Cayman Islands: Time to get licensed under the Securities Investment Business Law

Originally published in September 2003

Recent regulations have brought the Cayman Islands Securities Investment Business Law (2003 Revision) (the "Law"), which regulates all securities investment business, fully into effect. The result? Persons falling under its provisions who were carrying on securities investment business on 29^th July 2003 have until the end of January 2004 to either get licensed or get an exemption.

So, who is caught by the Law? Firstly, companies (including foreign companies) and partnerships incorporated or registered in the Cayman Islands carrying on securities investment business either in the Cayman Islands or overseas. Secondly, any person based anywhere in the world if they have an established place of business in the Cayman Islands from which they carry on securities investment business.

Such persons, though, need to be carrying on "securities investment business" as the term is defined in the Law. The definition includes: dealing in securities, essentially buying, selling, subscribing for or underwriting securities as agent or, subject to certain conditions, as principal; arranging deals in securities for another party; managing securities of another party on a discretionary basis; and advising a person on securities.

The Law therefore establishes a new regime for open and closed end fund managers, advisers and brokers.

A licence is required unless the business constitutes an "excluded activity" or the person carrying on the business is an "excluded person" under the Law.

Excluded activities which include, for example, a company issuing or redeeming its own securities or dealing in securities for risk management purposes or otherwise incidental to a non-securities investment business do not constitute "securities investment business" for the purposes of the Law. They therefore fall right outside the Law’s ambit.

Excluded persons, on the other hand, can still be caught by the Law. For three of the six categories of excluded persons, no licence is required but the person must instead apply to and maintain with the Cayman Islands Monetary Authority an exemption from such licensing requirements. Exemptions are needed for persons who are, therefore, carrying on securities investment business exclusively for one or more companies within the same group, regulated by an overseas regulatory body when the securities investment business is carried on abroad or carry on securities investment business for sophisticated or high net worth persons. Excluded persons not requiring an exemption include those carrying on securities investment business in the capacities of director, partner, liquidator and trustee.

So, are you connected to the Cayman Islands in a way caught by the Law? If so, are you carrying out securities investment business as defined by the Law? If you are, are you carrying on an excluded activity? Failing which, are you an excluded person? If not, a licence is required and failure to have one is a criminal offence. If you would like further details of the new requirements, please request our Client Guide or speak to your attorney at Hunter & Hunter.