Gatekeepers in Focus: From CARA to LSSA - Cayman’s New AML Supervisor for Lawyers

Why the change?

International standards, particularly the recommendations of the Financial Action Task Force (FATF), recognise the key role legal professionals play in structuring and facilitating the movement of wealth. Trust formation, estate planning, corporate structuring and cross-border asset transfers all intersect with potential money laundering risk. Cayman is scheduled to begin its next Caribbean FATF (CFATF) mutual evaluation in 2027.

While CARA oversaw a robust AML regime for legal services in Cayman, the LSSA has been created to ensure consistent oversight across the legal sector whilst recognising its distinctive features including — confidentiality, fiduciary duties, a client’s right to legal advice and lawyers’ involvement in complex private structures.

What does the LSSA supervise?

Lawyers conducting or assisting other persons in the planning or execution of relevant financial business, as defined in Schedule 6 of the Proceeds of Crime Act in or from within the Cayman Islands, must now register with the LSSA.

The scope of the applicable AML regime is activity-based and includes legal services involving:

• establishment and administration of trusts and fiduciary structures
• incorporations and formation of legal entities
• cross-border estate and succession planning
• handling client funds
• structuring corporate or investment vehicles

Applicable AML obligations in a given instance will therefore depend on the work performed, not simply professional status.

What are the considerations for STEP members?

For STEP members, AML supervision of legal practice in Cayman is expected to reflect a more tailored and risk-focused approach to the types of work common in trust and estate practices — particularly high-net-worth families and/or cross-border assets and layered structures.

This in turn raises expectations around how money-laundering and terrorist / proliferation financing risks should be identified, assessed, managed and documented, not only at onboarding but in also terms of ongoing monitoring throughout the client relationship.

What does it mean in practice?

Law firms and sole practitioners must register with the LSSA; a failure to register may lead to administrative fines.

The other practical impacts are however expected to be less about new rules and more about evidencing AML compliance – with key duties of the LSSA being to maintain a register of all law firms and sole practitioners, monitor such law firms and sole practitioners by adopting a risk-based approach to supervision, and taking necessary measures (including, where needed, enforcement measures) to ensure AML compliance. In this respect:

•  Client due diligence will continue to require a clear understanding of clients, beneficial owners and sources of wealth. In trust matters, this will include the rationale for the trust and expected funding patterns.
• Risk assessments will still need to be matter-specific. Establishing a multi-jurisdictional trust funded through corporate vehicles will require a documented justification of risk ratings and monitoring steps.
• Ongoing monitoring will remain essential, with changes in assets, beneficiaries or jurisdictions prompting reassessment (and documentation of the same).
•  Training and governance may well be inspected and scrutinised, including AML policies, procedures and related staff training materials. Smaller firms will be expected to maintain proportionate but effective controls.

A practical scenario

A STEP member restructuring a trust for a family office with assets in several jurisdictions, for example, would need to reassess the relevant structure’s purpose, understand all relevant asset flows and document how and why the revised arrangement aligns with the relevant client’s known profile – The emphasis being on the adoption and implementation of a genuinely risk-based approach rather than the mechanical completion of a checklist exercise.

What can STEP members take away?

The establishment of the LSSA reflects and reinforces a broader international trend: legal advisers involved in private wealth are seen as key gatekeepers in the AML system. For practitioners, the required responses will be practical:

• embed documented risk assessment into everyday workflow
• ensure CDD is supported by a clear understanding of source of wealth and/or source of funds for a specific transaction
• maintain up-to-date AML policies and procedures and deliver regular AML training for staff
• treat AML compliance as an ongoing process rather than an onboarding event

Ultimately, the establishment of the LSSA does not change the core role of trust and estate advisers in respect of AML. It does, however, underline that robust AML governance is an integral part of professional legal practice — and a visible one.

Read the Step Journal article here.