Government plans to broaden Cayman’s regulatory framework for securities and investment businesses, after a review by the Cayman Islands Monetary Authority identified regulatory and reputational risks stemming from entities that under the law can operate without a licence.

The so-called ‘excluded persons’ regime aims to impose a lesser regulatory burden on financial service providers that exclusively serve sophisticated or high net-worth investors, because those investors can personally carry out the necessary due diligence that is otherwise undertaken by CIMA for licensed entities. Certain Cayman subsidiaries of parent companies located abroad are similarly exempt from holding a licence given that the parent companies are regulated in their home jurisdictions.

The Securities Investment Business (Amendment) Bill, 2019, seeks to introduce a regulatory and supervisory framework for excluded persons.

The legislative changes reflect the comments of a financial services industry working group, which aims to bring all persons, companies and partnerships that undertake securities investment business into regulatory scope, the Ministry of Financial Services said in a press release.

Requirements would include filing financial statements and regular returns, undergoing onsite regulatory inspections, and being subject to any necessary enforcement actions by CIMA, as Cayman’s financial services regulator.

The bill became available for public consultation on Tuesday, April 16, and will be debated in the next meeting of the Legislative Assembly.

CIMA started to tighten the regulatory requirements last year when it sent letters to securities and investment businesses registered as excluded persons, instructing them to obtain within 30 days an auditor’s report on their anti-money laundering systems and procedures for compliance with Cayman’s anti-money laundering regulations.

The reports had to certify that a company’s operations comply with the regulations and that the company and directors were conducting business in a fit and proper manner.

An evaluation of the Cayman Islands anti-money laundering framework by the Caribbean Action Task Force published in March found that Cayman had not sufficiently taken into account the risks that excluded persons pose for the financial sector.

It recommended more information should be collected on excluded persons and that they should implement appropriate anti-money laundering policies, procedures and controls.

While addressing CIMA’s recommendations for additional oversight of these entities, the ministry said, the proposed amendments also respond to the CFATF’s assessment of the Cayman Islands.

The public is invited to send their comments on the proposed bill to the Department of Financial Services Policy and Legislation’s Senior Policy Analyst, Rolna DaCosta, at [email protected]  

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