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Business activity drives scoping discussions

10 October 2018

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Colin MacKay, regional commercial director in Caribbean and Latin America, assesses what Cayman’s AML regulations mean for businesses on the island.

The Cayman Anti-Money Laundering Regulations, 2017 (the Regulations) were introduced to strengthen the Cayman regulatory framework and maintain adherence with developing international standards. Under the Regulations, Cayman domiciled regulated investment funds require to appoint a money laundering reporting officer (MLRO), deputy money laundering reporting officer (DMLRO) and anti-money laundering compliance officer (AMLCO), aspects which require the attention of investment managers and fund boards.

However, the Regulations apply to a broader range of entities and activities than just those performed within the regulated investment fund space. With implications for private equity, venture capital, family office and capital markets structures, it is important to recognise the Regulations apply on the basis of the business actually carried on by an entity rather than what that entity is.

The Proceeds of Crime Law (Revised) (the POCL) is the principal legislation which prescribes the offences relating to money laundering and terrorist financing. The Regulations define the operational standards and principles of the Cayman AML/CFT framework which must be adhered to in the conduct of any business which falls within scope.

The POCL prescribes that any person engaging in “relevant financial business” is within scope. “Relevant financial business” includes typical financial activities such as carrying on the business of a bank, trust company, building society, co-operative society, insurance manager/broker, mutual fund administrator or company manager, all of which are activities subject to separate licensing and regulation in Cayman.

The definition also includes any person engaged in “the business of a regulated mutual fund within the meaning of the Mutual Funds Law (Revised), making it explicit that all collective investment funds licensed or registered with the Cayman Islands Monetary Authority (CIMA) are subject to the terms of the Regulations.

The definition of “relevant financial business” concludes with a catch-all provision which references the activities prescribed in schedule 6 to the POCL. Schedule 6 outlines a wide variety of activities which broaden the scope of the definition and ensure that a larger proportion of activities carried on in or from within Cayman are caught. Such activities include money services business (money transfers, lending, deposit taking and more), custody and safe keeping services, the issuing of financial guarantees and commitments and the carrying on of “securities investment business”. This term, defined in the Securities Investment Business Law, captures entities licensed under that law and those which are registered as excluded persons such as Cayman incorporated managers or management pass through entities which execute based on investment advice provided by an advisor.

Schedule 6 includes two widely defined activities: (i) trading in money market, exchange, interest rate or index instruments, transferrable securities or commodities futures and (ii) otherwise investing, administering or managing funds or money on behalf of others.

Trading in transferrable securities, on the face of it, captures most forms of investment, including the use of wholly-owned special purpose vehicles or blockers which acquire securities on the mandate of the parent undertaking. Additionally, investing or managing funds on behalf of others would extend to all unregulated, private equity, venture capital and family office structures where any form of collective investment and discretionary management activity is performed. However, the breadth of the definitions also creates some uncertainty and potential for specific activities to fall out of scope. For example, the entity must be “engaged” in the business or activity and so a passive investment holding vehicle may be interpreted as exempt from this aspect and therefore out of scope.

To assist businesses in a preliminary determination of the application of the Regulations, we have developed the a decision tree tool which allows the principles of the legislation and Regulations to be assessed on an entity by entity basis to give an initial indication as to whether an entity is likely to be in or out of scope.


While the decision tree is a useful tool in determining the likelihood of application, it is important for the owners and controllers of any entity which is established or operates in or from within Cayman to perform a detailed assessment of the activities of their entities against the specifics of the Regulations and to document the outcome of that decision, particularly if the conclusion is that the entity is out of scope. Any entity found to be in scope will require to appoint the MLRO, DMLRO and AMLCO and comply with the other, detailed aspects of the Regulations as they relate to the required Cayman AML/CFT framework.

As a provider of outsourced AML reporting & compliance solutions, we’re able to assist and support businesses and their Cayman counsel in a structural review to determine the application of the Regulations on a case-by-case basis as well as to partner with clients to deliver an efficient and effective compliance solution.


This article was originally published in HFMWeek on 11 September 2018