On 13th December, 2017, the Cayman Islands Monetary Authority ("CIMA") issued their updated Guidance Notes under the new AML Regulations which came into effect on 2nd October, 2017.
These Guidance Notes clarified that all regulated funds are required to appoint individuals who are suitably qualified and experienced as AML Compliance Officer ("CO"), Money Laundering Reporting Officer ("MLRO") and as Deputy MLRO ("DMLRO") (the first two appointments could be held by the same person). Immediate action on the part of CIMA regulated funds ("Funds") is required to address this requirement.
The Regulatory Framework for Anti-Money Laundering and Countering the Financing of Terrorism in the Cayman Islands (AML/CFT) is based on the 40 recommendations and guidance papers issued by the Financial Action Task Force. Robust compliance is essential in mitigating any Money Laundering/Financing of Terrorism risks and other related threats to the integrity of the international financial system. Non-compliant entities could be subject to severe sanctions.
What are the requirements for the CO, MLRO and DMLRO?
- A natural, autonomous and independent person with sufficient time to perform the role effectively.
- A fit and proper person with demonstrable knowledge and experience.
- Comprehensive understanding of the roles and responsibilities of each function in accordance with Cayman Islands laws and regulations.
- Written internal reporting procedures for suspicious activities and filing of suspicious activity reports with the Cayman Islands Financial Reporting Authority.
- In-depth and regular Vigilance and Refresher training on all aspects of the AML/CFT primary laws and regulations, supervisory and regulatory guidance.
- Documentation and Record-keeping.
Doesn't the administrator already provide this service?
Formal appointment by the fund of a named individual is required for each role. The administrator is typically appointed to provide Fund Accounting, AML/KYC on investors and Transfer Agency services. Through this appointment the Board of the Fund delegates the requirement to have an AML framework to the administrator (subject to Board oversight). We understand that individuals have not been formally appointed as CO, MLRO and DMLRO for funds, although individual employees of the administrator could formally accept these appointments, if they meet the relevant criteria, including independence.
What is the penalty for non-compliance?
Under the updated Anti-Money Laundering Regulations any person who contravenes the Regulations commits an offence and is liable
- on summary conviction, to a fine of US$625,000; or
- on conviction on indictment, to a fine and to imprisonment for two years.
In addition, as of 16th March 2018, CIMA will have the power to impose administrative fines for breaches of AML requirements up to US$1.25M.
What are my next steps?
First, determine with your fund administrator if individuals have been formally appointed to these roles. This should be evidenced by a written agreement between the fund and the individual with the approval by the board. If not, DMS Compliance has a dedicated team of MLRO, DMLRO and CO specialists available for appointment, that meets the required criteria within your budget. For additional information, please contact your usual DMS professional or one of our compliance team below to help you in evaluating your service options.
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.