Cayman Islands: New Enforcement Powers For CIMA

Last Updated: 24 November 2016
Article by Jonathan Culshaw and Marco Martins

The Cayman Islands Government is set to grant the Cayman Islands Monetary Authority (CIMA) new enforcement powers under an amendment to the Monetary Authority Law (the Law) currently before the Cayman Islands Legislative Assembly. If passed in its current form the Monetary Authority (Amendment) Bill 2016 (the Bill) will allow CIMA to impose fines for breaches of regulatory laws by licensed or regulated individuals or entities.  

This is of particular note for directors of mutual funds that are regulated under the Mutual Funds Law or companies registered as excluded persons under the Securities Investment Business Law who could be subject to fines for breaches by the funds or investment managers of which they are directors, regardless of whether or not they are resident or present in the Cayman Islands

What laws will be covered by CIMA's new powers?

The regulatory laws covered include the Banks and Trust Companies Law, Companies Management Law, Mutual Funds Law, Securities Investment Business Law and the Directors Registration and Licensing Law. CIMA will also be able to impose fines for breaches of the Cayman Islands money laundering regulations and of regulations made under the regulatory laws listed.

What is a "breach"?

The Bill introduces a new broad definition of "breach" into the Law which means that entities and individuals will need to be aware that inaction on their part, as well as intentional breaches of law, could lead to CIMA imposing a significant fine.

Breaches will be classified as "minor", "serious" and "very serious".

How much could CIMA fine for breach?

CIMA will be able to impose fines up to a maximum of CI$1,000,000 (US$1,219,500) for very serious breaches.

For "minor" breaches, CIMA will be able to impose a fine of CI$5,000 (US$6,098), plus one or more continuing fines of CI$5,000 each, until the breach stops or the initial fine and all continuing fines are paid, up to a maximum of CI$20,000 (US$24,390).

For breaches classed as "serious", CIMA will be able to impose a fine of up to CI$50,000 (US$60,975) for an individual or CI$100,000 (US$121,950) for a body corporate. For breaches which are "very serious", CIMA will be able to impose a fine of up to CI$100,000 for an individual or CI$1,000,000 for a body corporate. For serious and very serious breaches, CIMA will have the discretion whether or not to impose a fine and to decide the amount of the fine.

In exercising its discretion, CIMA will have to take into account all relevant factors, including the need to promote and maintain a sound financial system in the Cayman Islands, ensuring that licensees under regulatory laws and persons connected with them do not gain from breaching the relevant laws, the need to punish intentional, reckless or inappropriately negligent breaches and the need to deter financial services businesses and others from breaching the relevant laws.

Details of breaches in respect of which CIMA will be able to impose a fine, which breaches will be classed as minor, serious or very serious, as well as the procedure for imposing fines, appeals, payment and publication of fines imposed and other connected issues, are to be set out in further secondary legislation and rules which are yet to be published.

Will limitation periods apply and is the legislation retroactive?

The Bill sets out limitation periods on when CIMA will be able to impose a fine, of six months from the date on which CIMA becomes aware of a minor breach and two years from the date on which CIMA becomes aware of a serious or very serious breach. CIMA will not be able to impose any fine for a breach that happened before the amendments to the Law come into force.

Why is CIMA being given these powers?

The impetus behind this legislation is a combination of the jurisdiction's desire to remain at the forefront of relevant international regulatory standards and also to enable ESMA to complete its assessment process in favour of granting the Cayman Islands access to the EU passport regime under the Alternative Investment Fund Managers Directive.

Next steps

The Bill is currently passing through the Legislative Assembly and, once approved, will come into effect on a later date approved by Cabinet. We will provide a further update once the Bill has been approved and the amendments to the Law come into force.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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