Preliminary Note:
All advisers to offshore funds set up in the Cayman Islands are strongly advised to contact their offshore counsel regarding the matters discussed in this post.
According to recent changes to the Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands (the “Guidance Notes”), offshore funds registered in the Cayman Islands and regulated by the Cayman Islands Monetary Authority (“CIMA”) should designate and appoint a compliance officer (“Compliance Officer”) at the management level, who:
– has sufficient skills and experience;
– reports directly to the fund’s Board of Directors (the “Board”);
– has sufficient seniority and authority so that the Board reacts to and acts upon any recommendations made;
– has regular contact with the Board so that the Board is able to satisfy itself that statutory obligations are being met and that sufficiently robust measures are being taken to protect itself against the risk of money laundering and terrorist financing;
– has sufficient resources, including sufficient time and (where appropriate) a Deputy Compliance Officer and support staff; and
– has unfettered access to all business lines, support departments and information necessary to appropriately perform the function.
The Compliance Officer can be same person as the fund’s existing Money Laundering Reporting Officer (“MLRO”). The fund’s MLRO is the person to whom all reports of knowledge or suspicion of money laundering are made, and thus is essentially a passive role. Although the MLRO can also be the fund’s Compliance Officer, the Compliance Officer serves a more active role. Specifically, according to the Guidance Notes, the Compliance Officer should:
– develop and maintain systems and controls (including documented policies and procedures) in line with evolving requirements;
– ensure regular audits of the fund’s anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”);
– Advise the Board of AML/CFT compliance issues that need to be brought to its attention;
– Report periodically, as appropriate, on the fund’s systems and controls; and
– Respond promptly to requests for information by the relevant authorities.
It should also be noted that whereas the fund is no longer required to officially appoint its MLRO, it IS required to designate and appoint the Compliance Officer by resolution or other legally binding document. With respect to the MLRO, funds can rely on the “deeming” exception issued in 2003 (contained in Section 8 of the Guidance Notes), which deems a fund’s MLRO and reporting function as being fulfilled if undertaken by the entity handling their subscriptions and redemptions, if that person is subject to the regulatory regime in the Cayman Islands or a Schedule 3 jurisdiction (generally the fund’s administrator). In contrast, the Guidance Notes have NOT yet been amended to address the delegation or deeming of the Compliance Officer role.
Accordingly, until CIMA issues further guidance on this matter, each fund should appoint a Compliance Officer by resolution (or other appropriate executive action). If the Compliance Officer role will be provided by the fund’s administrator (or other third party service provider), the administration agreement (or other relevant agreement) should be amended to expressly delegate the Compliance Officer role.
All advisers to offshore funds set up in the Cayman Islands are strongly advised to contact their offshore counsel regarding the matters discussed in this post, in order to ensure (among other things) that the fund’s Compliance Officer is properly appointed, and that such person has appropriate systems, procedures and expertise in place to support the Compliance Officer role.
