News Archive | Page 7 of 9

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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LEGAL UPDATE

Undertaking Voluntary Liquidations of Cayman Islands’ Entities prior to 31 December 2019.

Voluntary liquidations generally

As the conclusion of 2019 approaches, clients should give some thought to whether or not they have Cayman entities which they are no longer using and wish to liquidate prior to the end of 2019 in order to, among other things, avoid annual government registration fees due in January 2020. A voluntary liquidator of a Cayman company or exempted limited partnership (ELP) is required to hold the final general meeting for that company or file the final dissolution notice for that ELP on or before 31 January 2020.

Voluntary liquidations – Funds registered with CIMA

Investment Funds which are registered with the Cayman Islands Monetary Authority (CIMA) should commence voluntary liquidation and submit documents to CIMA in order to have those Funds’ status change from “active” to “license under liquidation” by Tuesday, 31 December 2019 if they are to avoid their annual fees payable to CIMA for 2020. It is also important for investment funds registered with CIMA to give some thought to CIMA’s requirement for a final “stub” audit for the period of 2019 in respect of which the Fund operated before going into liquidation. CIMA may be reluctant to grant a partial year audit waiver for a liquidating Fund.

As an alternative to voluntary liquidation, some investment fund managers might be considering a wind down of one or more CIMA registered funds prior to the end 2019 and wish to de-register from CIMA or at least go into the status of “licence under termination” with CIMA in order to avoid or reduce annual registration fees payable to CIMA for 2020. If not already started, we recommend that action be taken now to begin this process.

For specific advice on voluntary liquidations of Cayman Islands’ entities or winding down investment funds before 31 December 2019, please contact 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

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LEGAL UPDATE

Guidance for Directors registered with the Cayman Islands Monetary Authority under The Directors Registration and Licensing Law

Renewal of Director Registration for 2019

Directors who are registered with the Cayman Islands Monetary Authority (“CIMA”) in accordance with The Directors Registration and Licensing Law, 2014 (“DRLL”) in connection with being a Director of an entity that is registered with CIMA (e.g. registered Mutual Fund or an investment management or investment advisory entity that has “Excluded Person” status under the Securities Investment Business Law (2015 Revision)) (a “Covered Entity”) should be aware of the requirement to renew registration via the CIMA portal https://gateway.cimaconnect.com/. A Director should renew his or her registration with CIMA if he or she will continue to be a Director of one or more Covered Entity that either (1) will carry on business for some or all of 2019, or (2) is in the process of economically winding down and legally liquidating such business but the process will not cease prior to 31 December 2018.

Resignation from a Covered Entity

CIMA has stated^[i] that if a Director no longer wishes to be registered or licensed as a Director of a Covered Entity, the Director must liaise with the Covered Entity’s registered office and ensure that CIMA receives written resolutions or an updated register of directors, stamped by the Cayman Islands Companies Registry, to duly notify CIMA of the Director’s resignation from that Covered Entity.

Resignation of a Director from a Covered Entity will not automatically result in a surrender of the Director’s registration or licence under the DRLL.

Surrender of Director Registration

CIMA has also stated^[ii] that if a Director no longer wishes to be registered or licensed as a Director in accordance with the DRLL, he or she is required to first resign as a Director of all Covered Entities, then log into the CIMA portal (see link above), complete the requisite information under “Surrender”, and pay the relevant surrender fee (US$731.71).

Once the Director has paid the surrender fee, CIMA will check its records to confirm that the Director is no longer listed as a Director on any Covered Entity. If he or she remains as a Director of a Covered Entity, CIMA will be unable to process the Director’s surrender application.

In addition to submitting the surrender fee, the Director is required to submit a formal letter which MUST contain the following information:

that he or she has resigned as a Director of all Covered Entities;
that he or she no longer plans to act as a Director on any Covered Entity; and
that if he or she would like to act on any other Covered Entity or wishes to resume directorship services after he or she has surrendered his or her registration or licence, he or she will re-apply under the DRLL.

The Director is responsible for updating his or her records accordingly and must complete the requirements to surrender his or her registration or licence before the 31st December in order to avoid accruing annual fees for 2019, as well as penalties calculated at 1/12th of the annual fee for every month or part of a month after the 15th of January in each year that the fee is not paid

As stated above, Directors who will continue to provide directorship services and wish to remain current with their registration or licence status under the DRLL MUST, on or before the 15th of January in each calendar year, renew their registration or licence through the CIMA portal.

For specific advice on renewal or surrender under the DRLL or resignation from a Covered Entity, please contact any of:

E gary.smith@loebsmith.com
E ramona.tudorancea@loebsmith.com
E yun.sheng@loebsmith.com
E vivian.huang@loebsmith.com
E elizabeth.kenny@loebsmith.com

[i] CIMA’s Supervisory Issues & Information Circular– Second Edition issued in October 2016
[ii] CIMA’s Supervisory Issues & Information Circular– Second Edition issued in October 2016

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The EU’s General Data Protection Regulation (“GDPR”) applies to offshore investment funds with European investors since 25 May 2018. The Cayman Islands Data Protection Law (“DPL”), which will regulate the future processing of all personal data, is intended to come into effect in January 2019¹. Inspired from the UK’s Data Protection Act, DPL includes provisions very similar to GDPR (together “Data Protection Laws”), with certain notable differences.

As part of the subscription process, investors are required to provide a government-issued photo ID, source of funds and wealth, contact details, payment details, and tax residence information, or even additional information about employment, dependents, income and investment objectives (the “Investor Personal Data”), which are processed and stored by or on behalf of the investment fund (the “Fund”) and/or by one or more of the service providers to the Fund. Some of the processing may be done by different parties in various jurisdictions.

Generally, the Administrator, Transfer Agent, Distributor, and the Investment Manager of a Fund may fall within the definition of a Data Controller or Data Processor. To ensure compliance with GDPR and/or DPL, the Fund’s Board of Directors should review the contractual arrangements with these parties and may need to appoint a Data Protection Officer. As a reminder, the Board of Directors of the Fund is required to supervise third party service providers and ensure that there are sufficient measures in place to protect Investor Personal Data. Privacy Notices in the Fund’s offering documents would need to be updated to ensure that investors are fully aware of where their Personal Data is being processed, by whom and for what purpose.

For ease of reference, a brief comparison between GDPR and DPL is included below².

Comparison of the Main Provisions

	GDPR	DPL
Personal Data	Any information relating to an individual who can be identified, directly or indirectly, from that data (including online identifiers such as IP address-es and cookies may qualify as personal data if they are capable of being linked back to the individual).	Same as GDPR.
Data Controller	The person who, alone or with others, determines the purposes, conditions and means of the processing of Personal Data.	DPL applies to any Data Controller in respect of Personal Data (a) es-tablished and processed in the Cayman Islands; or (b) processed in the Cayman Islands otherwise than for the purposes of transit³.
Privacy Notice	At the time of collection of the data, individuals must be informed of the purposes and detail behind the processing, the details of transfers of data and any security and technical safeguards in place. This information is generally provided in a separate privacy notice.	Same as GDPR.
Right to Access	Individuals have the right to obtain confirmation that their Personal Data is processed and to access it. Data Controllers must respond within a month of the access request. A copy of the information must be provided free of charge.	Same as GDPR, but DPL permits a reasonable fee to be charged.
Retention Period	Personal data should not be kept for longer than is necessary to fulfil the purpose for which it was originally collected. Controllers must inform data subjects of the period of time (or reasons why) data will be retained on collection.	Not a requirement under DPL. However, as with the GDPR, if there is no compelling reason for a Data Controller to retain Personal Data, a data subject can request its secure deletion.rsonal data should not be kept for longer than is necessary to fulfil the purpose for which it was originally collected. Controllers must inform data subjects of the period of time (or reasons why) data will be retained on collection.
Right to Erase	Should the individual subsequently wish to have their data removed and the Personal Data is no longer required for the reasons for which it was collected, then it must be erased. Data Controllers must notify third party processors or sub-contractors of such requests.	Same as GDPR.
Transfers	International transfers permitted to third party processors or between members of the same group.	Same as GDPR.
Data Security	Minimum security measures are pre-scribed as pseudonymisation and encryption, ability to restore the availability and access to data, regularly testing, assessing and evaluating security measures.	Appropriate technical and organisational measures must be taken to prevent unauthorised or unlawful processing of Personal Data and against accidental loss or destruction of, or damage to, Personal Data⁴.
Data Processors	Security requirements are extended to data processors as well as Data Controllers.	There is no liability for processors under DPL. However, they may be held liable based on contract or tort law.
Data Breach	Data Controllers must notify the regulatory authority of Personal Data breaches without undue delay and, where feasible, not later than 72 hours after having become aware of a breach.	In the event of a Personal Data breach, the Data Controller must, “without undue delay” but no longer than five (5) days after the Data Controller should have been aware of that breach, notify the Om-budsman and any affected individuals⁵.
Breach Notice	The notification should describe the nature of the breach, its conse-quences, the measures proposed or taken by the Data Controller to ad-dress the breach, and the measures recommended by the Data Controller to the individual concerned to miti-gate the possible adverse effects of the breach.	Same as GDPR.
Right to be Forgotten	An individual may request the deletion or removal of Personal Data where there is no compelling reason for its continued processing.	DPL contains a similar right, although this is expressed as a general right of “erasure”. Under the UK’s Data Protection Act, the right is limited to processing that causes unwarranted and substantial damage or distress. Under DPL this threshold is not present. As with the GDPR, if there is no compelling reason for a data controller to retain Personal Data, a data subject can request its secure deletion.
Right to Object	An individual has the right at any time to require a Data Controller to stop processing their Personal Data for the purposes of direct marketing. There are no exemptions or grounds to refuse. A Data Controller must deal with an objection to processing for direct marketing at any time and free of charge.	Same as GDPR.
Direct Marketing and Consent	The Data Controller must inform individuals of their right to object “at the point of first communication” and in a privacy notice. For any consent to be valid it needs to be obvious what the data is going to be used for at the point of data collection and the Data Controller needs to be able to show clearly how consent was gained and when it was obtained.	Including an unsubscribe facility in each marketing communication is recommended best practice. If an individual continues to accept the services of the Data Controller without objection, consent can be implied.
Data Processors	The GDPR sets out more detailed statutory requirements to apply to the controller/processor relationship, and to processors in general. Data Pro-cessors are now directly subject to regulation and are prohibited from processing Personal Data except on instructions from the Data Controller.	Best practice would always be to put in place a contract between a controller and processor. Essentially, the contract should require the Data Processor to level-up its policies and procedures for handling personal data to ensure compliance with DPL. Use of sub-contractors by the service provider should be prohibited without the prior approval of the Data Controller⁶.
Data Protection Officer	Mandatory if the core activities of the Data Controller consist of processing operations which require large scale regular and systematic monitoring of individuals or large scale processing of sensitive Personal Data.	Does not require the appointment, although this is recommended best practice.
Penalties	Two tiers of sanctions, with maximum fines of up to €20 million or 4% of annual worldwide turnover, whichever is greater.	Refusal to comply or failure to comply with an order issued by the Ombudsman is an offence. Penal-ties are also included for unlawful obtaining or disclosing Personal Data⁷. Directors may be held liable under certain conditions⁸. The Data Controller is liable on conviction to a fine up to CI$100,000 or imprisonment for a term of 5 years or both. Monetary penalty orders of an amount up to CI$250,000 may also be issued against a Data Controller.

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

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The Data Protection Law, 2017 (Law) was passed on 27 March 2017 and it is not yet in force.
The comparison only includes provisions which may be relevant to offshore investment funds and is therefore not a comprehensive analysis.
See Art. 6 of DPL
See Schedule 1 of DPL
See Art. 16 of DPL
Under DPL, the Data Controller is liable for breaches and non-compliance, whereas processors may not be. It is therefore very important for a Fund’s Board of Directors to ensure that adequate contractual protections are in place.
See Arts. 53-54 of DPL
See Art. 58 of DPL

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Voluntary liquidations generally

As the conclusion of 2018 approaches, clients should give some thought to whether or not they have Cayman entities which they wish to liquidate prior to the end of 2018 for, among other things, the purpose of avoiding annual government registration fees due in January 2019. A voluntary liquidator of a Cayman company or exempted limited partnership (ELP) is required to hold the final general meeting for that company or file the final dissolution notice for that ELP on or before 31 January 2019.

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Voluntary liquidations – Funds registered with CIMA

Investment Funds which are registered with the Cayman Islands Monetary Authority (CIMA) should commence voluntary liquidation and submit documents to CIMA in order to have those Funds’ status change from “active” to “license under liquidation” by Monday, 31 December 2018 if they are to avoid their annual fees payable to CIMA for 2019. It is also important for investment funds registered with CIMA to give some thought to CIMA’s requirement for a final “stub” audit for the period of 2018 in respect of which the Fund operated before going into liquidation. CIMA may be reluctant to grant a partial year audit waiver for a liquidating Fund.

As an alternative to voluntary liquidation, some investment fund managers might be considering a wind down of one or more CIMA registered funds prior to the end 2018 and wish to de-register from CIMA or at least go into the status of “licence under termination” with CIMA in order to avoid or reduce annual registration fees payable to CIMA for 2019. If not already started, we recommend that action be taken now to begin this process.

For specific advice on voluntary liquidation of Cayman Islands’ entities or winding down in-vestment funds before 31 December 2018, please contact any of:

E gary.smith@loebsmith.com
E ramona.tudorancea@loebsmith.com
E yun.sheng@loebsmith.com
E vivian.huang@loebsmith.com
E elizabeth.kenny@loebsmith.com

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The Cayman Islands Monetary Authority (“CIMA”) has extended the deadline for each CIMA registered Cayman domiciled investment fund which launched prior to 1 June 2018 to notify CIMA of the appointment of natural persons to act as its Anti-Money Laundering Compliance Officer (“AMLCO”), Money Laundering Reporting Officer (“MLRO”) and Deputy Money Laundering Reporting Officer (“DMLRO”) from 30 September 2018 to 31 December 2018. CIMA has clarified that CIMA regulated funds must still appoint these AML Officers by 30 September 2018 but now have until 31 December 2018 to notify CIMA of such appointments. Notification of the appointment of AML Officers to CIMA registered funds must take place via the CIMA REEFS portal.

CIMA has also clarified that each unregulated Cayman investment fund (and is therefore not registered with CIMA) which launched prior to 1 June 2018 now has until 31 December 2018 to designate entity specific AML Officers. Each Cayman investment fund launched from 1 June 2018 (“Post May 2018 Funds”) are expected to have AML Officers designated from the time of launch. Post May 2018 Funds which are required to register with CIMA will be required to register details of their AML Officers at the time of the fund’s registration with CIMA.

For specific advice on the appointment of AML Officers to your Cayman Islands’ investment funds, please contact any of:

E: gary.smith@loebsmith.com
E: vivian.huang@loebsmith.com
E ramona.tudorancea@loebsmith.com
E elizabeth.kenny@loebsmith.com

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On October 25, Loeb Smith Attorneys’ Cayman Islands-based corporate lawyer Ramona Tudorancea will chair and moderate the panel titled “Caribbean Offshore Jurisdictions as Stepping Stones for Cross-Border Investments in the Americas“, scheduled as part of the Miami Fall Meeting of the Section of International Law of the American Bar Association and taking place at the JW Marriot Marquis, Met Ballroom 4, starting 4.30 PM.

Panelists include James H. Barrett from Baker & McKenzie LLP (Miami), Fernanda Bastos from Buhatem, Souza, Cescon, Barrieu & Flesch Advogados (Brazil), Pablo Falabella from Bulló Abogados (Argentina), Fabian A. Pal (Miami), and Kevin P. Scanlan from Kramer Levin Naftalis & Frankel LLP (New York).

The panel is sponsored by the Lawyers Abroad Committee (LAC), where Ms. Tudorancea currently serves as a Vice-Chair of Publications, and co-sponsored by the International M&A and Joint Venture Committee, the Latin America and Caribbean Committee, and the International Tax Committee.

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The Cayman Islands have now brought into effect the long-awaited Limited Liability Companies Law, 2016 (the “LLC Law”) which introduces a new Cayman Islands limited liability company (an “LLC”). The LLC Law was published on 8th June 2016 but had not been brought into effect until 8th July 2016 in order to provide the Companies Registry with sufficient time to implement internal systems for dealing with registration of new LLCs. The Companies Registry is currently undertaking pilot testing of its internal systems and has advised that it expects to be able to accept registration applications for new LLCs before 15th July 2016.

Key Features of Cayman LLCs

An LLC formed under the LLC Law will be similar in structure to that of the Delaware LLC as the LLC Law is broadly based on the Limited Liability Company Act in the State of Delaware. However, the LLC Law has also preserved the broad legal principles applicable to Cayman Islands companies and the rules of equity and common law. Section 3 of the LLC Law expressly states that: “The rules of equity and of common law applicable to companies registered in the Islands, as modified by the Companies Law and any other Laws in force in the Islands applicable to such companies, shall apply to a limited liability company, except in so far as such rules and law or modifications thereto are inconsistent with the express provisions of this Law or the nature of a limited liability company”.
An LLC is a corporate entity which has separate legal personality to its members.
Formation of an LLC is straightforward. It requires the filing of a registration statement with the Companies Registry and payment of the requisite Government fee.
An LLC must have at least one member. It can be member managed (by some or all of its members) or the LLC agreement can provide for the appointment of persons (who need not be members) to manage and operate the LLC.
The liability of an LLC’s members is limited. Members can have capital accounts and can agree amongst themselves (in the LLC agreement) how the profits and losses of the LLC are to be allocated and how and when distributions are to be made (similar to a Cayman Islands exempted limited partnership).
An LLC may be formed for any lawful business, purpose or activity and it has full power to carry on its business or affairs unless its LLC agreement provides otherwise.
An LLC may (but is not required to) use one of the following suffixes in its name: “Limited Liability Company”, “LLC” or “L.L.C.”.
The following statutory registers are required to be maintained for an LLC but, similarly to the requirement for a Cayman Islands exempted company, only an LLC’s register of managers is required to be filed with the Companies Registry:

1. a register of members;
2. a register of managers; and
3. a register of mortgages and charges.

The register of managers and register of mortgages and charges are required to be maintained in a manner similar to the register of directors and register of mortgages and charges for a Cayman Islands exempted company.

Subject to any express provisions of an LLC agreement to the contrary, a manager of the LLC will not owe any duty (fiduciary or otherwise) to the LLC or any member or other person in respect of the LLC other than a duty to act in good faith in respect of the rights, authorities or obligations which are exercised or performed or to which such manager is subject in connection with the management of the LLC provided that such duty of good faith may be expanded or restricted by the express provisions of the LLC agreement.

Expected Benefits of the New LLC Vehicle

Under the LLC Law, it is now possible to:

Form and register a new LLC;
Convert an existing Cayman Islands exempted company into an LLC;
Merge an existing Cayman Islands exempted company into an LLC; and
Migrate an entity formed in another jurisdiction (e.g. Delaware) into the Cayman Islands as an LLC.

It is expected that the new Cayman Islands LLC structure will be attractive for general partner entities and other carried interest distribution vehicles. It may also prove attractive for management company entities and possibly for offshore funds in order to align the rights of investors between onshore and offshore investment funds in a master/feeder structures.

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For Specific advice on Cayman Islands limited liability companies, please contact either of:

E: gary.smith@loebsmith.com
E yun.sheng@loebsmith.com