Cayman Islands Funds Update: Q3 2020 - Publication 21/10/2020 - Ogier
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Cayman Islands Funds Update: Q3 2020
Publication - 21/10/2020
This briefing provides a summary of a number of recent changes to laws and regulations which
have been enacted in the Cayman Islands over the last quarter which impact, or will impact,
Cayman Islands funds. This briefing provides a summary of these developments, and is
intended as a handy reference guide with respect to the recent changes and updates.
Key takeaways
As expected, the European Council announced on 6 October
2020 that the Cayman Islands has been removed from the
Cayman
EU's list of non-cooperative jurisdictions in tax matters
removed from
(Annex I) ensuring that Cayman entities will not be subject to
EU tax list
any adverse measures proposed by the EU for Annex I
jurisdictions.
The transition period with respect to changes to Cayman's
AML Regulations (2020 Revision) concluded on 5 August
2020, with the effect that any person carrying out relevant
financial business is now required to carry out their own risk
Anti-Money assessment of every country or geographic area in which
Laundering their customer(s) or applicant(s) for business reside or
Changes come operate. In addition to a review of a fund's or its
into effect administrator's policies to identify if any changes are
required, it may also be necessary to update the fund's
offering documents and subscription documents to reflect an
updated list of risk-assessed countries and certain other
amendments to the AML regime.
The Department for International Tax Cooperation ( DITC )
has indicated that the transition to a new portal for
registration and reporting purposes (DITC Portal) will shortly
be complete for both AEOI filings and submission of
New Portal for economic substance returns. As the reporting deadline for
FATCA and CRS the 2019 reporting period in relation to both CRS and FATCA
to launch in Q4 returns is currently 16 November 2020, it will be important to
make all necessary filings promptly once the DITC Portal
launches. The deadline for filing the new CRS compliance
form and submitting economic substance reports through
the DITC Portal is 31 December 2020.
1From 1 September 2020, Cayman companies and LLCs are
required to file additional information with the Cayman
New filing
General Registry upon incorporation or the notification of
requirement
certain updates, including the 'nature of business' and
for Cayman
financial year end of the company or LLC in question. This
companies and
information, together with other statutory details, is publicly
LLCs
available online upon payment of a fee. No action is required
for existing entities.
In a recent Court of Justice of the European Union judgment,
EU/US Privacy the EU-US agreement for data transfers, known as the
Shield data Privacy Shield, has been struck down. While the Privacy
transfers Shield was never a valid transfer condition under the Cayman
invalid Islands Data Protection Law, 2017, the decision may
nevertheless affect Cayman Islands entities.
Cayman Islands removed from EU tax list
As expected, the European Council announced on 6 October 2020 that the Cayman Islands has
been removed from the EU's list of non-cooperative jurisdictions in tax matters (Annex I).
Cayman's original inclusion on Annex I in February 2020 was at odds with the jurisdiction's
long-held commitment to enhancing tax good governance, as evidenced by more than 15
legislative changes since 2018 in line with the EU's criteria.
Removal from Annex I is therefore a welcome development that corrects this anomaly and
ensures that Cayman entities will not be subject to any adverse measures proposed by the EU
for Annex I jurisdictions.
The Cayman Islands Government's statement can be read here
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Anti-Money Laundering changes come into effect
The transition period with respect to changes to the Anti-Money Laundering Regulations (2020
Revision) (AML Regulations) concluded on 5 August 2020, with the effect that funds will no
longer be able to rely on the list of countries (Equivalent Jurisdictions List) maintained by the
Anti-Money Laundering Steering Group for anti-money laundering purposes, and instead any
person carrying out relevant financial business will be required to carry out their own risk
assessment of every country or geographic area in which their customer(s) or applicant(s) for
business reside or operate.
Funds, or the service providers upon whom the funds rely for the purposes of anti-money
laundering compliance, will have to ensure that they have their own list of relevant
jurisdictions which have been assessed and documented as having a 'low degree of risk of
money laundering and terrorist financing' (which is likely to be broadly similar to the existing
Equivalent Jurisdictions List). The amended AML Regulations set out the criteria which should
be taken into account when making a risk assessment of a country or geographic area.
Additional guidance can be found in the Guidance Notes on the Prevention and Detection of
2Additional guidance can be found in the Guidance Notes on the Prevention and Detection of
Money Laundering and Terrorist Financing in the Cayman Islands (as amended) (Guidance
Notes).
It may also be necessary to update the fund's offering documents, subscription documents
and AML policies and procedures in order to reflect the removal of reliance upon the
Equivalent Jurisdictions List and, where applicable, to refer to an updated list of risk-assessed
countries. Further, to the extent that there are any jurisdictions with the fund or its relied upon
service provider now consider to have a changed status, updates to the selling restrictions
within the offering document may be prudent.
As part of a review of a fund's or the fund's administrator's or the fund's other anti-money
laundering services providers (where appointed) policies to identify if any changes are required
in respect of the fund's anti-money laundering compliance framework to ensure compliance
and ensure they have a robust and well documented risk assessment system in place, it would
be prudent to ensure that the fund or service provider (in respect of the fund) is up to date
regarding ongoing monitoring and eligible introducer letters, the requirements for which have
both seen changes in the last six months.
The Guidance Notes provide a detailed framework for the ongoing monitoring of business
relationships. The two central elements of ongoing monitoring are: (i) ensuring that
documents, data or information collected under the customer due diligence process remains
current and relevant to the customer, and (ii) reviewing the transactions conducted to ensure
that they are consistent with the fund's knowledge of the customer. As a practical measure
funds should review their / their administrators' policies to ensure that they are compliant with
all of the requirements in respect of ongoing monitoring.
Any anti-money laundering comfort letters provided by third-party introducers of business
(Eligible Introducers) must state, in addition to the name of customer being introduced, the
name of the beneficial owner(s) of the customer, as determined by reference to the Cayman
Standard (see below). This should be a particular area of focus where service providers have
typically relied upon comfort letters from Eligible Introducers based in jurisdictions with lesser
requirements – particularly in the United States. Funds should review their Eligible Introducer
comfort letters to ensure that the additional information is included or otherwise provided to
the fund upon introduction. Where such information is not available to the fund or service
provider, remediation is appropriate.
Finally, a number of Cayman Islands funds rely on service providers outside of the Cayman
Islands for anti-money laundering compliance procedures. It is important that where the
service provider implements AML procedures in accordance with the anti-money laundering
regime of a different jurisdiction, the fund has properly considered and documented the risks
associated with such reliance. The fund must keep a clear record of how it has become
comfortable with such reliance, including by taking into account the aforementioned country
risk assessment criteria. CIMA had previously indicated that when applying the anti-money
laundering regime of a different jurisdiction, it was not always necessary to undertake a
granular assessment of the differences between specific requirements of such a regime and the
Cayman Islands regime. However, under the latest AML Regulations and Guidance Notes,
CIMA requires that for the purposes of identifying the beneficial owners of customers or
applicants for business, a 10% threshold ( Cayman Standard) must be applied, even if an
overseas service provider is subject to a different anti-money laundering regime which may
permit a higher threshold. Funds and their anti-money laundering officers should liaise with
overseas service providers to ensure that the Cayman Standard is applied in all cases when
carrying out identification and verification of beneficial owners. It is advisable to review
nominee and third-party introducer arrangements to ensure that the nominees and/or
3introducers are also applying the Cayman Standard in respect of KYC carried out on underlying
clients.
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Cayman Islands portal for FATCA and CRS expected to open in Q4 with
new guidance
The Department for International Tax Cooperation (DITC) has announced that they anticipate
launching their new online portal (DITC Portal) for registration (notification) and reporting
purposes in the coming weeks. This will replace the previous Cayman Islands Automatic
Exchange of Information (AEOI) Portal (AEOI Portal). The DITC Portal is designed to improve
the overall experience for users, including the ability for bulk reporting and bulk user changes
and expanding the reporting capabilities beyond reporting under the Foreign Account Tax
Compliance Act (FATCA) and the Common Reporting Standard (CRS), to incorporate other
regulatory frameworks such as Economic Substance and Country-by-Country reporting.
Cayman Financial Institutions (Cayman FIs) that have been unable to make any notifications,
filings or updates while the AEOI Portal was offline are encouraged to make their filings as
soon as possible once the DITC Portal is launched. The FATCA and CRS reporting deadline for
the 2019 reporting period is currently 16 November 2020, although this may be further
extended depending upon the launch date of the DITC Portal. The 2020 deadline for the
submission of the new CRS Compliance Form is 31 December 2020. We will issue further
guidance regarding the operation of the DITC Portal once it is open.
Entities that are required to meet an economic substance test under Cayman's economic
substance legislation (ES Law) and submit an economic substance return (ES Return) in
respect of a financial year commencing on 1 January 2019 are required to do so on or before 31
December 2020, also through the DITC Portal. Investment funds or entities through which
investment funds directly or indirectly invest or operate and Cayman exempted limited
partnerships and trusts are not relevant entities under the ES Law and are not required to
comply with the economic substance test or submit an ES Return.
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New filing requirements for certain Cayman entities
Amendments to the Companies Law (Revised) and the Limited Liability Companies Law
(Revised) have come into force requiring the Registrar of Companies ( Registrar) to maintain
a register which includes certain prescribed information in respect of all Cayman companies
and limited liability companies (LLCs). This prescribed information is publicly available online
upon payment of a fee of US$61.
In relation to Cayman companies, most of the prescribed information is statutory information
which would be found in the company's memorandum of association, such as details of
registered office, authorised share capital and company number. However a company
(including LLCs) will now be required to file details of the "nature of business" of the company
from a prescribed list of activities (examples include regulated mutual fund or registered
private fund), together with details of the company's year-end. For newly formed companies,
this information will be collected upon incorporation and, with respect to the nature of
business, updated annually via the annual return submitted to the Registrar. No action is
required at this time for existing entities.
4The Exempted Limited Partnership Law (Revised) has long contained a requirement that the
registration statement of a Cayman Islands exempted limited partnership (ELP) include
information regarding the general nature of the business of an exempted limited partnership
and, from 1 September 2020, the Registrar has required that an ELP identify its nature of
business by selecting from the same list as is available for Cayman companies and
LLCs. Similarly, the Registrar is also currently collecting information on the nature of business
of foreign companies registered in the Cayman Islands upon registration (and is expected to
request this information in annual returns).
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EU/US Privacy Shield data transfers invalid
In a recent Court of Justice of the European Union (CJEU) judgment, the EU-US agreement
for data transfers, known as the Privacy Shield, has been struck down. The Privacy Shield
sought to establish a framework for the export of data from the European Union (EU) to the
United States notwithstanding that the United States was not a jurisdiction which had
obtained an adequacy decision from the EU.
The Cayman Islands Data Protection Law, 2017 (DPL) imposes restrictions on the transfer of
personal data to countries or territories which do not have an adequate level of protection for
the rights and freedoms of data subjects in relation to the processing of personal data. For the
purposes of these restrictions, members states of the EU, together with those in respect of
which the EU has made an "adequacy decision" are automatically deemed to have an
adequate level of protection.
While the Privacy Shield did not have direct relevance under the DPL, guidance for data
controllers issued by the Cayman Islands Ombudsman noted that self-certification under the
Privacy Shield may be taken into consideration as a positive factor when assessing the recipient
of personal data under the Ombudsman's general authorisation for the transfer of personal
data. While there has been no formal update to the relevant guidance, it is not yet clear
whether this still holds true in the light of the CJEU decision and, accordingly, increased
caution may be appropriate for data controllers under the DPL seeking to export data to the
United States. In particular, such data controllers should ensure that not only are there
standard contractual clauses re cross-border data transfer (SCCs) in place as between
exporter and importer which replicate the EUs SCCs (or any SCCs published by the
Ombudsman in due course), but that they have carried out an assessment to determine that
adequate safeguards have been implemented at the US-based importer to provide an
adequate level of protection in respect of the relevant personal data. This may result in the
need to upgrade SCCs and/or establish supplementary measures. For further information see
our client briefing EU-US Privacy Shield declared invalid – what's next?
Please contact your usual Ogier attorney or any of the contacts listed for advice concerning
any of the above changes.
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About Ogier
Ogier provides practical advice on BVI, Cayman Islands, Guernsey, Jersey and Luxembourg law
through its global network of offices. Ours is the only firm to advise on these five laws. We
regularly win awards for the quality of our client service, our work and our people.
5regularly win awards for the quality of our client service, our work and our people.
Disclaimer
This client briefing has been prepared for clients and professional associates of Ogier. The
information and expressions of opinion which it contains are not intended to be a
comprehensive study or to provide legal advice and should not be treated as a substitute for
specific advice concerning individual situations.
Regulatory information can be found at www.ogier.com
ogier.com
James Bergstrom
Angus Davison
Bradley Kruger
Joanne Huckle
Nick Rogers
6Key Contacts
Cayman Islands
James Bergstrom
Partner
Cayman Islands
james.bergstrom@ogier.com
T+1 345 815 1855
M+1 345 516 9077
Angus Davison
Partner
Cayman Islands
angus.davison@ogier.com
T+1 345 815 1788
M+1 345 525 1110
Bradley Kruger
Partner
Cayman Islands
bradley.kruger@ogier.com
T+1 345 815 1877
M+1 345 516 2198
Joanne Huckle
Partner
Cayman Islands
joanne.huckle@ogier.com
T+1 345 815 1895
M+1 345 326 3071
Nick Rogers
Partner
Cayman Islands
nick.rogers@ogier.com
T+1 345 815 1844
M+1 345 525 5159
Justin Savage
Partner
Cayman Islands
justin.savage@ogier.com
T+1 345 815 1816
M+1 345 324 0880
Giorgio Subiotto
7Giorgio Subiotto
Partner
Cayman Islands
giorgio.subiotto@ogier.com
T+1 345 815 1872
M+1 345 516 9071
Praajakta Pargaonkar
Senior Associate
Cayman Islands
praajakta.pargaonkar@ogier.com
T+ 1 345 815 1809
M+1 345 525 1809
Dave Sherwin
Counsel
Cayman Islands
dave.sherwin@ogier.com
T+1 345 815 1827
M+1 345 526 1827
Hong Kong
Kate Hodson 凯特 ·赫臣
Partner and Head of ESG Funds
Hong Kong
kate.hodson@ogier.com
T+852 3656 6049
M+852 9199 5699
Nicholas Plowman 包乐文
Partner 合伙人
Hong Kong
nicholas.plowman@ogier.com
T+852 3656 6014
M+852 6390 5664
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