Lawmakers pass six financial services bills

Government and opposition members of the Legislative Assembly approved changes to the six financial services laws on Wednesday.

The amendments are expected to improve the legal and regulatory framework, in part to prepare for the next round of OECD peer reviews of Cayman’s tax transparency regime and to enable Cayman’s removal from the EU list of uncooperative jurisdictions in tax matters.

Tax Information Authority Amendment Bill

The adopted changes to the Tax Information Authority Law aim to strengthen the compliance, enforcement and cooperation functions of the Tax Information Authority, which is responsible for the exchange of tax information with other countries.

Presenting the bill in the LA on Monday, Financial Services Minister Tara Rivers said the amendment seeks “to ensure that the functions and powers of the Tax Information Authority are adequate, fit for purpose and will stand up to scrutiny in the OECD peer reviews and assessments against international standards.”

The authority’s new functions include the ability to monitor and enforce compliance with the Tax Information Authority Law and regulations, as well as the power to investigate suspected breaches.

The Tax Information Authority will now have the power to examine the affairs or business of any person through on-site inspections, by auditing reports and annual returns, and by collecting and sharing statistical data.

The OECD’s Global Forum for Tax Transparency and the Exchange of Information for Tax Purposes, of which Cayman is a member, is currently conducting peer reviews. The reviews will examine the automatic exchange of tax information and the effective implementation of the Common Reporting Standard, in addition to Base Erosion and Profit Shifting standards, such as country-by-country reporting.

A critical component of these reviews, the minister said, is the evaluation of a jurisdiction’s data collection, analysis and compliance functions.

She noted the changes to the law were required “to provide clarity and consistency to the compliance monitoring, data analysis and interagency cooperation functions” of the Tax Information Authority, so that it can demonstrate the effective implementation of the standards and carry out its risk assessment and compliance strategy.

The amendments also allow for enhanced collaboration between the competent authority and other government entities; for example, General Registry and CIMA, under appropriate legal channels.

In addition, it is now a summary offence to knowingly or wilfully submit false or misleading information to the authority. The offence attracts a fine of $10,000 or imprisonment for a term of five years, or both.

Minister Rivers said the penalty provisions are the same as in the International Tax Cooperation (Economic Substance) Law and, as such, would provide consistency for the authority across both pieces of legislation.

In an effort to assist the financial services industry in meeting its obligations, the Tax Information Authority is also developing an integrated IT system. The Department of International Tax Corporation portal will be launched with additional functionality in 2020. The portal will “streamline data analytics, improve reporting functionality for financial institutions and provide the authority with improved compliance and case management functions as part of ensuring the effective implementation of the Global Forum and BEPS standards,” Rivers said.

The Report of Savings Income Information European Union Repeal Bill

The bill repeals a law and regulations under which the savings income of European citizens in the Cayman Islands was reported to the European Union.

Although Cayman is not a member of the EU, it was made subject to certain provisions of an EU Council directive on the taxation of savings income. Since 2005, the Cayman Islands has exchanged information on income from interest on savings and bank account holdings of European citizens on an aggregated basis under international agreements with the various EU member governments.

However, since the introduction of the OECD common reporting standard, which governs the automatic exchange of tax information, including bank account information, the separate reporting of savings income is no longer necessary.

Private Funds Amendment Bill

Amendments to the Private Funds Law, which was only introduced in January of this year, were prompted by the EU listing of the Cayman Islands as a non-cooperative jurisdiction in tax matters. The blacklisting was, in part, due to the late adoption of the law which requires certain private funds to register with CIMA.

However, the EU also indicated that two legislative amendments were needed to remove the Cayman Islands from the list in October of this year.

One is the requirement that funds not only disclose any conflicts of interests in relation to the valuation and safekeeping of fund assets, and cash monitoring to potential investors – as is already the case under the law – but also manage and monitor them. The second is that Cabinet no longer has the power to exempt anyone from the application of the law.

Minister Rivers said Cayman’s removal from the EU tax list was a critical priority for the government. The changes would also strengthen CIMA as a financial services regulator, which was important considering the various international reviews that Cayman is subject to.

The government also made some significant committee stage amendments to the law in response to the slow registration of private funds. Minister Rivers said government had identified some areas “which seem to be creating uncertainty among practitioners”. The last-minute changes to the definition of private funds in the law were needed to eliminate any “ambiguity regarding the registration of funds which were contemplated to be registerable.

”It is expected that as a result of the amendment many more investment vehicles will be registered with CIMA before the deadline of 7 Aug.

Exempted Limited Partnership Amendment Bill

Lawmakers amended the Exempted Limited Partnership Law to permit the de-registration of an exempted limited partnership that is also registered as a private fund with CIMA under the Private Funds Law.

The deregistration process outlined by the Exempted Limited Partnership Law requires CIMA’s prior approval based on a list of laws under which the ELP could also be licensed.

The Private Funds Law has now been added to this list.

Companies Management Amendment Bill

Changes to the Companies Management Law aligned the circumstances under which the regulator CIMA can declare directors and licensees “not fit and proper” with those of other regulatory laws, such as the Banks and Trust Companies Law or the Securities Investment Business Law.

Until now, CIMA’s fitness and propriety test was limited to cases where someone had been convicted of a crime or disqualified from holding a directorship.

Following the amendments, the regulator will be able to commence enforcement action under the law on the basis of a director not being fit and proper or the management and direction of a company not being conducted in a fit and proper manner.

Mutual Funds Amendment Bill

Lawmakers corrected a typographical error in a section of the law to ensure that both licensed funds and administered funds are captured by the definition of regulated mutual fund.

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