Update

Regulatory Law Update - Cayman Islands - Q2

AEOI Compliance

Since our March 2017 Update, the Cayman Islands Department of International Tax Co-operation (the DITC) has extended the deadlines for notification and reporting for US FATCA to match those for the Common Reporting Standard (CRS). On 20 June 2017, the DITC published its latest Industry Advisory wherein the 2017 notification (registration) deadline applicable to US FATCA and CRS was further extended to match the reporting deadline. The current notification and reporting deadline for US FATCA and CRS is now 31 July 2017.

Cayman Reporting Financial Institutions (CRFIs) are reminded of their obligation under the Tax Information Authority (International Tax Compliance)(Common Reporting Standard) (Amendment) Regulations, 2016 (the Amended Regulations) to establish and maintain written policies and procedures to comply with requirements set forth in the Amended Regulations.

Increased fines for non-compliance with TIEA requests

The Tax Information Authority Law (2017 Revision) came into force on 31 May 2017.

The revised Law contains a power to pass regulations which enables the tax authority to impose financial penalties of up to CI$50,000 for failing to comply with a request to provide information in response to a request from a foreign jurisdiction under a Tax Information Exchange Agreement (TIEA). The increased penalties are significant; previously the maximum financial penalty was CI$10,000.

New beneficial ownership register for companies

On 1 July 2017, legislation amending the Companies Law (2016 Revision), the Limited Liability Companies Law, 2016 and the Companies Management Law (2003 Revision) (together the Laws) will come into force, requiring companies incorporated or registered in the Cayman Islands to maintain a register of information about their beneficial owners.

Cayman companies which will not have to maintain a register under the new regime include companies which are:

• listed on the Cayman Islands Stock Exchange or an approved stock exchange under the Companies Law ;

• registered or licensed under a "regulatory law" , including the Insurance Law, 2010, the Mutual Funds Law (2015 Revision) and the Securities Investment Business Law (2015 Revision);

• special purpose vehicles, private equity or collective investment schemes or investment funds which are managed, arranged, administered, operated or promoted by a person (or a subsidiary of a person) who is regulated or listed in Cayman or an approved jurisdiction (an approved person); and

• general partner(s) of a special purpose vehicle, private equity or collective investment scheme or investment fund that is managed, arranged, administered, operated or promoted by an approved person.

It should be noted that application of the Laws is limited in scope. The new regime will not apply to hedge funds regulated or licensed with the Cayman Islands Monetary Authority; hedge funds and private equity funds managed or administered by an approved person; or persons registered as "Excluded Persons" under the Securities Investment Business Law (2015 Revision).

There are penalties for non-compliance with the Laws, but a one year transitional period will apply from the date the Laws come into force. During this time, companies will not be prosecuted for failing to comply.

For a comprehensive briefing on the beneficial ownership register and how it affects you, please click here.

In other developments, the UK's Criminal Finances Act 2017 received Royal Assent on 27 April 2017, absent the controversial requirement that the Overseas Territories create fully public registers of the beneficial ownership of companies. This may simply have been a by-product of the Government's desire to rush the legislation through parliament after the UK election was announced. Whether there will be future attempts to amend the Act - to include this requirement - remains to be seen.

[1] The approved stock exchanges under the Companies Law include the Hong Kong Stock Exchange, the Irish  Stock Exchange, the London Stock Exchange, NASDAQ and the New York Stock Exchange

[2] Defined in Monetary Authority Law (2016 Revision)

New Data Protection Law

In our March 2017 Update, we reported on the Data Protection Bill, 2016 (the Bill). The Bill has now been passed by the Legislative Assembly and was gazetted as the Data Protection Law, 2017 (the Law) on 5 June 2017. However, the Law has not yet come into force.

The Law is the first of its kind in the Cayman Islands. It is intended to meet the 'adequacy' requirement of the European Data Protection Directive (the Directive) . Under the Directive, personal data can only be transferred to countries outside the EU/EEA that ensure an adequate level of protection. The European Commission has the power to determine whether a country meets this requirement. Such recognition would enable the free flow of data between EU/EEA countries and the Cayman Islands which would enhance the Islands' reputation and competitiveness in European markets.

We have released a briefing that summarises the key features of the Law and identifies what to expect next, which can be found here.

In our March 2017 Update, we also noted the recent decision of the English Court of Appeal in Dawson-Damer v. Taylor Wessing LLP [2017] EWCA Civ 74 and the impact that decision could have on local trust professionals once the Bill (as then drafted) came into force as Law. In particular, the Taylor Wessing decision indicated that beneficiaries of trusts may be able to circumvent common law limitations on their right to trust documents by making a subject access request under the UK's Data Protection Act, 1998. Other offshore jurisdictions such as Guernsey and Jersey have avoided this loophole by enacting a legislative framework which limits certain trust documents from being disclosed pursuant to a subject access request.

We identified as a potential concern for local trust professionals that the previous draft of the Bill did not contain any provisions that would limit trust documents from being disclosed pursuant to a subject access request. However, before the Bill was passed as Law, the exemptions in Part 4 were expanded to include personal data that consists of information relating to any structure or arrangement that is an ordinary trust, any structure or arrangement that is a trust established pursuant to the Trusts Law (2011 Revision), or any will made pursuant to the Wills Law (2004 Revision). This appears to be designed to preserve the existing limitations on disclosure of trust documents, and is likely to be a very welcome inclusion for the local trust industry.

It remains unclear when the Law and any supplemental regulations and/or Codes of Practice will come into force. It also remains unclear whether the level of protection provided by the Law will be sufficient to attract recognition from the European Commission. However, anyone in the public and private sectors that collects, organises, stores, alters, uses, discloses or destructs personal data should pay close attention to future developments. Future data controllers should ensure that key personnel are aware of these imminent changes and would also be well advised to undertake an early audit of their current personal data practices in order to identify as early as possible where the deficiencies lie and what changes will need to be made.

We will of course keep you apprised of any important developments.

[3] The approved jurisdictions are listed in Schedule 3 to the Money Laundering Regulations (2015 Revision) and include Canada, Hong Kong, Ireland the United Kingdom and the USA.

[3] Directive 95/46/EC on the protection of individuals with regard to the processing of personal data and on the free movement of such data.

Cayman Islands Stock Exchange adopts updated Listing Rules

The Cayman Islands Stock Exchange (CSX) adopted amended Listing Rules in April 2017, primarily to introduce a new "Specialist Companies" listing regime.

Prior to April 2017, listings of securities issued by Specialist Companies fell under Chapter 6 (Equity Securities), which required that investors subscribe for a minimum investment of at least US$100,000 worth of securities in the issuer. Under the new Chapter 14 (Specialist Companies), no minimum investment level is required and a "Specialist Company" is defined as a company for which the ownership and transfer of securities is restricted to "qualified investors" (including directors or managers of the issuer), who must:

a. if an individual, own not less than US$1 million in investments or, if an entity, own in the aggregate not less than US$5 million in investments; and

b. represent in writing that they are "particularly knowledgeable in investment matters", which is defined as meaning that they:

i. have the knowledge and experience to enable them to evaluate the merits of a proposed transaction and investing in the issuer;

ii. are aware of the risks inherent in investing in the securities; and

iii. can afford the loss of their entire investment.

This product is designed for pre-IPO and early stage growth companies issuing debt or equity securities and will allow the listing of an issuer without the required two years' track record, provided that certain conditions are met.

Other, more general updates were made to the Listing Rules, including the requirement that an issuer whose securities are listed under Chapter 6 (Equity Securities) must obtain the prior consent of the CSX to appoint a new auditor. This requirement also applies to Specialist Companies.

 Mourant Ozannes will be pleased to assist with any questions or advice in relation to the matters outlined above. For more information, please contact a member of our Financial Services & Regulatory team. 

This update is only intended to give a summary and general overview of the subject matter. It is not intended to be comprehensive and does not constitute, and should not be taken to be, legal advice. If you would like legal advice or further information on any issue raised by this update, please get in touch with one of your usual Mourant Ozannes contacts.

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