Understanding simplified and extended due diligence in the Cayman Islands

Posted by Andrew Borowiec on Nov 21, 2018 1:07:00 PM


In 2017 the Cayman Islands introduced a drastically overhauled set of legislation for anti-money laundering and counter terrorist financing. Amongst the sweeping changes and tightening up of the requirements outlined by regulators CIMA was a new requirement for customer due diligence.

The new customer due diligence requirements

There are a number of changes that you need to take note of regarding the requirement for customer due diligence when your fund falls under the jurisdiction of the Cayman Islands:

  1. The AMLCO is required to ensure that there is ongoing monitoring and updating of customer due diligence processes by the fund directors and the fund administrators.

  2. The identification and verification processes themselves need to be robust and in line with the requirements outlined in the legislation.

  3. This includes screening any potential new client via a sanctions and PEP database.

  4. After the initial customer due diligence has taken place, there is an obligation to keep client information up to date and assessed based on the risk profile you use.

Simplified and enhanced due diligence

One of the major changes around due diligence is the introduction of two new defined types of due diligence, designated as simple and enhanced.

As a fund administrator or director, you’ll have been gathering identification information and where necessary performing due diligence as laid out on the Cayman Islands specific guidance. Under this new classification there are a couple of different “carve outs” that allow you to apply simplified due diligence. Everyone and everything else falls into enhanced due diligence, which is to say the full customer due diligence process as was previously set out.

Who qualifies for simplified due diligence?

There are a number of different classifications of entities that qualify for simplified due diligence:

  • An entity regulated by CIMA, which can be checked on the regulator’s own website.

  • A central or local government organization, statutory body or agency of government, in an equivalent jurisdiction.

  • A company listed on a recognized stock exchange, for example the New York stock exchange.

  • A pension fund for a professional association, trade union or acting on behalf of employees.

Exceptions & extensions of simplified due diligence

  • The only real exception to the above list are certain governmental organizations where they originate in sanctioned or red flagged jurisdictions. The Monetary Authority has a list of these on its website, as indeed does the World Bank.

  • Extensions of the simplified due diligence category are granted to entities regulated by recognized regulatory authorities in equivalent jurisdictions (formerly known as Schedule 3).

  • Another extension is Regulation 23, formerly known as Regulation 8. Under this rule, if funds are received electronically via wire transfer from a regulated financial institution in a recognized jurisdiction, then due diligence can be forgone when funds are received, on the assumption that the due diligence completed by the RFI (e.g. a bank) would suffice. In this situation, due diligence is performed by the fund administrator’s subscriptions and redemptions department when the funds are withdrawn.

So, as you see the changes are quite minor and nuanced in most cases, however still essential to take note of in light of the enhanced CIMA Administrative Fines provision within the new regulation. Find out more about how these changes will affect your fund in our 30 minute workshop:

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Tags: Anti-Money Laundering (AML), Due Diligence

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