A review of how trust and corporate services providers are complying with the sanctions provisions of Cayman’s Anti-Money Laundering Regulations highlighted that the majority have adequate policies and procedures, but they are not always effectively implemented.
The Cayman Islands Monetary Authority assessed sanctions compliance on the basis of 27 inspections of trust and corporate services providers in 2021 and the review of 567 client files.
Although CIMA is not responsible for the enforcement of sanctions, the authority can take action, if it identifies failings in the sanctions-monitoring framework applied by its licensees.
Under the AML regulations, service providers must ensure that fund vehicles, virtual asset service providers, correspondent banks or other legal persons and arrangements are not subject to, or seeking to circumvent, financial sanctions.
Both when setting up a business and on an ongoing basis, they must assess whether the client, its directors, shareholders, beneficial owners, and other related parties are either themselves subject to sanctions or involved with persons or entities designated under sanctions applicable in Cayman.
In such cases, the service providers must freeze related accounts, funds and other economic resources and report the findings to the Financial Reporting Authority.
In an information circular issued to all regulated entities on 17 June, CIMA noted that 89% of trust and corporate services providers had adequate policies and procedures for the ongoing monitoring and screening of sanctions. But, for client onboarding, only 63% had adequate policies.
At the same time, the authority found that only 26% of the inspected trust and corporate services providers were effectively implementing their sanctions-screening policies and procedures across all the client files reviewed by the authority.
The remaining 74% had at least one client file with weaknesses around sanctions screening of clients and their related parties, either at onboarding or on a periodical basis.
About 15% of the files reviewed showed instances where at least one client or associated party was not screened for sanctions.
In 11% of the reviewed files, the service providers had been screening clients against sanctions lists but, in at least one case, the results were not documented or retained in the client file.
In addition, 5% of the files showed instances where service providers were not screening on an ongoing basis or when sanctions lists were updated.
In 14% of files, the screening was subject to a review but not in accordance with the client’s business or risk profile, CIMA said.
And 1% of the client files lacked documentation to show how they treated positive or false positive hits flagged by their sanctions screening IT systems.
The authority said it had taken immediate and robust steps to remedy sanctions non-compliance by trust and corporate services providers, including issuing requirements and in some cases enforcement action.
However, all regulated entities should note the sanctions deficiencies identified by the authority and ensure that they are in compliance with the AML regulations and guidance notes, CIMA added.
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