On 14 April 2023, a number of new and updated rules and statements of guidance (SOGs) were published by the Cayman Islands Monetary Authority (CIMA) in the Cayman Islands Gazette (Gazette). These rules and SOGs apply to all regulated entities (i.e., entities licensed or registered with CIMA under any of the regulatory laws as defined in the Monetary Authority Act (as revised) (Monetary Authority Act).
In this two-part publication series, we will provide an overview of the areas CIMA identified where clarification, amendment and new regulatory requirements were warranted.
In this first instalment, we review the revised SOG on Outsourcing, the new rule and SOG on Internal Controls and the new rule on Corporate Governance.
In the second instalment, we will review the updated SOG on Corporate Governance for Mutual Funds and now including Private Funds, the revised rule and SOG on Cybersecurity and the revised SOG on the Nature, Accessibility and Retention of Records.
OUTSOURCING
Following consultation, CIMA published its revised SOG on outsourcing together with a feedback statement setting out its rationale for some of the approaches taken by it in this SOG.
KEY POINTS TO NOTE |
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RELEVANCE TO REGULATED ENTITIES |
CIMA has continuously emphasised that
responsibility and accountability for effective oversight of all
regulated activities, whether outsourced or not, ultimately rests
with the governing body and senior management of the regulated
entity.
As outsourcing is such a key supervisory focus for CIMA and other international financial regulators, a regulated entity must always apply the requirements contained in the SOG when engaging any outsourced service provider. |
CORPORATE GOVERNANCE RULE
CIMA's new rule on corporate governance (CG Rule) comes into effect six months from the date of publication i.e., 14 October 2023. The CG Rule also applies to Mutual Funds and Private Funds and should be read in conjunction with the SOG on Corporate Governance for Mutual Funds and Private Funds. The key change to that SOG is that Private Funds now fall within scope of the SOG on Corporate Governance which previously only applied to Mutual Funds.
KEY POINTS TO NOTE |
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RELEVANCE TO REGULATED ENTITIES |
The CG Rule seeks to address identified corporate
governance deficiencies to be implemented in a manner that is
proportionate and flexible enough to accommodate different business
types and governance structures of a regulated entity.
From an enforcement perspective, it is worth noting that part VIA of the Monetary Authority Act gives CIMA the power to impose administrative fines upon CIMA regulated entities and individuals in relation to breaches of certain rules as currently set out in schedule 1 (Prescribed Provisions and Breach Categories) of the Monetary Authority (Administrative Fines) Regulations 2022 which currently lists various CIMA published rules e.g., rule on internal controls. |
INTERNAL CONTROLS RULE AND SOG
CIMA's rule and SOG on internal controls comes into effect on 14 October 2023.
KEY POINTS TO NOTE |
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RELEVANCE TO REGULATED ENTITIES |
In recent months CIMA has commented that certain
regulated entities have failed to have effective internal controls
in place to identify deficiencies in its AML-CFT compliance
programme and to be able to demonstrate sufficient oversight of the
AML-CFT framework to ensure compliance. This is also particularly
important where regulated entities have outsourcing arrangements in
place in relation to the provision of AML Officers as CIMA expects
regulated entities to have processes in place to oversee the
activities outsourced to service providers.
We recommend that regulated entities discuss their Internal Controls with their board/governing body and take proactive measures to ensure robust and appropriate governance and control arrangements are in place. Additionally, regulated entities should expect this to be an area of supervisory focus for CIMA, in particular, during the course of a CIMA inspection, and this should be given attention at board level and factored into regulatory and compliance planning going forward. |
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.