Key Regulatory Requirements of SIBA Registered Persons in the Cayman Islands

SECURITIES INVESTMENT BUSINESS

Subject to certain exceptions, an entity that carries (or purports to carry) on SIB in the Cayman Islands will need to be licensed or registered with CIMA to do so – with regulated SIB activities including: (i) dealing in securities; (ii) arranging deals in securities; (iii) managing securities; and (iv) advising on securities (each as defined under SIBA).

POLICIES AND PROCEDURES

The Cayman AML Regulations, together with CIMA’s published Rules and SOG for SIBA Registered Persons, include provisions relating to corporate governance, AML/CFT/CPF and sanctions, internal controls, the nature, accessibility and retention of records, succession planning, outsourcing arrangements and cybersecurity – and effectively require SIBA Registered Persons to document and implement policies and procedures covering:

• Risk Management, Governance and Internal Control Framework(s)
• Internal Audit Plan(s)
• AML/CFT/CPF and Sanctions Compliance Policies and Procedures
• Customer / Client Risk Assessment(s)
• Staff Training Log(s)
• Outsourcing Policy and Outsourcing Risk Assessment(s)
• Record Retention Policy
• Cybersecurity Framework / Policies and Procedures

Noting that CIMA routinely requests copies of such key policies and procedures – alongside the following supporting plans and policy documentation – for review as part of its onsite inspection process for SIBA Registered Persons:

• Business Plan
• Business Continuity Plan
• Complaints Policy
• Remuneration Policy
• Conflicts Management Policy (together with a Register (and copies) of any Conflicts Declarations made thereunder)
• Succession Plan

KEY AML COMPLIANCE REQUIREMENTS

SIBA Registered Persons are required to appoint an AML Compliance Officer (AMLCO), a Money Laundering Reporting Officer (MLRO) and a Deputy Money Laundering Reporting Officer (DMLRO, who must be a different person to the MLRO).

CIMA has stated that it also expects SIBA Registered Persons to have their AML/CFT/CPF procedures, systems and controls regularly audited by suitably qualified persons for compliance with the Cayman AML Regulations – noting that the regularity of such audits should reflect the nature, size and complexity of the relevant SIB and any associated risks identified in a SIBA Registered Person’s relevant risk assessment(s).

Whilst in large institutions an internal audit function may feasibly be able to conduct this form of AML audit, CIMA has communicated a general expectation that, in keeping with the Cayman AML Regulations, AML audits on SIBA Registered Persons should: (i) be conducted by persons who are independent of the relevant business operations; and (ii) not be conducted, or approved, by a SIBA Registered Person’s own AML Officers.

ANNUAL DECLARATIONS

SIBA Registered Persons are required to submit an annual declaration (along with a prescribed annual fee) to CIMA by 15 January each year; and CIMA has the power, under the Monetary Authority Act (Revised), to impose an administrative fine of CI$5,000 on a SIBA Registered Person that breaches this annual filing requirement.

ECONOMIC SUBSTANCE REPORTING

The ES Act applies to ‘relevant entities’ (as defined under and for the purposes of the ES Act) that are licensed or otherwise authorised to carry on SIB under and pursuant to SIBA if they manage securities for an investment fund in circumstances involving the exercise of discretion.

A SIBA Registered Person that provides discretionary investment management services to an investment fund will typically therefore (unless an ES Act exception applies, for example, if such SIBA Registered Person is tax resident outside of the Cayman Islands) also need to prepare and file an Economic Substance Return (ESR) in respect of any financial year in which it does so with the Cayman Islands Tax Information Authority (TIA) – within twelve months after the last day of each such financial year.

Any such SIBA Registered Person with a financial year end of 31 December would need to file any required ESR with the TIA by no later than 31 December in the following calendar year – noting that, pursuant to the ES Act, the TIA may impose a financial penalty of for the late filing of an ESR and an additional financial penalty for each day that an already late ESR remains outstanding.

CRS REPORTING

A SIBA Registered Person that provides investment management or advisory services will also attract a registration requirement under the Cayman CRS Regulations.

SIBA-registered investment managers and advisers are generally classified as ‘Investment Entities’ and as ‘Reporting Financial Institutions’ under and for the purposes of the Cayman CRS Regulations. In contrast to the position for other ‘Investment Entities’ however, the Cayman CRS Regulations provide that the equity and debt interests of an investment manager or adviser will only be treated as a CRS ‘Financial Account’ if the relevant class of interests was established with the purpose of avoiding a CRS reporting obligation.

An investment manager or adviser that confirms on registration with the TIA that they have no ‘Financial Accounts’ under and in accordance with the Cayman CRS Regulations will not have a reporting obligation pursuant to the Cayman CRS Regulations unless and until such confirmation is no longer correct.

HOW WE CAN HELP

Appleby’s Regulatory Team has extensive experience advising SIBA Registered Persons on their legal and regulatory obligations under SIBA, the Cayman AML Regulations, the Cayman CRS Regulations and, where applicable, the ES Act – including in relation to: the submission of both Annual Declarations and, where required, ESR; and reviewing, updating and/or drafting of compliance policies and procedures.

For further information on or assistance with any of the matters referred to in this briefing please reach out to one of the Key Contacts listed below or to your usual Appleby point of contact.