New Cayman Islands administrative fines regime

Transcription

1 JANUARY 2018 UPDATE New Cayman Islands administrative fines regime Update prepared by Sara Galletly (Knowledge Lawyer, London) New Cayman Islands legislation has been brought into force allowing the Cayman Islands Monetary Authority to impose administrative fines for breaches of certain regulatory laws. The scope of this new regime is currently limited to breaches of certain provisions of the Anti-Money Laundering Regulations, In addition, no fines may be imposed, and no steps may be taken to do so, for a 90-day transitional period. New legislation The Monetary Authority (Amendment) Law, 2016 (the Amendment Law) and the Monetary Authority (Administrative Fines) Regulations, 2017 (the Regulations) both came into force on 15 December The Amendment Law inserts new enforcement powers into the Monetary Authority Law (2016 Revision) (the Monetary Authority Law), allowing the Cayman Islands Monetary Authority (CIMA) to impose substantial administrative fines upon individuals and entities licensed and regulated in the Cayman Islands. New fines Prior to the adoption of the Amendment Law, CIMA had power under the Monetary Authority Law to impose fines for breaches of rules or guidance relating to the conduct of licensees under the regulatory laws for which CIMA has regulatory and supervisory power. Such fines were capped at USD6,000. The Amendment Law has removed the USD6,000 cap on fines, introducing three categories of breach (minor, serious and very serious) with new administrative fines and limitation periods as follows: Breach Fine(s) Limitation period 1 Minor Serious Very serious 'Initial' fixed fine of USD6, CIMA will also have a discretion to impose one or more additional fines of USD6, each, up to a cumulative cap of USD24, for a single minor breach A single fine up to a maximum of USD60, for individuals or USD121, for corporate bodies A single fine up to a maximum of USD121, for individuals or USD1,219, for corporate bodies 6 months 2 years 2 years CIMA has a discretion with serious and very serious breaches in deciding whether to impose a fine and the amount of any fine. 1 These limitation periods run from the date on which CIMA became aware of the commission of the relevant breach. CIMA will be deemed to have become aware of a breach when it first received information from which the breach can reasonably be inferred. BVI CAYMAN ISLANDS GUERNSEY HONG KONG JERSEY LONDON mourant.com

2 Prescribed provisions and 'breaches' Under the Monetary Authority Law, CIMA has the power to impose administrative fines in respect of breaches of certain provisions (the prescribed provisions) of the Monetary Authority Law, the 'regulatory laws' 2 and any regulations made under them and the Anti-Money Laundering Regulations, 2017 (the AML Regulations). However, the prescribed provisions are set out in the Regulations and are currently restricted to certain provisions of the AML Regulations, which are all categorised as serious or very serious. A summary of the current prescribed provisions is provided at the end of this update. 'Breach' is defined broadly, including positive contraventions, more passive actions such as allowing a state of affairs to exist and omissions to act. Potential application to directors and regulated funds As both the Director Registration and Licensing Law, 2014 (the DRLL) and the Mutual Funds Law (2015 Revision) are 'regulatory laws' under the Monetary Authority Law, there is potential for directors licensed or registered in the Cayman Islands (whether or not they are resident in the Cayman Islands) and for regulated mutual funds to fall within the scope of the administrative fine regime. However, none of the prescribed provisions under the Regulations currently relate to the DRLL or the Mutual Funds Law, so this is an area to keep an eye on for the future. Criteria and procedure The Regulations set out both the criteria and procedure for imposing an administrative fine. Criteria In determining whether to impose a discretionary fine (ie, a fine relating to a serious or very serious breach) and the amount of any such fine, CIMA must consider all relevant factors, including certain prescribed criteria stipulated by the Regulations and four principles set out in the Monetary Authority Law. Principles: CIMA must have regard to the following principles, in the following order of importance: First, the need to promote and maintain a sound financial system in the Cayman Islands. Second, the need to ensure that licensees under the regulatory laws, and their connected persons, (a) do not gain from any breaches of the prescribed provisions and (b) disgorge any such gains; Third, the need to punish intentional, reckless or inappropriately negligent breaches of the prescribed provisions. Fourth, the need to deter breaches of the prescribed provisions. Prescribed criteria: The Regulations set out a long list of both subjective and objective discretionary fine criteria, including: the nature and seriousness of the breach; the degree of the party's inadvertence, intent or negligence in committing the breach; the duration of the breach, if it is continuing; the measures or precautions that a reasonable person acting prudently would have taken to prevent the breach; evidence of intent to conceal a breach; the party's conduct upon becoming aware of the breach; and any damage, harm or loss caused by the breach, whether financial or otherwise. 2 'Regulatory laws' means any one or more of the Banks and Trust Companies Law (2013 Revision), the Building Societies Law (2014 Revision), the Companies Management Law (2003 Revision), the Cooperative Societies Law (2001 Revision), the Development Bank Law (2004 Revision), the Director Registration and Licensing Law, 2014, the Insurance Law, 2010, the Money Services Law (2010 Revision), the Mutual Funds Law (2015 Revision) and the Securities Investment Business Law (2015 Revision). BVI CAYMAN ISLANDS GUERNSEY HONG KONG JERSEY LONDON 2 mourant.com

3 Fine Process Prior to imposing a fine, CIMA must issue a breach notice informing the relevant party of its intention to impose a fine and stipulating (amongst other things) the nature of the specified breach and the amount of the proposed fine. The breach notice must also state: a period (the reply period) in which the addressee may reply to CIMA, which must not be less than 30 days after the date of the breach notice; and/or that, in relation to a fixed fine (ie, a fine relating to a minor breach), the party may give CIMA a rectification notice. If CIMA receives a reply or rectification notice, it is under a duty to reconsider the circumstances of the breach and whether to impose a fine or exercise any fine discretions. If, at the end of a reply period specified in a breach notice: no reply has been given; a reply has been given and CIMA has complied with its duty to consider the response and any matters raised therein; or a rectification notice has been given and CIMA has complied with its duty to consider the rectification notice and whether the breach was rectified to its satisfaction within 30 days of the breach notice, then, if the breach notice related to a fixed fine and CIMA is not satisfied that the breach was rectified within 30 days of issue of the breach notice, CIMA is required to impose the relevant fine. Alternatively, if the breach notice related to a discretionary fine, CIMA may exercise its discretions under the Monetary Authority Law to impose a fine and to set the amount of any fine. If CIMA decides to impose a fine, it must issue a fine notice in accordance with the Regulations. CIMA must also provide notice of a decision not to impose a fine within 15 days of the end of the relevant reply period. Electronic notices The Regulations provide that CIMA may issue notices electronically by sending them to the address of: the party itself; if the party is a body corporate, any of its directors or members, or its registered office provider; or if the party is a partnership, any of its partners (excluding limited partners of limited partnerships) or its registered office provider. Review of fixed fines A party which has received a fine notice relating to a fixed fine may apply to CIMA for an internal review of the decision by CIMA's Management Committee. Any such application must be made within 30 days of receipt of the fine notice. The Management Committee is required to: consider the application within 20 days of receipt; and provide notice of its decision within 10 days after making a decision on the application. Appeal against discretionary fines A party which has received a fine notice relating to a discretionary fine may apply to the Grand Court of the Cayman Islands for leave to appeal against the original decision within 30 days after receiving the notice. The Grand Court may only grant leave to appeal if: the party has grounds for seeking a judicial review of the decision; or the decision was made with a lack of proportionality or was not rational. CIMA may apply to the Grand Court for an order that the appellant provide sufficient security for costs and for a stay of the appeal proceedings until security is provided. After hearing an appeal, the Grand Court may (a) affirm, set aside or vary the original decision or (b) set aside the original decision and remit the matter back to CIMA for its reconsideration, subject to such directions as the Court considers fit. BVI CAYMAN ISLANDS GUERNSEY HONG KONG JERSEY LONDON 3 mourant.com

4 Interest on fines A fine becomes a debt owed to the Crown on the day that the fine was required to be paid under the fine notice. Interest of 5% per annum accrues daily as compound interest whilst all or any part of a fine is outstanding. Transitional provisions The new administrative fines are stated to be in addition to CIMA's powers under the Monetary Authority Law or any regulatory law, and will not be limited by any penalty imposed by the relevant prescribed provision itself. However, no fines may be imposed: until the expiry of a period of 90 days after the Regulations came into force (ie, from 16 March 2018 onwards); or in respect of a breach or a prescribed provision that began and ended before the Regulations came into force. Next steps For further information, please speak to your usual Mourant Ozannes contact or to one of the contacts listed below. BVI CAYMAN ISLANDS GUERNSEY HONG KONG JERSEY LONDON 4 mourant.com

5 Contacts Hayden Isbister Partner, Cayman Islands Simon Dickson Partner, Cayman Islands Robert Duggan Managing Partner, London Andrew Peedom Counsel, Cayman Islands Guy Connell Counsel, Hong Kong Jennifer Crooke Senior Associate, Cayman Islands Sara Galletly Knowledge Lawyer, London This update is only intended to give a summary and general overview of the subject matter. It is not intended to be comprehensive and does not constitute, and should not be taken to be, legal advice. If you would like legal advice or further information on any issue raised by this update, please get in touch with one of your usual contacts MOURANT OZANNES ALL RIGHTS RESERVED BVI CAYMAN ISLANDS GUERNSEY HONG KONG JERSEY LONDON 5 mourant.com

6 Prescribed provisions under the Regulations Prescribed provision 3 Regulation 5(a), (c), (d) or (e) Category of breach Serious Summary of prescribed provision Requirement to: (a) maintain certain procedures to prevent money laundering, having regard to the money laundering and terrorist financing risks of the relevant business; (b) take appropriate measures to make employees aware of the procedures maintained under Regulation 5(a) and the Cayman Islands anti-money laundering legislation; (c) provide employees with training in the recognition and treatment of transactions carried out by, or on behalf of, any person who is, or appears to be, engaged in money laundering; and (d) designate an Anti-Money Laundering Compliance Officer. Regulation 5(b) Very serious Requirement to comply with the identification and record-keeping requirements of Parts IV and VIII of the AML Regulations. Regulation 10 Very serious Prohibition against a person carrying out relevant financial business keeping anonymous accounts or accounts in fictitious names. Regulation 36 Serious Requirement that a payment service provider of a payer ensure that transfers of funds are accompanied by complete information on the payer. Regulation 37 Serious Requirement relating to information to be provided in relation to transfers of funds completed within the Cayman Islands. Regulation 39 Serious Obligation imposed on the payment service provider of a payee to have effective procedures in place to detect whether the information required under Regulations 37, 38 and 47 is obtained in accordance with the Regulations. Regulation 40(1) to (5) Serious 1. Prohibition against executing wire transfers where the payment service provider is unable to collect and maintain information on the payer and payee as required by Regulations 36, 37 and 38(1). 2. Obligation imposed on the payment service provider of a payee to have effective systems in place to detect missing required information on both the payer and payee. 3. Requirement on payment service providers to reject or request complete information on the payer where, when receiving transfers of funds, the payment service provider detects that information on the payer is missing or incomplete. 4. Obligation on beneficiary or payee financial institutions to verify the identity of payee information and to keep records of the information for 5 years. 5. Obligation on the payment service provider of a payee to adopt risk based policies and procedures for determining when to execute, reject or suspend a wire transfer where the required payee information is incomplete, and to apply the resulting procedures. 3 References in this table are to regulations of the AML Regulations. BVI CAYMAN ISLANDS GUERNSEY HONG KONG JERSEY LONDON 6 mourant.com

7 Regulation 40(6) Very serious Obligation on the payment service provider of a payee, where a payment service provider regularly fails to supply the required information on the payer, to: adopt reasonable measures to rectify non-compliance with the Regulations before: rejecting any future transfers of funds from that payment services provider; restricting its business relationship with that payment services provider; or terminating its business relationship with that payment services provider; and report to the Financial Reporting Authority and CIMA any such decision to restrict or terminate its business relationship with the payment service provider. Regulation 42 Serious Obligation on the payment service provider of a payee to keep records of any information received on the payer for 5 years. Regulation 43 Serious Obligation on intermediary payment service providers to ensure that all information received on the payer and the payee that accompanies a transfer of funds is kept with the transfer. Regulation 44 Serious Obligation on intermediary payment service providers to: Regulation 47(3) to (5) Serious take reasonable measures to identify cross-border transfers which lack required payer or payee information; adopt risk-based policies and procedures for determining when to execute, reject or suspend a wire transfer where the required payer or payee information is incomplete; and to apply the resulting procedures. Restrictions on the use of payment systems with technical limitations by intermediary payment service providers, and imposition of an obligation to retain information records for 5 years. Regulation 48 Very serious Obligation on payment service providers to respond fully and without delay to enquiries from the Financial Reporting Authority concerning the information regarding the payer accompanying transfers of funds and corresponding records. Regulations 50 and 51 Very serious Regulations 52 and 53 Serious Regulation 57 Same as for the body corporate Prohibitions against persons carrying on relevant financial business from: forming a business relationship, or carrying out a one-off transaction, with a shell bank; and entering into or continuing correspondent banking and other similar relationships with a shell bank. Additional due diligence obligations imposed on persons conducting relevant financial business in relation to (a) crossborder correspondent banking and other similar relationships and (b) payable-through accounts. This Regulation imposes vicarious liability on the directors, managers, officers, members or partners (as the case may be) in certain circumstances, where an offence under the AML Regulations is committed by a body corporate, a partnership or an unincorporated association other than a partnership. BVI CAYMAN ISLANDS GUERNSEY HONG KONG JERSEY LONDON 7 mourant.com