A raft of financial services legislation passed in July will face its first round of scrutiny in less than two weeks, when the Cayman Islands government is scheduled to follow-up with the Caribbean Financial Action Task Force.
The task force will be looking at the technical compliance and effectiveness of Cayman’s legislative framework in countering terrorist financing and preventing money laundering.
Ahead of the 24 Sept. submissions, Financial Services Minister Tara Rivers elaborated on the 11 financial services bills passed by the Legislative Assembly and how she expects Cayman to stack up under CFATF scrutiny.
“The package of legislation presented in the Legislative Assembly is intended to ensure that the Cayman Islands remains at the forefront in adopting and implementing recognized international best practice, and to address the recommendations and concerns raised in the CFATF 4th Round Mutual Evaluation Report,” Rivers said.
In the mutual evaluation report released earlier this year, the CFATF found “major deficiencies” in Cayman’s ability to analyse and understand risks from money laundering and terrorism financing. The task force concluded Cayman had not provided sufficient risk analysis in certain financial sectors that were not subject to supervision, such as lawyers or legally excluded persons.
July’s gathering of the Legislative Assembly focussed in large part on addressing these deficiencies.
Comparatively, however, Rivers contends that Cayman fares well next to other jurisdictions.
“As a jurisdiction, the Cayman Islands performed better in technical compliance relative to effectiveness, which is an indication that the appropriate framework and tools exists, but there is a need to better demonstrate and track enforcement of the legislation,” Rivers said.
“It is important to note, however, that most countries assessed so far using the updated FATF methodology have all lacked sufficient effectiveness measures, in one way or the other, so Cayman is not alone in this regard.”
While Cayman faces international pressure to implement publicly available beneficial ownership registers, Rivers clarified that recent legislation does not move the jurisdiction in that direction.
“For the sake of clarity, the proposed actions coming out of these pieces of legislation do not move the Cayman Islands closer to implementing public registers of beneficial owners and should not be seen as such,” she said.
“Making the list of directors for a company publicly available is a response to a CFATF recommended action. The bills seek to strengthen sanctions against trust and corporate service providers and companies, for their failure to maintain up-to-date beneficial ownership information.”
Under FATF methodology, she said, publicly available information should include the company name, proof of incorporation, legal form and status, the address of registered offices, basic regulating powers and a list of directors.
Another element of the task force’s recommendations is the expectation of effectively dissuasive sanctions for non-compliance and criminal activity.
Amendments to the Companies Law, 2018, for example, implemented a tiered approach in fines for failure to maintain beneficial ownership information.
A first offence would garner a $25,000 fine. A second offence would come with a $100,000 fine and a third offence would require the court to determine appropriate measures.
“The FATF standard requires that countries have proportionate and dissuasive sanctions,” Rivers said.
“To this end, the amendments seek to strengthen existing sanctions related to beneficial ownership information. A cross-jurisdictional analysis shows that beneficial ownership penalties vary from jurisdiction to jurisdiction, and may include criminal penalties, unlimited fines, disqualification of agents and allowing for companies to be struck off the register.”
Cayman Islands Monetary Authority
Under the Building Societies (Amendment) Bill, 2019 and the Cooperative Societies (Amendment) Bill, 2019, the Cayman Islands Monetary Authority will be tasked with preventing individuals suspected of criminal activity from holding significant controlling interests.
These bills “require the approval of the Cayman Islands Monetary Authority prior to any issuance or transfer of shares, if the issuance or transfer would give any person 10 percent or more of the total voting rights of the society/credit union. It should be noted that equivalent provisions exist in other regulatory laws”, Rivers said.
To assess the fitness of such individuals, Rivers said CIMA analyses honesty, integrity and reputation, competence and capability, and financial soundness.
Powers are also bestowed on CIMA in the case of disaster through the Monetary Authority Amendment No. 2 Bill. The bill allows entities regulated in other jurisdictions to temporarily operate in the Cayman Islands, under conditions of the Monetary Authority Law, when their home territory has been impacted by catastrophic events such as hurricanes.
Moving forward, Rivers says Cayman Islands stakeholders in government and industry must be proactive in promoting the jurisdiction and dispelling negative stereotypes surrounding the financial services industry.
The Ministry of Financial Services actively lobbies in Washington, London, Brussels and elsewhere.
“Similarly, we encourage engagement efforts to be taken by our local private sector through relevant industry organisations and speaking with their counterparts in these jurisdictions as well,” the financial services minister said. “This requires ‘all hands on deck.’”