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Cayman Islands Takes Lead in Anti-Money Laundering and Countering Terrorism

The Cayman Islands has made significant strides in combating financial crime by implementing anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations tailored specifically for the virtual asset sector.

Enhanced Regulations for Virtual Assets

Effective July 1, 2022, Part XA of the Cayman Islands Anti-Money Laundering Regulations will come into force. This new legislation introduces definitions and provisions related to:

Identification and verification
Production and record-keeping
Obligations for virtual assets
“Travel Rule” requirements for Virtual Asset Service Providers (VASPs)

These regulations are designed to prevent money laundering and terrorist financing in the virtual asset sector.

Implementation of FATF Recommendation 16

The Financial Action Task Force’s Recommendation 16 requires originating VASPs to obtain and hold accurate originator information and required beneficiary information on virtual asset transfers. These requirements apply to:

Traditional wire transfers
Virtual asset transfers between VASPs
Virtual asset transfers between a VASP and a non-obliged entity

Sandbox Regime for Innovative Financial Technologies

The Cayman Islands Monetary Authority (CIMA) has introduced a sandbox regime for innovative financial technologies and methods of delivery that may pose systemic risks to financial markets or the jurisdiction. This temporary license allows VASPs to operate with additional supervision and oversight.

The Cayman Islands has taken a proactive approach to ESG issues by establishing an ESG-friendly legal framework. The CIMA has given itself a watching brief on ESG to monitor its development and ensure that the jurisdiction remains at the forefront of sustainable finance.

Climate Pledges for Banks and Financial Institutions

Cayman’s banks and financial institutions are expected to make climate pledges aligning themselves with global efforts to combat climate change. The existing legal framework already requires fund offering materials to contain information necessary for prospective investors to make informed decisions, which may capture many strains of greenwashing and social-washing.

Flexibility for Investors and Investment Managers

Investors transitioning to ESG and investment managers adopting ESG policies will find the Cayman Islands’ existing legal framework affords them flexibility to adopt comprehensive toolkits in terms of financial instruments and strategies to implement effective ESG policies.

Conclusion

The Cayman Islands has demonstrated its commitment to combating financial crime, promoting sustainable finance, and providing a welcoming environment for investors. As the global financial landscape continues to evolve, it is clear that the Cayman Islands is well-positioned to remain a leading jurisdiction in the virtual asset sector.

Disclaimer: This article does not constitute legal or professional advice and should not be relied upon. For specific legal advice, please contact Chancery ESG Ltd.