Companies Law amendments to increase sanctions, reporting

Premier announces 100 new regulatory positions

A raft of financial services legislation went before the Legislative Assembly this week. Eleven bills in all were scheduled for debate regarding Cayman’s regulatory framework. Much of the legislation seeks to address a recent report by the Caribbean Financial Action Task Force that identified deficiencies in Cayman’s current structure.

Before debate on the bills began, Premier Alden McLaughlin announced a number of measures to bolster the financial services industry, including funding for 100 new positions for enforcement purposes.

“This includes the strengthening of the dedicated Anti Money Laundering Unit at the Cayman Islands Monetary Authority and a dedicated cross-border Money Laundering and Terrorist Financing Task Force within the Royal Cayman Islands Police Service (for which an interim team was put in place in April),” McLaughlin said.

“All told we will be investing several million dollars more to further strengthen our regulatory regime.”

He called for the jurisdiction to rise to the task that the CFATF has put before it to demonstrate not just legislative framework but effectiveness of such framework. He expected Cayman to show progress on meeting such regulatory requirements by the 24 Sept. follow-up with the task force. The results of that follow-up will be presented in November in Antigua.

In opening an extensive debate around such reforms, Financial Services Minister Tara Rivers proposed five key amendments to the Companies Law, 2018 to bring the Cayman Islands closer to expectations established by the FATF and outlined in its mutual evaluation report.

Change 1: Identification of legal persons

The first deficiency outlined by Minister Rivers deals with Cayman’s risk assessment framework, “to identify, assess and understand the money laundering and terrorist financing risks and vulnerabilities associated with specific types of legal persons established in the jurisdiction”, she shared, quoting the mutual evaluation report.

The Ministry of Financial Services identified issues in obtaining relevant risk assessment information by authorities responsible for supervision of AML and CFT provisions, she said.

“The bill, therefore … enables the general registry to provide relevant information directed to competent authorities responsible for AML CFT supervision within 48 hours for the discharge of their AML CFT responsibilities,” Rivers told the Legislative Assembly.

“The measure will help improve the timeliness of investigations and the identification of AML CFT risks of companies incorporated under the Companies Law.”

Change 2: Voting rights

Currently, no requirement exists to maintain information about the nature of associated voting rights in company structures, Rivers shared. While the Companies Law currently requires disclosure of shares held by each member, the mutual evaluation report found this to be insufficient.

“This bill requires a simple confirmation to be added to this statement indicating whether each relevant category of shares held by the member carries voting rights under the articles of association of the company and if the voting rights are conditional,” Rivers said.

“The intent of this CFATF recommendation is to allow competent authorities inspecting the register of members of a company to identify which members have the ability to control the actions of the company.” A transitional period will be included in the amendment to allow time for registered entities to comply with the requirement.

Change 3: Change of directors and officers

The FATF found Cayman lacks timeliness in its 60-day window to register changes in company directors and officers.

“Further jurisdictional comparison conducted by the Department of Financial Services confirms that the 60-day time frame provided in the company’s law is outside of what is provided by other jurisdictions,” Rivers said, quoting the report.

The notification time period was extended from 30 to 60 days in 2015, Rivers noted. The change came alongside implementation of more stringent penalties for breaches of notification. This change, however, brought Cayman out of line with other jurisdictions.

Rivers pointed out that Guernsey, Ireland, Hong Kong and the UK have a notification period of less than 15 days, while the Isle of Man, Jersey and Singapore have periods ranging between 15 and 30 days.

She proposed the period in Cayman be reverted back to 30 days.

Change 4: Publicly available registers

The FATF report suggested Cayman “ensure that all basic information including information on the directors and exempted companies and LLCs respectively is publicly available”.

Under the FATF methodology, this disclosure includes the company name, proof of incorporation, legal form and status, address of registered office, basic regulating powers and a list of directors.

“The Companies Law does not currently provide for a list of directors to be made publicly available,” River said. “We note that some of our competitors, including Jersey, Guernsey, Luxembourg, Hong Kong, Bahamas, Ireland and Bermuda all have made a list of directors available to the public.”

“Because of the importance of this requirement for an FATF review and the potential impact to the financial services industry, careful consideration was given to the information which should be included in the list of directors.”

The proposed amendment to the Companies Law would require only the names of current company directors and current alternative directors be made public.

Change 5: Sanctions

Cayman currently imposes a maximum fine of $25,000 against trusts and corporate service providers that fail to maintain updated beneficial ownership information. The FATF found this to be inadequate.

“The maximum of CI$25,000 may not serve as a deterrent for a breach as significant as obligation to maintain beneficial ownership information, particularly in the case of larger companies who can afford to pay such a fine of KYD$25,000 for breaches is not proportionate to other fines, neither is it fully dissuasive,” Rivers quoted from the report.

The amended bill would implement increased fines for repeat offences.

“The bill therefore proposes an overall increase to relevant fines in a tiered approach for first, second, and third convictions with the ability for the Grand Court to order that the entity be struck off of the register of companies on the third conviction should the court determine that to be an appropriate order to make,” Rivers said. A second offence would come with a $100,000 fine. A third offence would require the court to determine appropriate measures.

The Legislative Assembly moved forward the second reading of the bill.