New SIBL Law sets 15 January 2020 deadline for Cayman ‘Excluded Persons’ to become 'Registered Persons' with CIMA06 Aug 2019
The new Cayman Islands ('Cayman') Securities Investment Business (Amendment) Law, 2019 (‘Law’) ('SIBL') has passed, amending the ('SIBL') Securities Investment Business Law (2019 Revision).
The Law abolishes the ability for an entity to register as an ‘Excluded Person’ under Schedule 4 of SIBL (‘Schedule 4’) with immediate effect and sets a deadline in its transitional provisions. This means that current SIBL 'Excluded Persons' (see below) must re- register with the Cayman Islands Monetary Authority ("CIMA") by 15 January 2020 and become Registered Persons. Those who have not completed re-registration by that date will be de-registered and unable to carry on Securities Investment Business ("SIB").
What is securities investment business?
SIBL has developed a list of defined activities which, when carried out by certain types of entity, would qualify as SIB. Generally, Cayman companies and partnerships, and registered foreign companies, which deal in shares, partnership interests or units of a unit trust, arrange such deals, manage or advise on such shares, interest or units, or manage, market or act as a depository for EU Connected Funds will most likely be conducting SIB.
What changes does the Law make?
- Entities that were previously 'Excluded Persons' under SIBL will now need to be registered by CIMA to conduct securities and investment business ('Registered Persons'), unless they are 'Non-registrable persons ’. Non-registrable persons are explained in a new Schedule 2A in the Law, which is a much more limited list of the type of entities and activities for which there is no requirement to register in order to conduct SIB.
- CIMA is given significantly enhanced powers of regulation and enforcement.
- Cayman limited liability companies and limited liability partnerships (types of entity that can now be created under relatively recent legislation) have been added to the categories of persons which could carry out SIB provided they are registered.
Who are current Excluded Persons?
Section 5(2) of SIBL (‘Requirement for a licence’) provides that persons specified in Schedule 4 of SIBL do not require a licence to conduct SIB. However if they choose, they may apply to be licensed under SIBL. Persons specified in Schedule 4 are 'Excluded Persons', but if paragraph 1, 4 or 5 of Schedule 4 applies to that Excluded Person then they have to register with CIMA, file an annual declaration and pay an annual fee (under s.5(4) of SIBL).
How has the Law changed this?
The Law makes no changes for licensed persons. However, the Law repeals SIBL's Schedule 4 in its entirety and replaces it with a new Schedule 4 (Persons required to be registered) (‘New Schedule 4’) and a new Schedule 4A (Connected Persons within a Single Family) as well as a new definition of 'Non-registrable persons' under Schedule 2A.
Who will now need to register and when?
All persons listed in the New Schedule 4 will need to be registered. Any entity currently registered with CIMA as an Excluded Person will need to take such steps as CIMA directs to register as a Registered Person by 15 January 2020. Applicants will be obliged to meet a number of requirements, including that their shareholders, directors and senior officers are fit and proper persons. Once registered there are requirements for annual returns, annual fees, updated information provision and CIMA approvals for issue and transfer of shares. They will also need to de-register with CIMA and file information if they stop carrying on SIB.
Who needs to be registered under the new Schedule 4?
The Law provides that the following are ‘Persons required to be registered under section 5(4)’
- A company within a group of companies carrying on securities investment business
exclusively for one or more companies within the same group.
- A person carrying on securities investment business exclusively for one or more of the ollowing classes of persons —
(a) a sophisticated person;
(b) a high net worth person; or
(c) a company, partnership or trust (whether or not regulated as a mutual fund) of which the shareholders, unit holders or limited partners are one or more persons falling within (a) or (b), and who has a registered office or a place of business in the Islands for which services are provided by a person licensed to provide such services.
- A person to whom section 4(1) applies but who is regulated in respect of securities investment business by a recognised overseas regulatory authority in the country or territory (other than the Islands) in which the securities investment business is being conducted.
Are there business operations issues?
Under the Law, where a person carries on SIB for which a licence or registration is required, they must also maintain, among other things, such staff and premises in Cayman that CIMA considers appropriate, having regard to the nature and scale of the business.
What new powers has CIMA been given?
CIMA has been given discretionary powers in relation to an applicant for registration and exercise enforcement powers against a Registered Person; the power to direct a licensee or Registered Person to cease or refrain from performing specified acts; and to prohibit a Registered Person from acting as a depositary. CIMA’s enforcement powers are extended so it can act where it has reasonable grounds to believe that a licensee or a Registered Person is, among other things, unable to meet its obligations as they fall due, carrying on business fraudulently or has contravened any provision of SIBL. For example, CIMA can revoke a licence or cancel the registration, impose conditions on the licence or registration or apply to the court for an order to protect the interests of clients.
For more information or advice on Cayman SIBL or AML regulations and legislation, please contact Jonathan Fitzgibbons.