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Cayman regulatory update Q1 2024

27 February 2024

EU high-risk third country list

Further to the removal of the Cayman Islands from the FATF list of jurisdictions under increased monitoring (the “grey list”), on February 7 2024, the European Commission removed the Cayman Islands from its list of high-risk third countries.

Link - https://finance.ec.europa.eu/financial-crime/high-risk-third-countries-and-international-context-content-anti-money-laundering-and-countering_en

Observations and changes for REEFS investment strategy selections

On November 8 2023, the Cayman Islands Monetary Authority (“CIMA”) issued a notice to enhance monitoring and improve the reporting accuracy of the regulated Mutual Funds’ and Private Funds’ investment strategies. This notice became effective from November 15 2023, affecting the investment strategy selections available in the REEFS portal for fund applications and FAR filings.

As CIMA aims for more improved statistical reporting in relation to the underlying investment strategies of the Funds, certain general investment strategy categories will be officially removed, and more granular classifications will be added. The naming of some investment strategy categories has also been revised for clarity.

Against the backdrop of various global initiatives within the environmental, social, and governance ("ESG") landscape, and the Cayman Islands government’s climate change-related initiatives, CIMA acknowledges that more robust approaches for identifying, measuring, monitoring, and managing material ESG-related risks are paramount. Therefore, in the first instance, it is imperative that CIMA obtains more accurate data on the number of ESG, and/or climate-focused funds in the jurisdiction.

CIMA has, however, observed that ESG is seldom selected in fund applications or FAR submissions, despite considerable evidence in the Offering Memorandums that the funds incorporate ESG considerations. CIMA hereby requests that funds, where ESG is their core focus, should have that selected as the primary investment strategy. For funds that have ESG considerations as non-core, but with material substance, ESG should be selected as the secondary investment strategy.

Removed from the Investments Strategy list:

  • Private equity
  • Other

Added to the Investments Strategy list:

  • Absolute return
  • Capital structure arbitrage
  • Convexity
  • Derivatives trading
  • Energy/power
  • Equity hedged
  • Equity long only
  • Fund of private equity funds
  • Growth equity/growth capital
  • Infrastructure
  • Leveraged buyout (“LBO”)
  • Long-only absolute return
  • Private credit
  • Quantitative
  • Secondaries

Amendments to the Investments Strategy list:

  • Asset-backed/mortgage-backed securities
  • Crypto/digital/virtual assets-related
  • Distressed/special situations
  • Fixed income/debt
  • Fixed income arbitrage/debt
  • Foreign exchange/currency trading

FAR submissions:

  • FAR for funds pertaining to the financial years ending December 31 2023 or thereafter must use the revised Investment Strategy list in FAR submissions.

Link - https://www.cima.ky/changes-to-reefs-investment-strategy-selections

CIMA climate survey

On February 7 2024, CIMA launched its Climate Change and Environmental-Related Risks Survey. If you would like to contribute your insights, kindly complete the survey here. The deadline for submissions is March 8 2024.

Consolidated supervision

On November 17 2023, CIMA published a Regulatory Policy on Consolidated Supervision. The Policy is applicable to all regulated entities that are part of a group and will be applied in a proportionate manner to the risks posed to a regulated entity by other members of the group to which the regulated entity belongs. Consolidated supervision is a group-wide comprehensive approach to supervision, which includes the assessment and evaluation of the strength of an entire group while taking into account the group’s reputation and financial soundness, as well as the overall risks which may affect the group regardless of whether the risk is identified within the regulated entity or another entity within the group. Therefore, it allows for the assessment of the risks posed to a regulated entity by other members of the group to which it belongs.

The Policy seeks to ensure that, where CIMA acts as the home or host supervisor with respect to a regulated entity that is part of a group, the regulated entity is subject to effective consolidated supervision. This includes ensuring that CIMA has mechanisms in place to identify, assess, and mitigate the risks posed to a regulated entity and its branches by other members of a group to which the regulated entity belongs.

Link – https://www.cima.ky/upimages/regulatorymeasures/RegulatoryPolicy-ConsolidatedSupervisionNov2023_1700579536.pdf 

Collective engagement to implement the Crypto-Asset Reporting Framework (“CARF”)

The Cayman Islands is one of 48 jurisdictions endorsing a collective engagement to implement CARF. CARF is a new Organisation for Economic Co-operation and Development (“OECD”) global standard for the automatic exchange of information on crypto-assets. Endorsed by the G20, it aims to further enhance cooperation among tax authorities for increased transparency in fighting tax evasion and money laundering. To achieve this, CARF addresses gaps and challenges posed by such crypto-assets as decentralised exchanges, peer-to-peer transactions, and privacy coins, which are not covered by the Common Reporting Standard (“CRS”). Because it builds on CRS principles, CARF leverages the CRS infrastructure and network.

It is anticipated that the first exchanges of information under CARF will be made in 2027. CRS amendments will be made prior to this timeframe to ensure CARF’s consistency with CRS and to facilitate CARF’s orderly implementation.

Link - https://www.ditc.ky/press/collective-engagement-to-implement-the-crypto-asset-reporting-framework

CIMA annual report 2022

On January 24 2024, CIMA published its 2022 Annual Report.

Link- https://www.cima.ky/upimages/publicationdoc/AnnualReportandAu_1706125388.pdf

Upcoming reporting deadlines

March 1 – Exempted trusts annual fees are due.

March 31 – Economic Substance Notification is due for foreign companies.

April 30 – FATCA/CRS registration deadline for new financial institutions with DITC.

June 30 – Deadline for filing Fund Annual Return (“FAR”) and 2023 audited financial statements for all funds with a December 31 year-end.

July 31 – Deadline to file the annual report for the 2023 reporting period for FATCA/ CRS.

Recommended fund termination deadlines

September 1 – Recommend timeframe to commence the voluntary liquidation process.

November 1 – Strike-off application to be submitted to avoid the next year’s fees.

December 31 – The Fund is required to submit documentation to CIMA in advance to have de-registration approved by December 31 to avoid 2025 annual fees.

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