What the Cayman Islands’ regulatory changes mean for fund administration

The last 12 months has been marked by legislative and regulatory change in the Cayman Islands with long-lasting effects on the fund industry. From strengthening anti-money laundering, terrorist and proliferation financing compliance frameworks to introducing the Data Protection Laws, 2019 is a year of transformation. Here’s your guide to the changes and how they will affect fund administrators.

Amending the Companies Law (2018 revision)

The Caribbean Financial Action Task Force’s (CFATF) mutual evaluation of the Cayman Islands’ finance legislation (in relation to money laundering and terrorist financing) has led to numerous amendments to increase compliance with global finance law standards. Prominent changes have been made to the Companies Law, with new measures around:

Updating the registers of members for funds and other entities
A reduction in the notification period for filing with the Registrar of Companies about director or officer changes; and
Meeting more stringent obligations within the beneficial ownership regime.

Updating the register of members

A new requirement within Section 40 of the Companies Law stipulates that Cayman Islands companies need to specify whether shares carry voting rights. The register should also specify if these rights are conditional, and accurately categorise all shares. Organisations incorporated on or after 8 August 2019 have until 7 November 2019 to update the register, while those incorporated prior have six months.

Notifying the Registrar of Companies

Cayman Islands companies now only have 30 days to report any changes to directors or officers, in a reversal of the previous increase to a 60-day notice period. Businesses breaching this obligation will still face the same penalties.

Meeting obligations within the beneficial ownership regime

The penalties for companies breaching beneficial ownership regime obligations are now more severe. Second offences for non-compliant organisations will incur fines of nearly AU$180,000 (US$120,000), while a third offence could lead to the organisation being struck off the Register of Companies. Those failing to provide the required beneficial ownership information or respond to formal notices issued could also face penalties of AU$90,000 (US$60,000) and / or two years’ imprisonment.

These changes highlight the importance of ensuring that fund administrators keep business information updated and compliant with global best practices.

Cayman Islands entities need to ensure they meet obligations within the Companies Law.

Strengthening anti-money laundering and terrorism financing laws

The recent CFATF report offers recommendations to better combat money laundering and terrorist financing in the Cayman Islands. This has led to major revisions of the regulations.

Here are some of the changes under the new anti-money laundering, terrorist and proliferation financing laws:

Including unregulated investment entities and special purpose vehicles within the revisions by redefining them as a ‘relevant financial business’.
Designating compliance roles within every financial entity and informing the Cayman Islands Monetary Authority of these persons. These positions include Anti-Money Laundering, Compliance Officer, Money-Laundering Reporting Officer and a deputy to the latter.
Introducing a more comprehensive risk-based approach to assessing the suitability of anti-money laundering, terrorist and proliferation financing processes within funds and other relevant financial businesses.

Instituting the Cayman Islands’ Data Protection Law 2017

The Cayman Islands’ newly in-force Data Protection Law gives the nation an equal footing European Union practices to better safeguard individuals’ personal information.

Under the new legislation, any commercial or finance entity registered within the Cayman Islands that handles an individual’s personal information must meet key security obligations. This includes appraising how and who accesses individuals’ data, why this information is required, and the ways in which individuals and entities intend to share information securely. This obligation extends to data processed by third parties or service providers.

To comply, funds need to update existing administration agreements, formal privacy notices and data protection arrangements between partners or related business entities by:

- Preparing a new or amended privacy notice, to be prominently displayed online or within public documents, and circulated among existing investors and staff.
- Revising subscription documents with data security notices for new investors.
- Ensuring that contracts with service providers that process personal data on behalf of the fund comply with the Data Protection Law 2017 and negotiate changes as needed.

Further, the Islands Ombudsman has declared on its website that commercial entities compliant with the EU’s General General Data Protection Regulation will also be compliant with the Cayman laws.

Improved data security is one of the major changes to the Cayman Islands’ legislation this year.

Further updating the Cayman Islands’ economic substance requirements

On 27 December 2018, the Cayman Islands published The International Tax Co-operation (Economic Substance) Law, 2018. The Economic Substance Law mandates reporting requirements on ‘relevant’ financial activities to the Cayman Islands Tax Information Authority. These information sharing requirements apply to all entities that are not defined as an investment fund, domestic company or business tax resident outside of the Cayman Islands.

Currently, the first notification is due in January 2020 and the first annual report must be submitted no later than 12 months after the last day of the company’s financial year thereafter. However, the related guidance has already undergone two rounds of amendments, with a third version expected to be finalised in November 2019. Fund managers will need to keep an eye out for how this change will affect minimum reporting requirements while their Cayman Islands funds remain out of scope.

Additionally, managers of private Cayman Islands investment funds should take note that the Cayman Islands Investment Funds (Private Funds) Law, 2019 is on the horizon; as a result, private funds will experience increased regulation and reporting requirements in 2020.

Updated legislation and new fund regulations have altered the game, yet maintaining high-quality fund administration is still achievable.

Mainstream’s experts can seamlessly navigate you through these extra responsibilities. Look to Mainstream for the specialist support to keep you on top of changes, past and future – we’re only a click away.