On 18 June 2019 certain key changes to the regulatory framework and ongoing filings required for persons regulated under the Securities Investment Business Law (2019 Revision) (the SIB Law) were introduced. Previously, persons regulated under the law fell into one of two categories: licensees or excluded persons. Excluded persons engaged in securities investment business were exempted from the full licensing requirements of the SIB Law.
Registered Persons and Non-Registrable Persons
The Securities Investment Business (Amendment) Law, 2019 (Amendment Law) replaces the concept of excluded person with that of "registered person". Entities listed in Schedule 4 to the SIB Law (formerly excluded persons) are required to register with the Cayman Islands Monetary Authority (CIMA). An applicant for registration must satisfy CIMA that the applicant's shareholders, directors and senior officers are fit and proper persons. As was the case for excluded persons, a registered person must file an annual declaration with CIMA and pay an annual fee. Annual declarations are due on 15 January each year, with the first declaration of Registered Persons (including former excluded persons) to be filed with CIMA by 15 January 2020.
A new category of non-registrable persons has also been introduced as Schedule 2A to the SIB Law. These persons were previously classified as excluded persons but would not have been required to file with CIMA an annual declaration or pay an annual fee.
Directors of Registered Persons
Prior to introduction of the Amendment Law, licensees under the SIB Law were required to have no fewer than two directors, or in the case of a company that does not have directors, two managers. No such minimum applied to excluded persons. The Amendment Law expands this requirement to apply to not only licensees but also to registered persons. This is a significant change, given that in order to serve as a director of an entity regulated under the SIB Law, such director must also comply with the Directors Registration and Licensing Law, 2014 (as amended), including the requirement to register with CIMA and to pay an annual fee.
New Filings and Deadlines
In addition to the requirement to re-register by 15 January 2020, under the Amendment Law registered persons must also provide CIMA with certain information by 15 August 2019. Failure to re-register or to supply the requested information will result in a registered person being deregistered by CIMA.
As of the date of writing, there are two forms to be filed with CIMA by the 15 August 2019 deadline. These are AIR-157-75AML Inherent Risk – Securities and ARC-158-75AML Risk Controls – Securities. To access these documents, please get in touch with your usual Appleby contact or any of the contacts below. Completed forms must be filed electronically via CIMA's REEFS Portal. Registered persons should contact their registered office services provider to assist with these filings without delay.
CIMA's Powers and Enforcement
Under the new Amendment Law, CIMA will have discretionary powers
(a) impose conditions on an applicant for registration at the time of registration;
(b) refuse registration for an applicant for registration; and
(c) employ its enforcement powers against a registered person.
CIMA will also have the power to give cease and desist directions to a licensee or registered person in relation to that person's securities investment business. Failure to comply, without reasonable cause, will constitute an offence and subject a person, on summary conviction, to a fine of CI$50,000 or imprisonment for a term of one year, or both; or, on conviction on indictment, to a fine of CI$100,000 or imprisonment for a term of five years, or both, with a further fine of CI$10,000 for every day on which the offence is continued after conviction.
The Amendment Law as adopted did not retain certain provisions relating to substance for licensees and registered persons, as had been contemplated in an earlier bill. Persons engaged in the business of "managing securities" as defined under the SIB Law, however, need still be aware that they may well have obligations relating to economic substance under the regime as set forth under the International Tax Co-operation (Economic Substance) Law, 2018 (as amended). Persons engaged in this category of securities investment business are strongly encouraged to contact a member of the Investment Funds team below or their usual Appleby contact to discuss.
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.