Single Family Offices in the Cayman Islands: the Securities Investments Business Law, the Private Funds Law and the Anti-Money Laundering (Single Family Office) Regulations
09 September 2020
Most of us will know a Single Family Office (an "SFO") when we see one. In the Cayman Islands ("Cayman"), SFOs are variously defined and regulated (or exempted from being regulated) under a range of statutes and regulations.
The Securities and Investment Business Law
The Securities and Investment Business Law (2020 Revision) ("SIBL") includes the following definitions:
"Single family", in relation to a Single Family Office, means an individual or a group of individuals who are connected in at least one of the following ways:
- the descendants of the individual and their spouses;
- parents, including step-parents;
- parents-in-law, including step-parents-in-law;
- brother, step-brother, sister, step-sister and their spouses;
- spouse's grandparents;
- spouse's brother, step-brother, sister, step-sister and their spouses and children;
- parent's brother, step-brother, sister, step-sister and their spouses;
- children of the brother, step-brother, sister or step-sister of the individual's parents, both present and future, including stepchildren, and their spouses; and
- children of the individual's brother, step-brother, sister or step-sister, both present and future, including step-children, and their spouses.
For any of the relationships listed above that may be established by blood, that same relationship may also be established by adoption. The term "descendants of the individual" means the individual's children, the children of that individual's children, the children of those children, and so on and "children" includes step-children.
"Single Family Office" means a legal entity or legal arrangement formed in Cayman by a single family to conduct securities investment business for or on behalf of that single family where:
- the securities are not beneficially owned by a third party; and
- the legal entity or legal arrangement does not hold itself out to the public as conducting securities investment business for any person except members of the single family.
"Securities Investment Business" ("SIB") includes being "engaged in the course of business of" dealing in, arranging deals in, managing and advising on securities and managing, marketing and acting as depository of EU Connected Funds (as those terms are further defined).
If a Cayman company (being the typical entity through which an SFO exists) conducts SIB, it is required to be licensed or registered under SIBL unless it is a "Non-Registerable Person" (an "NRP"). This includes the following which may be relevant to a particular SFO:
- A person participating in a joint enterprise (and where that person is a company any other company which is part of the same group of companies as that person) with the person carrying on the SIB where the activities constituting such SIB are to be carried on for the purposes of or in connection with that joint enterprise.
- A person carrying on SIB only in the course of acting as director; partner; manager of a limited liability company; or a trustee acting together with co-trustees in their capacity as such, or acting for a beneficiary under the trust, provided that in each case that person is not separately remunerated for any of the activities which constitute the carrying on of such SIB otherwise than as part of any remuneration such person receives for acting in that capacity and either (A) does not hold themselves out as carrying on SIB other than as a necessary or incidental part of performing functions in that capacity, or (B) is acting on behalf of a company, partnership or trust that is otherwise licensed or exempted from licensing under SIBL.
SFOs were previously specifically listed as NRPs but this was repealed by the Securities Investment Business (Amendment of Schedule 2A and Repeal of Schedule 4A) Order, 2020, in August 2020. Accordingly, an SFO (and any Cayman companies connected to the SFO) now needs to consider whether it is carrying on what may be SIB and, if so, whether it is an NRP.
In order to establish whether the SFO is conducting SIB, it is likely that one or more of the following terms and definitions will need to be considered more closely:
"Engaged in the course of business" is not defined. However, given its ordinary meaning, it would seem to imply that this is with a view to profit or gain and, taken in the context of the definitions below, would also seem to imply that an SFO which only conducts what would otherwise be SIB for its own account and not that of any third party would not thereby be conducting SIB.
"Dealing in securities" means buying, selling, subscribing for or underwriting securities as an agent; or buying, selling, subscribing for or underwriting securities as principal where the person entering into that transaction:
- holds themselves out as willing, as principal, to buy, sell or subscribe for securities of the kind to which the transaction relates at prices determined by that person generally and continuously rather than in respect of each particular transaction;
- holds themselves out as engaging in the business of underwriting securities of the kind to which the transaction relates; or
- regularly solicits members of the public with the purpose of inducing them, as principals or agents, to buy, sell, subscribe for or underwrite securities and such transaction is entered into as a result of such person having solicited members of the public in that manner.
"Arranging deals in securities" means making arrangements with a view to:
- another person (whether as a principal or an agent) buying, selling, subscribing for or underwriting securities; or
- a person who participates in the arrangements buying, selling, subscribing for or underwriting securities.
"Managing securities" means managing securities belonging to another person in circumstances involving the exercise of discretion.
"Advising on securities" means advising a person on securities if the advice is:
- given to the person in that person's capacity as an investor or potential investor or in that person's capacity as agent for an investor or a potential investor; and
- on the merits of that person (whether as principal or agent) buying, selling, subscribing for or underwriting a particular security; or exercising any right conferred by a security to buy, sell, subscribe for, or underwrite a security.
The Private Funds Law
Under the Private Funds Law, 2020, a "Single Family Office" is a "non-fund arrangement" and, accordingly, is not required to be registered as a private fund. "Single Family Office" is not defined but it may be reasonable to suppose that it has the same meaning as under SIBL.
Anti-Money Laundering (Single Family Office) Regulations
The Anti-Money Laundering (Single Family Office) Regulations, 2020, are still in draft at the time of writing. At present, they do not contain a definition of Single Family Office but, again, it may be reasonable to suppose that it has the same meaning as under SIBL. Notably, as presently drafted, it would not apply to an SFO with a regulated registered office, such as at a licensed trust company.