February 24, 2022 Connor Steens

THE CAYMAN ISLANDS INCLUDED IN HIGH-RISK EU AML LIST

BY CONNOR STEENS

On the 7th of January 2022 a draft Delegated Regulation was adopted by the European Commission. The regulation updated the list (EU List) of high-risk countries identifying those with deficiencies in their AML/CFT regimes. The  Cayman Islands was included in the EU List.

The list added nine countries (Burkina Faso, Cayman Islands, Haiti, Jordan, Mali, Morocco, the Philippines, Senegal, and South Sudan), while five countries (Bahamas, Botswana, Ghana, Iraq and Mauritius) were removed. By adding these jurisdictions the EU List comes into alignment with the Financial Action Task Force (FATF), which included the same nine countries on their own list of jurisdictions under increased monitoring in 2021.

Consequences arising from the addition for Cayman entities begin with enhanced customer due diligence and ongoing monitoring of any entity subject to EU AML/CFT laws. Customers affected can expect more comprehensive due diligence on source of funds as such information will be required by financial intermediaries in the future. EU financial institutions will also be required to apply enhanced due diligence measures to relationships and transactions involving the Cayman Islands

The inclusion on the EU List will affect Cayman Islands investment. Changes proposed under the Alternative Investment Fund Managers Directive (AIFMD) will create further restrictions on investment funds domiciled in the Cayman Islands. The proposed changes under the AIFMD are expected to take effect closer to 2024.

Development agencies with a relationship to the European Commission may be restricted from lending development funding to entities established in the Cayman Islands, subject to certain exceptions.

A further significant impact of the inclusion on the EU List is the inability of EU financial institutions to establish new tranched securitization vehicles in the Cayman Islands as Article 4 of the EU Securitization Regulation states that securitization special purpose entities (SSPEs) “shall not be established” in a non-EU jurisdiction which is on the EU List by an EU financial institution.

Cayman Islands is currently progressing towards removal from the list. In February 2021, a high-level political commitment to work with the FATF and Caribbean Financial Action Task Force was made to strengthen its regime. In June 2021, FATF agreed that the Cayman Islands had made positive amendments to address its AML/CFT deficiencies. By November 2021, a follow-up report confirmed that the Cayman Islands was FATF rated as Largely Compliant or Compliant with all of the FATF’s 40 Recommendations.

The earliest opportunity for the Cayman Islands to be removed from the FATF’s List is late in 2022 . This should, in theory result in its removal from the EU AML List.

If you are concerned about the effect of the EU List on your Caymans registered entity and are looking to re-domicile your investment vehicle to another jurisdiction contact us through our online form, or directly through [email protected]

Connor Steens

Connor Steens works as an Analyst at Southpac Group. Connor has worked closely with Guy on investment an banking relationships. Connor currently oversees and monitors current marketing analytics, exposure and direction, content creation and market presence.
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