to balance developing regulatory responses that encourage growth and innovation, while simultaneously addressing the various challenges being encountered, during the transition, to regulate ESG and sustainable funds in various jurisdictions.

It also noted that there is an urgent need for investor education related to the evolving risks and issues associated with ESG-type investments, inter alia, collecting and managing data required for risk modelling and establishing consistent transparency and disclosure requirements.

Specifically, it stated that there is a growing need for regulated funds to better understand the impact of ESG-related risks in their implementation of this investment strategy and to ensure funds clearly set out the responsibilities of individuals managing such strategies, while also developing set investment objectives and reliable approaches for identifying, measuring, monitoring, and managing material ESG-related risks.

Here at Paradigm Governance Partners, we have noticed a distinct increase in ESG-related enquiries and acknowledge that sustainable investing is increasingly becoming the fastest growing investment strategy within the financial services sector. Many more investment funds are pursing this investment strategy.

Cayman Islands improves its FATF technical compliance

The Cayman Islands is now at the forefront of jurisdictions assessed so far on technical compliance with the FATF 40 Recommendations, following further improvements to its technical compliance with the 40 Financial Action Task Force (FATF) Recommendations relating to anti-money laundering and countering the financing of terrorism (AML/CFT).

In February 2021, the FATF determined that the Cayman Islands was compliant or largely compliant with 39 of the 40 criteria at the time. This was upgraded in October 2021, and the Cayman Islands is now rated as compliant or largely compliant with all 40 FATF Recommendations.

Separately, the Cayman Islands remains under monitoring with regards to the Caribbean Financial Action Task Force’s (CFATF) effectiveness review. The 2019 Mutual Evaluation Report identified 63 recommended actions to be addressed. In February 2021, FATF determined that the Cayman Islands had satisfactorily addressed 60 of these recommended actions, but placed the Cayman Islands on the ‘grey list’ of jurisdictions under increased monitoring as it worked to strengthen its AML/CFT supervisory regime.

More recently, following the FATF’s plenary meeting in June 2021, the FATF issued a public statement explaining that it considered the Cayman Islands had “taken steps towards improving its AML/CFT regime, including by applying sanctions that are effective, proportionate and dissuasive, and taking administrative penalties and enforcement actions against obliged entities to ensure that AML/CFT breaches are remediated.”

Here at Paradigm Governance Partners, we welcome this news as we do anything that illustrates the very high standards and compliance that are applied to all entities operating in Cayman.

Task Force on Russia Sanctions Activated

The Cayman Islands Government has established a joint task force to coordinate, identify, and implement policy amendments to implement the Russia Sanctions. The UK’s sanctions on Russia impact the work of multiple agencies throughout the Cayman Islands Government (CIG).

The primary purpose of the task force is to provide centralised discussions and decisions around policy and communications arising from the ongoing sanctions. The task force is chaired by the director of the Financial Reporting Authority, RJ Berry, with the Cabinet Office, as task force coordinator, facilitating and coordinating inter-agency cooperation, policy, and communications.

Representatives from the following agencies comprise the task force: Office of the Governor, Ministry of Financial Services and Commerce, Cayman Islands Monetary Authority (CIMA), Financial Reporting Authority (FRA), Civil Aviation Authority of the Cayman Islands (CAA), Maritime Authority of the Cayman Islands (MACI), General Registry Cayman Islands, Land Registry Cayman Islands, Cayman Islands Customs and Border Control, Cayman Islands Bureau of Financial Investigations, and the Cabinet Office.

Of note, since the Russian invasion of Ukraine in February 2022, more than 800 asset freeze designations of individuals and entities have been enforced in the Cayman Islands. In compliance with their obligations under The Russia (Sanctions) (Overseas Territories) Order 2020, numerous financial service providers (FSPs) have submitted over 400 Compliance Reporting Forms confirming that assets with an estimated value of US$7.3 billion have been frozen.

The recent amendments to The Russia (Sanctions) (EU Exit) Regulations are expected to be extended to the Cayman Islands via The Russia (Sanctions) (Overseas Territories) (Amendment) Order 2022, which came into force on April 14 2022. These amendments include new financial, trade, and maritime measures, and restrict specified financial services with the Russian Central Bank and other Russian Federation agencies. Sanction measures apply in the Cayman Islands in the same way they do in the United Kingdom.

Here at Paradigm Governance Partners, we appreciate the important but also complex nature of these sanctions. We would encourage any clients with questions or queries to contact one of our team.

CIMA sees AML compliance improvements by TCSPs

A new review by the Cayman Islands Monetary Authority (CIMA) examining compliance with the Anti-Money Laundering Regulations covering 2021 has found that a significant improvement and fewer deficiencies compared with the same review in 2020.

Some of the gaps identified in 2020 included “failure to maintain accurate and up to date information and “inadequate implementation of ongoing monitoring procedures”.

In a Circular Re: 2021 Review of Trust and Corporate Services Providers (TCSPs) Compliance with AntiMoney Laundering Regulations, the regulator described progress and the improvements as “encouraging”.

The regulator stated: “TCSPs demonstrated a significant improvement in compliance with regulation 12 during the period under review. There was a clear decline in the number of files that had weaknesses between 2020 and 2021: Indeed, the number of files with weaknesses was 69% less in 2021 than in 2020 (from an average of 46% to 14%).”

It added: “Whilst weaknesses in the implementation of provisions of regulation 12 of the AMLRs still exist within the TCSPs, effectiveness in the implementation of regulation 12 has clearly improved.”

But it also stated that areas of concern remain, including deficiencies around the quality of customer due diligence documentation and ongoing monitoring.

Here at Paradigm Governance Partners, we welcome the news that improvements have been made around AML compliance. We would encourage any clients with questions or queries to contact one of our team.

For more information, contact the Paradigm team.