Cayman Islands Embraces Risk-Based Approach to Compliance in AML/CFT Regime
The Cayman Islands has taken a significant step towards strengthening its anti-money laundering and combating the financing of terrorism (AML/CFT) regime by introducing a risk-based approach to compliance. This new measure requires financial institutions to conduct thorough risk assessments and implement proportionate measures to mitigate identified risks.
Revised Regulations and Requirements
Under the revised Proceeds of Crime Law and Anti-Money Laundering Regulations, all relevant financial businesses, including those investing, administering or managing funds, are now subject to AML/CFT requirements. Additionally, entities must:
- Appoint natural persons as anti-money laundering (AML) officers
- Conduct regular risk assessments to identify potential threats
Risk-Based Approach
A risk-based approach is considered an essential foundation for allocating AML/CFT resources efficiently, allowing financial institutions to focus on the most significant perceived threats. However, identifying these risks can be challenging due to their inherent difficulty in quantification or measurement.
Key Components of Risk Assessment
- Investor/client and internal risk assessments
- Failure to comply results in criminal sanctions or administrative fines of up to CI$50,000 for individuals or CI$100,000 for corporate bodies
- Entities must provide sufficient breadth and depth in their evaluations, categorizing risk factors and considering relevant risks along with appropriate mitigation measures
Risk Factors to Examine
- Products and services
- Delivery channels
- Customer types
- Geographic locations
Ongoing Assessments and Documentation
Assessments must be kept up-to-date, with no guidance provided on frequency. Internal audits may help determine the required frequency of assessments. Crucially, entities must document how they have assessed their risks, providing evidence that all relevant factors were considered.
Conclusion
The adoption of a risk-based approach to compliance in the Cayman Islands AML/CFT regime is a significant step towards strengthening the island’s financial sector and enhancing its reputation as a responsible international financial center. By embracing this new measure, the Cayman Islands demonstrates its commitment to maintaining a robust and effective AML/CFT framework.