Financial Crime World

Cayman Islands Monetary Authority Updates Guidance on Digital Identity Verification Methods

The Cayman Islands Monetary Authority has recently updated its guidance notes on the prevention and detection of money laundering, terrorist financing, and proliferation financing in the Cayman Islands. The amendments aim to provide clarity on how financial service providers (FSPs) can use electronic know-your-customer (e-KYC) and digital identification systems for remote onboarding and ongoing monitoring of business relationships.

Alignment with Global Guidance

The changes are aligned with the global Financial Action Task Force’s guidance on using digital ID systems for customer due diligence. This updated guidance could be a game-changer for Cayman investment funds and other regulated entities, as it will reduce uncertainties associated with using e-KYC/digital ID when onboarding clients and monitoring business relationships.

Key Changes

Here are some key changes to the guidelines:

  • FSPs can use publicly available sources such as company registries to verify corporate legal persons.
  • Government-issued identification in electronic form is acceptable for customer due diligence purposes, provided that the financial institution takes a risk-based approach and has suitable documented policies and procedures to ensure the authenticity of such electronic documents.
  • The guidelines emphasize the importance of applying a risk-based approach to remote onboarding and monitoring of business relationships. FSPs need to assess money laundering/terrorist financing risks and consider tiered customer due diligence when necessary.

Additional Requirements

To ensure the effectiveness of digital ID systems and technology solutions, FSPs must consider the following basic components:

  • Assurance levels
  • Policies for securely collecting and retaining records
  • Anti-fraud and cybersecurity processes
  • Back-up plans for technology solution failure
  • Ongoing review of system effectiveness

Video-Conferencing as an e-KYC Mechanism

The guidelines also provide clarity on using video-conferencing as an e-KYC mechanism. Additional checks are required to verify the identity and authenticity of presented ID documents during the video-conferencing process.

When verifying corporate legal persons or legal arrangements such as trusts or foundations, FSPs may use “selfie” photographs for evidence of identity, provided they meet specific requirements. The guidelines also provide clarity on using scanned copies or photographs of identity documents.

Expert Insights

Experts believe that these changes will significantly improve the efficiency and effectiveness of client onboarding and monitoring in the Cayman Islands financial sector. Gary Smith, a partner at Loeb Smith Attorneys, noted that “this could be a game-changer for facilitating the onboarding of customers/clients by Cayman investment funds and other regulated entities.” Elizabeth Kenny, senior associate at Loeb Smith Attorneys, added that FSPs must ensure they have robust documented policies and procedures in place to support their digital ID systems and technology solutions.

Conclusion

The updated guidance from the Cayman Islands Monetary Authority aims to provide clarity on how financial service providers can use electronic know-your-customer (e-KYC) and digital identification systems for remote onboarding and ongoing monitoring of business relationships. With these changes, FSPs can reduce uncertainties associated with using e-KYC/digital ID when onboarding clients and monitoring business relationships, improving the efficiency and effectiveness of client onboarding and monitoring in the Cayman Islands financial sector.