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Risk-Based Approach Crucial for Compliance in Cayman Islands
In a move to strengthen its Anti-Money Laundering (AML), Combating the Financing of Terrorism (CFT) and Combating Proliferation Financing (CPF) regime, the Cayman Islands has published a new national risk assessment (NRA 2021). The report highlights the importance of a targeted approach to compliance, particularly in light of the upcoming implementation of the “Travel Rule” for Virtual Asset Service Providers (VASPs).
Risk-Based Approach Essential for Compliance
According to the NRA 2021, a risk-based approach is essential for identifying and mitigating potential risks associated with money laundering, terrorist financing, and proliferation financing. The report emphasizes that VASPs must be equipped to identify and report suspicious activities, as well as comply with international standards such as the Financial Action Task Force (FATF) recommendations.
Implementation of the “Travel Rule”
The “Travel Rule”, which comes into force in July 2022, requires VASPs to obtain, exchange, and store originator and beneficiary identification information for each transaction. This information includes:
- Names
- Account numbers
- Physical addresses
- National identity numbers
To comply with the Travel Rule, VASPs are encouraged to develop robust policies and procedures for obtaining and exchanging this information.
Due Diligence Requirements
The report highlights the need for VASPs to conduct due diligence on counterparty VASPs to ensure they are legitimate and licensed in a jurisdiction with a robust regulatory framework.
Regulatory Oversight
The Cayman Islands’ financial regulator, the Cayman Islands Monetary Authority (CIMA), has committed to completing all actions necessary to implement the Travel Rule and will monitor progress regularly. The report also highlights the challenges posed by the staggered implementation of the Travel Rule across different jurisdictions, which may result in varied levels of enforcement.
Next Steps
VASPs registered or in the process of registering are required to provide information to CIMA on how they will comply with the Travel Rule by March 31, 2022.
Conclusion
The report concludes that a risk-based approach is crucial for ensuring compliance with international standards and mitigating potential risks associated with money laundering, terrorist financing, and proliferation financing. VASPs are advised to conduct thorough due diligence on counterparty VASPs and have robust policies and procedures in place for obtaining and exchanging the required information.