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Loeb Smith wins award for Best Law Firm: Fund Domicile at the Hedgeweek US Emerging Manager Awards 2023.

We are happy to share with you that for the second time in less than three (3) months Loeb Smith’s Investment Funds team has been voted Best Law Firm: Fund Domicile at the Hedgeweek US Emerging Manager Awards 2023.

The win comes after being voted Best Law Firm: Fund Domicile at the Private Equity Wire US Emerging Manager Awards 2023 in March 2023.

Thank you to each and every one of you who voted for us and congratulations to our Investment Funds team for the consistent high quality of its legal advice and responsive service delivery across our offices in the BVI, the Cayman Islands and Hong Kong.

For the service provider categories, the nominated firms are based on a widespread survey of more than 100 emerging hedge fund managers.

The exclusive awards ceremony took place on June 8, 2023 at the Convene 101 in New York.

Loeb Smith has been shortlisted in the Best Law Firm – Fund Domicile category at the US Emerging Manager Awards 2023!

We are pleased to announce that Loeb Smith has been shortlisted for the Hedgeweek US Emerging Manager Awards 2023 in the Best Law Firm – Fund Domicile category.

Pre-selection data for the fund manager awards was provided by Bloomberg, based on 2022 Calendar Year fund performance (31st December, 2021 to 31st December, 2022).

For the service provider categories, the nominated firms are based on a widespread survey of more than 100 fund managers. We have been shortlisted as we were nominated in a survey completed by 100+ emerging hedge fund managers. Winners are decided by a majority vote. The voting period ended on Monday, April 24th.

We are proud to provide a high quality of service that is consistently appreciated by our clients and we look forward to continue working with them to find successful outcomes and solutions to their day-to-day issues and complex, strategic matters.

The Register of Members for Cayman Islands’ exempted companies is not required by the Companies Law to be held in the Cayman Islands, but is usually held at the Company’s registered office, along with the other statutory Registers and corporate records maintained by the Company. If the Directors would prefer the Register of Members to be kept elsewhere other than at the Company’s registered office, they need to pass a Board resolution to that effect.

The Register of Members needs to state (i) the names and addresses of shareholders of the Company; (ii) the number and class of shares held by each shareholder (including any distinguishing numbers in respect of those shares); (iii) the amount paid up or agreed to be considered as paid on the shares; (iv) the date on which the name of any person was entered in the Register as a member and the date the person ceased to be a member of the Company; and (v) whether each relevant class of shares held by a shareholder carries voting rights under the Articles of Association of the Company (including the right to appoint or remove directors) and if so, whether such voting rights are conditional.

All existing and all newly incorporated companies should ensure that their Register of Members show whether each class of shares held by a shareholder carries voting rights and if so, whether such voting rights are conditional.

This publication is not intended to be a substitute for specific legal advice or a legal opinion. For specific advice, please contact your usual Loeb Smith attorney or any of:

E: gary.smith@loebsmith.com
E: ramona.tudorancea@loebsmith.com
E: vivian.huang@loebsmith.com
E: yun.sheng@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: santiago.carvajal@loebsmith.com
E: benjamin.wrench@loebsmith.com

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CIMA’s Statement of Principles on Conduct of Virtual Asset Services

The Cayman Islands Monetary Authority (“CIMA”) published the Statement of Principles for the Conduct of Virtual Asset Services earlier this year and this article aims to set out the Principles set out therein and their importance. The Statement of Principles has to be considered together with the Virtual Assets (Service Provider) Act 2020 (“VASP Act”), the Anti-Money Laundering Regulations (As Revised) and any other regulatory measures issued by CIMA from time to time.

The Statement of Principles sets out the general standards by which all entities in the Cayman Islands should conduct virtual asset services, including connected and incidental business.

The Statement of Principles will be used as a measure against which CIMA will assess compliance and it should be carefully considered in the Anti- Money Laundering Policy and Procedure Manual of any Cayman Islands virtual assets service provider.

There are twelve (12) Principles which apply to all virtual asset service providers, their directors and officers, and/or other persons engaged in virtual assets services.

What is a virtual asset service?

As defined in the VASP Act, “virtual asset service” means the issuance of virtual assets or the business of providing one or more of the following services or operations for or on behalf of a natural or legal person or legal arrangement:

(a) exchange between virtual assets and fiat currencies;

(b) exchange between one or more other forms of convertible virtual assets;

(d) virtual asset custody service; or

(e) participation in and provision of financial services related to a virtual asset issuance or the sale of a virtual asset.

A “virtual asset” is a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes but does not include a digital representation of fiat currencies.

Who is a virtual asset service provider?

A virtual asset service provider includes a (i) Cayman exempted company, (ii) exempted limited partnership, (iii) limited liability company, and (iv) a foreign company registered in the Cayman Islands, and provides virtual asset service as a business or in the course of business in or from within the Cayman Islands and is registered or licensed in accordance with the VASP Act or is an existing licensee that is granted a waiver by CIMA under section 16 of the VASP Act.

Compliance with the Statement of Principles will be closely monitored by CIMA which has broad supervisory powers to impose a full range of sanctions and penalties whenever there has been a contravention of the Statement of Principles. CIMA’s policies and procedures, as contained in its Enforcement Manual will apply. It could range from the suspension or revocation of the registration or license of the virtual asset service provider, to CIMA applying to the Grand Court of the Cayman Islands for an order directing that the virtual asset service provider is wound up.

In addition to the Enforcement Manual, CIMA has any other powers conferred by the Monetary Authority Act, VASP Act and any other applicable statutes or regulations.

The Statement of Principles

The twelve (12) Principles of Conduct of Virtual Asset Services as set out in the Statement of Principles are:

Principle 1: Honesty and Integrity

Persons providing virtual asset services should conduct their operations and communications in an honest and ethical manner and never pose a risk to the public or to the reputation of the Cayman Islands.

Principle 2: Fair treatment of customers

Persons providing virtual asset services must pay due regard to the interests of their customers and treat them fairly. All communications to customers should be accurate and in a form that the customers can understand; and all customer complaints or issues dealt with in a timely and consistent manner.

Principle 3: Protection of Customer Data

Persons providing virtual asset services must protect the personal data of customers by way of adequate storage, data protection, maintenance, proper record keeping and other appropriate measures.

Principle 4: Protection and Segregation of Customer Assets

Persons providing virtual asset services should take all steps to protect assets of customers and ensure that customer assets are clearly identified and segregated from proprietary assets.

Principle 5: Maintenance of Security Systems

Persons providing virtual asset services should ensure that appropriate systems and security access protocols are maintained to effectively guard against cyber threats; and all employees, including senior officers and board of directors, must be fully aware of relevant cyber security threats.

Principle 6: Due Skill, Care and Diligence

Persons engaged in virtual asset services must conduct their business with due skill, care and diligence, employ forward-looking risk management practices and always consider risks to its customers and the reputation of the Cayman Islands in addition to risks to its own business.

Principle 7: Prevention, Detection and Disclosure of Financial Crimes

Persons engaged in virtual asset services should have appropriate systems, policies, processes and procedures to ensure compliance with the Anti-Money Laundering Regulations (As Revised) and other Cayman Islands laws relating to the combating of money laundering, terrorist financing and proliferation financing.

Principle 8: Conflict of Interest and Unfair Dealings

Persons engaged in virtual asset services should identify and effectively manage conflicts of interest and, where applicable, put in place price discovery mechanisms to prevent price manipulation and other unfair trading practices including collusion and front-running.

Principle 9: Adequate Resources

Persons engaged in virtual asset services should ensure that, having regard to size, scope and complexity of their business, adequate financial and nonfinancial resources are available including adequate capital and insurance (including against theft or loss).

Principle 10: Full Disclosure

Persons engaged in virtual asset services must provide full and proper disclosure of their operations including disclosure of (a) the capacity they are acting in (in relation to a relevant transaction), (b) risks associated with the virtual asset service or transaction, (c) the quantity, value, or arrangements for the payment or provision of commissions or other inducements and, (d) where applicable, provisions for custodial or other third-party arrangements.

Principle 11: Corporate Governance and Resilience

Persons engaged in virtual asset services must have effective corporate governance arrangements and must take careful consideration regarding structure, strategy, procedures and corporate culture. They must also be fully prepared for all possible contingencies to ensure minimal loss and disruption to customers, even in the event of the company winding down.

Principle 12: Compliance with Regulatory Acts

Persons engaged in virtual asset services should have appropriate systems, policies, processes and procedures to ensure compliance with regulatory laws.

For specific advice on an application to CIMA for the registration and/or licensing of a Virtual Asset Service Provider, please contact your usual Loeb Smith attorney or any of:

E: gary.smith@loebsmith.com
E: santiago.carvajal@loebsmith.com
E: vivian.huang@loebsmith.com

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With the coming into effect of the Virtual Asset (Service Providers) Act, 2020 (the “VASP Act”), the Cayman Islands Monetary Authority (“CIMA”) announced that the regulatory framework for the VASP Act would be implemented in two phases. Phase one focuses on anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) compliance, supervision and enforcement, and other key areas of risk. CIMA announced that under phase one, entities engaged in or wishing to engage in virtual asset services must be registered with CIMA under the VASP Act. Entities engaged in or wishing to engage in virtual asset services, already subject to CIMA’s supervision under another regulatory law, must notify (in the case of CIMA licensees) or register with CIMA (in the case of entities registered with CIMA e.g. under the Securities Investment Business Act) under the VASP Act. Phase two will include a licensing and virtual asset issuance approval process that will begin when the appropriate clauses and aspects of the VASP Act come into effect.

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See the following links for further details of the regulatory regime in the Cayman Islands for token issuers, providers of custody services for digital assets, crypto exchanges, and other providers of virtual asset services.
Game changer- Introduction of the regulation of Virtual Assets in the Cayman Islands (Part I)
Game changer-Licensing requirements for Virtual Assets in the Cayman Islands (Part II)

Who are impacted by Phase 1 of the new VASP regime?

CIMA announced that phase one (registration or notification) targets three groups:

i. Entities wishing to perform virtual asset services for the first time (“New Market Entrants”);
ii. Entities providing virtual asset services prior to the commencement of the VASP Act (“Pre-Existing Service Providers”); and
iii. Existing CIMA licensees that provide or propose to provide virtual asset services (“Other Authorized Entities”).

With effect from 31 October 2020, all New Market Entrants, Pre-Existing Service Providers and Other Authorized Entities are required to complete the VASP Application Form via CIMA’s REEFS platform.Registration or notification can be done through the VASP Application Form on CIMA’s Regulatory Enhanced Electronic Forms Submission (REEFS) online platform. As part of the registration or notification process, entities will also be required to complete an AML/CFT form (to set out, among other things, (i) client customer risk, (ii) distribution channels risk, and (iii) products and services risk) which will also be available on CIMA’s REEFS platform.

As part of the application to CIMA for registration under the VASP Act, CIMA will require, among other things, (i) details of anti-money laundering (AML) compliance policies and procedures as per Cayman Islands’ Anti-Money Laundering Regulations, (ii) details AML compliance officers appointed, (iii) details of the virtual asset services being provided by the entity, (iv) business plan, (v) cybersecurity policies and procedures as per Cayman Islands’ Regulations, (vi) details of how the services will be provided to the public, (vii) details of its risk identification and mitigation strategy.

When will Phase 2 of the new VASP regime be implemented?

Entities providing custody services in respect of virtual assets or operating virtual asset exchanges are presently required to register with CIMA, but the licensing regime (to which such service providers will be subject) is not yet in force. Phase 2 of the implementation of the regulatory framework for the VASP Act will begin later this year, in June 2021.

Entities must not now provide virtual asset services until their application for registration with CIMA has been approved or the requisite notification made. To do so will be in breach of the VASP Act and such entities may be subject to penalties and other enforcement measures from CIMA, in-cluding to cease and desist providing virtual asset services.

Our Blockchain Technology and Digital Assets team have already advised on the success-ful registration of a number of entities with CIMA including advising on (i) preparing anti-money laundering (AML) compliance policies and procedures manual, (ii) drafting cybersecurity policies and procedures, (iii) regulatory requirements of how the services will be provided to the public, and (iv) risk identification and mitigation strategies. We look forward to the opportunity to work with you to achieve a successful registration of your entity with CIMA.

For specific advice on the registration with CIMA under the VASP regime, please contact any of:

E: gary.smith@loebsmith.com

E: santiago.carvajal@loebsmith.com

E: Vivian.huang@loebsmith.com

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Job Description

Loeb Smith Attorneys is a dynamic, fast growing Cayman Islands law firm with an enviable international client base and a proven record of providing creative and insightful legal advice and solutions to, among other, investment funds, listed companies, blockchain technology companies. We work with our clients, other law firms and advisers and with each other to efficiently maximize our clients’ commercial advantage whilst minimizing their legal risk.

We are seeking a bright, hardworking Corporate Attorney to join our Corporate Group.

The successful applicant will be working principally on:

the formation and launch of investment funds including hedge funds, PE funds, tokenised funds, and cryptocurrency funds; and
advising on the acquisition and disposal of fintech and blockchain technology companies.

Basic Requirements

The successful applicant will receive in-depth training and support to acquire the necessary technical know-how and skills to provide the high quality advice and service delivery that our clients expect from our lawyers and legal professionals and must:

have a minimum of 5 years’ PQE working in a corporate team undertaking high quality corporate work particularly focused on cross border M&A, private equity transactions, or IPOs;
have strong academic record, be fluent in English, and qualified to practice law in a British commonwealth jurisdiction;
be a good team player with strong interpersonal skills, strong work ethic, excellent attention to detail, time management and very good organizational skills.

Salary and Benefits

The successful candidate will receive a very competitive salary and benefits package including a performance related bonus scheme, health insurance, and pension.

The economic substance test (“ES Test”) under the International Tax Co-operation (Economic Substance) Law (2020 Revision) as amended (the “ES Law”) requires that a “relevant entity” (i.e. a Cayman company including, an exempted company, SPC, or LLC) conducting a relevant activity:

i. conducts core income generating activities (“CIGA”) in relation to that relevant activity;

ii. is directed and managed in an appropriate manner in the Cayman Islands in relation to that relevant activity; and

iii. having regard to the level of relevant income derived from the relevant activity carried out in the Cayman Island

a. has an adequate amount of operating expenditure incurred in the Cayman Islands;

b. has an adequate physical presence (including maintaining a place of business or plant, property and equipment) in the Cayman Islands; and

c. has an adequate number of full-time employees or other personnel with appropriate qualifications in the Cayman Islands.

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A relevant entity is subject to the ES Test from the date on which the relevant entity commences a relevant activity unless the relevant entity was in existence prior to 1 January 2019 (i.e. the date when the ES Law came into force), in which case it must have started compliance with the ES Law by 1 July 2019. However, Cayman companies which are carrying on business as investment funds (or entities through which investment funds directly or indirectly invest or operate) and Cayman exempted limited partnerships and trusts are excluded from the scope of the ES Law. Cayman companies which are tax domiciled outside the Cayman Islands do not have to pass the ES Test but are nonetheless required to make a filing to show that they are tax domiciled overseas.

CIGA means activities that are of central importance to a relevant entity in terms of generating relevant income and must be carried on in the Cayman Islands. A relevant entity conducting a relevant activity may satisfy the ES Test by outsourcing the conduct of its CIGA to another person in the Cayman Islands. A relevant entity that outsources its CIGA must be able to monitor and control the carrying out of the CIGA.

What are “Relevant Activities”?

Relevant activities are Insurance Business, Fund Management Business, Finance and Leas-ing Business, Headquarters Business, Shipping Business, Banking Business, Intellectual Property Business, Holding Company Business, and Distribution and Service Centre Business and each relevant entity is required to satisfy the ES Test by preparing and submitting to the Cayman Tax Information Authority (“TIA”) an annual report containing prescribed information for the purpose of the TIA’s determination of whether the ES Test has been satisfied in relation to that relevant activity. The TIA will make the assessment as to whether the ES Test has been satisfied within twelve (12) months after the last day of the end of each financial year commencing on or after 1 January 2019 based on the evidence provided by the relevant entity.

A relevant entity with a financial year of 1 January 2019 to 31 December 2019 will be required to submit its first annual report to the TIA on or before 31 December 2020.

In determining whether or not a relevant entity satisfies the ES Test for any financial year with re-spect to its relevant activities, the TIA will take a “principles-based approach”. If the TIA determines that a relevant entity has failed to satisfy the ES Test for a financial year it shall issue a notice to the relevant entity notifying the relevant entity of such determination, giving the reasons, directing any action to be taken to satisfy the ES Test and advising of the relevant entity’s right to appeal.

Penalty fines for non-compliance

The TIA will impose a penalty of US$12,500 on a relevant entity for failing to satisfy the ES Test or US$125,000 if it is not satisfied in the subsequent financial year after the initial notice of failure. Following failure after two consecutive years the Cayman Islands Grand Court may make an order requiring the relevant entity to take specified action to satisfy the ES Test or an order that the relevant entity is defunct or to be struck off.

Get in touch with our team

We have a dedicated team of lawyers that can offer in-depth legal analysis, advice and guidance on all aspects of the ES Law regime including reporting to the TIA before 31 December 2020 and look forward to advising you as the 31 December 2020 deadline approaches.

For specific advice on the Economic Substance Law regime and compliance, please contact your usual Loeb Smith attorney or any of:

E: gary.smith@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: vivian.huang@loebsmith.com
E: santiago.carvajal@loebsmith.com

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The Cayman Islands has been removed from the European Union’s list of non-cooperative jurisdictions for tax purposes.

The Cayman Islands Government and other stakeholders in the jurisdiction’s financial services industry welcomed the news announced on 6th October 2020. The EU’s decision is recognition of the Cayman Islands’ sustained efforts to meet EU regulatory requirements on tax transparency, and continuing its focus on expanding the regulatory framework for investment funds, and extending the scope of anti-money laundering regulation.

Since 2018 the Cayman Islands has introduced a large number of legislative measures (including amendments to the Mutual Funds Law and a new Private Funds Law to implement new rules for the registration and regulation of investment funds) to meet EU demands on tax matters.

The Cayman Islands was placed on the list of non-cooperative jurisdictions for tax purposes in February 2020. The removal comes as part of the first review of the list since February 2020.

Government and Industry Responses

The CEO of Cayman Finance, an organization which represents Cayman’s financial services industry responded to the news by stating: “The EU’s recognition of the Cayman Islands as cooperative on both transparency and fair taxation is an important validation of Cayman’s commitment to a responsible policy of tax neutrality that poses no harm to other countries.”

The Cayman Islands Government welcomed the news, issuing a statement in which the Premier, Alden McLaughlin stated; “Cayman responded positively by expanding the scope of our funds regime to ensure that the Cayman Islands Monetary Authority, our financial services regulator, has the legal mandate to supervise all Cayman-based investment funds.”

Please stay healthy and safe. If you have any direct queries relating to the above, please contact your usual Loeb Smith attorney or any of:

E: gary.smith@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: vivian.huang@loebsmith.com
E: yun.sheng@loebsmith.com
E: santiago.carvajal@loebsmith.com
E: faye.huang@loebsmith.com

The Cayman Islands was removed from the FATF Grey list in October last year (see related publication here (Cayman Islands removed from FATF Grey list – Loeb Smith)), which was then followed by the UK on 5 December 2023 which removed the Cayman Islands from the UK list of high-risk countries for AML and CTF purposes pursuant to the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 2) Regulations 2023.

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The European Union followed suit a week later on 12 December 2023 when the EU Commission passed the Commission Delegated Regulation (EU) 2024/163 (the “Regulation”) amending Delegated Regulation (EU) 2016/1675 as regards the deletion of the Cayman Islands and Jordan from the table in point I of the Annex, i.e. the EU list of high-risk third countries. The Regulation was finally published on the Official Journal of the European Union on 18 January 2024 (the full copy can be viewed at the following link: Delegated regulation – EU – 2024/163 – EN – EUR-Lex (europa.eu)) and, accordingly, it will become effective 20 days after publication on 7 February 2024.

The Regulation becoming effective in February 2024 means that the Cayman Islands will be removed from the EU list of high-risk third countries and represents the latest of a number of steps towards recognizing the Cayman Islands’ steady progress in the implementation and enforcement of internationally assessed and accepted AML/CTF measures. It is also highly significant for the Cayman Islands’ international reputation, and of particular importance in the structured finance sector as the Cayman Islands will again be a permissible jurisdiction for the establishment of securitisation special purpose entities (or ‘SSPEs’) for the purposes of Article 4 of the EU Securitisation Regulation.

Further Assistance

This publication is not intended to be a substitute for specific legal advice or a legal opinion. If you require further advice relating to the matters discussed in this Legal Update, please contact us. We would be delighted to assist.

E: gary.smith@loebsmith.com
E: robert.farrell@loebsmith.com
E. elizabeth.kenny@loebsmith.com
E: cesare.bandini@loebsmith.com
E: vivian.huang@loebsmith.com
E: faye.huang@loebsmith.com

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Annual Fees Deferred

As of 26 March, the Cayman Islands Government has deferred the obligation to pay annual fees for all companies (including limited liability companies (LLCs) and foundation companies) and exempted liability partnerships (ELPs) until 30 June 2020.

The annual return filing deadline for these entities has also been extended to 30 June 2020. Penalties for late payment or late filing of annual returns will apply as of 1 July 2020.

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Deferral of Economic Substance Notifications

As a result of the annual return extension for companies, the deadline for Economic Substance Notification (ESN) filings is now 30 June 2020. Please be aware that a ESN submission is required to be made to the Companies Registry before companies can file an annual return successfully.

Extension of Filing Deadlines by CIMA

The Cayman Islands Monetary Authority (CIMA) has also extended a number of filing deadlines in accordance with the table attached hereto.

For specific advice on making filings and submissions to the Companies Registry and/or CIMA, please contact your usual Loeb Smith attorney or any of:

E: gary.smith@loebsmith.com
E: vivian.huang@loebsmith.com
E: yun.sheng@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: santiago.carvajal@loebsmith.com
E: benjamin.wrench@loebsmith.com

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