On April 30 2003 the Cayman Islands Monetary Authority, after consultation with the private sector, introduced further revisions to the Guidance Notes on the Prevention and Detection of Money Laundering. The Guidance Notes are ancillary to the Money Laundering Regulations and recommend anti-money laundering best practice measures. The most important changes concerned the role of the Money Laundering Reporting Officer (the MLRO), particularly in relation to mutual funds.
Since the introduction of the Regulations in August 2000, the maintenance of internal reporting procedures has been a mandatory anti-money laundering requirement imposed on all financial service providers conducting relevant financial business in or from the Cayman Islands.
An issue unresolved by the Guidance Notes concerned mutual funds and other financial service providers, who did not have staff employed in the Cayman Islands, but were still obliged by the Regulations to maintain reporting procedures. We suggested amendments to the Guidance Notes which were implemented in June 2002 which authorized financial service providers to delegate the maintenance of their anti-money laundering procedures to an appropriate entity inan approved jurisdiction with equivalent anti-money laundering requirements.
Such delegation is subject to certain conditions, which included the Cayman Islands Monetary Authority's access to client identification information held by the delegate and evidence of the delegate's suitability. Maintenance of procedures in accordance with the standards of the approved jurisdiction is regarded, as being compliant in the Cayman Islands. However, the financial service provider is still ultimately responsible for compliance and therefore must satisfy itself regularly that the delegation is effective to meet its obligations. To ensure certainty between the parties, it is recommended that the terms and conditions of the delegation be formally recorded in a written agreement.
Notwithstanding the introduction of delegation provisions, a question remained on the appointment by the fund of an MLRO as required by regulation 14 of the Regulations.
Accordingly, the industry specific guidance for mutual funds and mutual funds administrators in the Guidance Notes has been further revised and now offers three basic options in relation to MLRO reporting procedures:
A fund or fund administrator may identify an individual as MLRO, who may not necessarily be a member of staff or even resident in the Cayman Islands, providing they are a natural person, autonomous, independent and informed (that is, they can access all information relevant to form or dispel a suspicion).
Alternatively, a fund or fund administrator may delegate the reporting function to a regulated person in the Cayman Islands or an approved jurisdiction, as long as the conditions mentioned above are met, in particular having access to relevant investor information.
The final and most practical option provides that where a mutual fund is unstaffed and the subscriptions and redemptions are handled by a person, either regulated in the Cayman Islands or an approved jurisdiction, compliance by that person with their own anti-money laundering regulatory requirements will be treated as compliance by the mutual fund with its own reporting obligations under the Regulations and Guidance Notes. This option maintains the principle of equivalency and effectively removes an unnecessary second tier of reporting where an administrator or equivalent person is for all practical purposes monitoring the mutual fund procedures.