Possible Impact On Your Cayman Entity (regarding Cayman’s blacklisting and latest legislation)

Dear Client,

Recently, the Cayman Islands Government introduced a series of legislations, including the Anti-Money Laundering Regulations, 2020 (AMLRs), the Private Funds Law 2020 (PF Law), and the Mutual Funds Law, 2020 Revision (MFL Amendment).

The AMLRs were introduced as a response to the Caribbean Financial Action Task Force (CFATF)’s mutual evaluation report by improving the jurisdiction AML regime and addressing ‘strategic deficiencies’. Meanwhile, the Private Funds and Mutual Funds legislation now bring close-ended and certain open-ended funds within the scope of regulation.

Such developments reflect the ongoing effort of the Cayman Islands to enhance the jurisdiction’s tax transparency and to align with international compliance standards. As such, please take note of these latest legislative changes, the summary of which is provided below.

A note on the Cayman’s Islands inclusion on the EU List of Non-Cooperative Jurisdictions for Tax Purposes

On 18 February 2020, Cayman was placed on the EU blacklist following the relevant EU Council’s review. We understand that this occurred due to a technical lapse. Specifically, the Cayman Islands Government passed the required laws regarding investment funds after the deadline stipulated by the EU. The relevant legislation has in fact been passed and has been confirmed by the EU to be sufficient.

Cayman expects to be removed from the EU blacklist, when the same EU Council next reviews the EU List later in 2020. In any case, EU sanctions would only take effect in 2021, by which time it is expected that Cayman will have been removed from the blacklist.

We understand that this development is unlikely to impact investors or clients using Cayman Islands entities. As such, it can be concluded that blacklisting should not be cause for material concern at the present time.

PRIVATE FUNDS LAW 2020 (PF LAW)

Who does this affect?

The PF Law affects any Cayman Islands close-ended fund, specifically defined as “any company , unit trust or partnership whose principal business is the offering and issuing to investors of its participating, non-redeemable investment interests, the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors to receive profits or gains from such a vehicle’s investment activity, where:

(a) the holders of investment interests do not have day-to-day control over the vehicle’s investment activities;

(b) the investments are managed as a whole by or on behalf of the fund operator for reward based on the vehicles assets, profits or gains.”

What are the obligations?

If this Law applies to your entity, you will have to apply for registration with the Cayman Islands Monetary Authority (CIMA), details of which will be announced in due course. Therefore, you are required to submit audited financial statements, carry out asset valuations, appoint custodians, appoint independent persons to monitor cash flows, maintain records of securities identification codes your fund trades and holds, as well as appoint at least 2 natural persons to act as or the fund operator. There are certain aspects where exemptions may be granted, subject to CIMA’S approval. In certain cases, existing private funds may delay the filing of their first audit during the 6-month transition compliance period, choose not to appoint custodians, and/or request that CIMA waive their valuation requirements

What are the dates for compliance?

Given the commencement of the law on 7 February 2020, any Cayman private fund in existence and/or established before 7 August 2020 will have a compliance deadline of 7 August 2020, while any Cayman private fund established after 7 August 2020 will have to comply within 21 days of accepting capital commitments from investors. It is expected that separate regulations will be published soon with regards to CIMA registration specifics, fee details and, relevant forms for submission.

MUTUAL FUNDS (AMENDMENT) LAW, 2020 (MFL AMENDMENT)

Who does it affect?

The MFL Amendment affects any open-ended Cayman fund that has 15 or fewer investors endowed with the power to appoint or remove the operator of the fund (known otherwise as ‘section 4(4) funds’ or ‘exempted funds’)

What are the obligations?

If your fulfills the definition stated above and is a ‘section 4 (4) fund’, you will have to apply for registrations with CIMA by submitting a certified copy of the fund’s constitutive documents, in which it is stated that a majority of its investors have the power to appoint or remove the fund operator, provide necessary information as required in the prescribed form, and pay the registration fee. In addition, you will have to appoint at least 2 natural persons to act as or for the fund operator, as well as to conduct annual audits by a CIMA-approved auditor.

What are the dates for compliance?

Given the commencement of the law on 7 February 2020, any Cayman s4(4) fund in existence before 7 February 2020 must comply by 7 August 2020, while any Cayman s4(4) fund established after 7 February 2020 must comply immediately.

ANTI-MONEY LAUNDERING REGULATIONS (AMENDMENT), 2020 (AMLRS)

Who does this affect?

The AMLRs apply to any party engaged in “relevant financial businesses” in Cayman, specifically those conducting business with financial services providers regarding Cayman entities. The expectation is that financial services providers implement a robust anti-money laundering framework in their organizations.

What are the obligations?

The ‘Equivalent Jurisdiction List’ has been removed and is no longer a factor of consideration when applying for simplified due diligence. This means that financial services providers will have to conduct country risk assessments where necessary and record them on the customer file. Eligible introducers must now list the applicant for business being introduced and their beneficial owners in ‘Know Your Costumer’ (KYC) confirmations. Financial services providers are required to screen Introducers against applicable sanction lists and conduct tests on a regular basis to make sure they hold KYC information in accordance with requirements. Financial services providers should also maintain a risk-based independent audit function in compliance with financial sanction obligations. Finally, CIMA now necessitates the identification and verification of Beneficial Owners of legal persons at a 10% threshold, with the exception of simplified due diligence cases.

Should you have any questions about this and how we can assist your Cayman entity with ensuring compliance with the new legislation, please let us know.

Sincerely,

V. I. Services & Solutions Ltd.

*Details in this letter is correct as of 24 February 2020 and it is general guidance only based on the current legislative direction and should not be relied upon. All structures should be assessed on their own merits. We shall be delighted to provide an early assessment.