The Cayman Islands Monetary Authority ("CIMA") has published a Supervisory Issues and Information Circular ("Circular") summarising its findings from the onsite inspections it conducted of CIMA licensed entities last year. This advisory provides a summary of the key points only and we would be happy to advise in further detail if required.
There were 164 inspections in 2018, a 40% increase from 2017. Inspections are a key tool in CIMA's supervisory toolbox and the Circular is of particular interest in highlighting CIMA's key areas of focus, particularly given CIMA's focus on anti-money laundering and counter-terrorist financing ("AML/CFT") and sanctions compliance and its new powers to impose administrative fines.
Of the sixteen categories of licensees inspected, the largest percentage were banks with a class B licence (23%), while mutual fund administrators (17.7%), company managers (13.1%) and trusts (12.8 %) together made up almost 50% of all inspections.
CIMA's 164 inspections gave rise to 1,144 requirements, over 90% of which were concentrated in five key risk areas including AML/CFT and sanctions (42%), corporate governance (22%) and operational management (19%). Business continuity management made up 5% and internal/ external audit 4%.
To assist licensees comply with their obligations, CIMA provides examples of the deficiencies identified in licensees' AML/CFT and sanctions compliance in relation to five areas, namely:
- policies and procedures
- periodic reviews and on-going monitoring both of clients and transactions
- customer due diligence ("CDD") and know your customer ("KYC") documentation
- AML/CFT training
- risk based approach
A key theme is inadequate and missing documentation, whether in relation to CDD, training records or the licensee's AML/CFT policy itself. Another theme is a mismatch between the regulatory requirements of the Cayman Islands and the documents and practices of the licensee.
CIMA also notes eleven key areas where deficiencies in licensees' corporate governance resulted in a requirement to remediate the deficiency. These included failure to notify CIMA of changes to directors and external auditors, failure to appoint independent directors, absence of a charter documenting directors' roles and responsibilities and absence of required policies (for example in relation to remuneration and conflicts of interest).
The Circular was published in the same month as the mutual evaluation report of the Caribbean Financial Action Task Force on the AML and CFT measures of the Cayman Islands. It is expected that as a result of the CFATF report there will be changes to CIMA's supervisory regime.
The Circular is a reminder of the comprehensive supervisory regime to which licensees are subject. Walkers is well-placed to assist with any questions you may have in relation to the above or with regulatory matters more generally.
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.