Update to the Cayman Islands Proceeds of Crime Act: Changes to Suspicious Activity Reporting Provisions

The Cayman Islands has recently enacted significant amendments to the Proceeds of Crime Act (POCA), effective from January 2, 2025. These changes introduce a revised framework for suspicious activity reporting (SAR) and defenses against money laundering (DAML), reflecting the jurisdiction's commitment to align with international anti-money laundering (AML) standards and address practical challenges faced by financial institutions.

Key Changes to the Suspicious Activity Reporting Regime Mandatory Consent Requirement for DAML Defenses:

One of the most notable changes is the introduction of a mandatory consent requirement for DAML defenses. Previously, filing a SAR could provide a statutory defense against money laundering offenses. Under the updated provisions, entities must now:

Submit a SAR to the Financial Reporting Authority (FRA).
Obtain prior written consent from the FRA before proceeding with any transactions involving suspected criminal property.

This consent regime applies specifically to offenses outlined in sections 133–135 of POCA, which include:

Concealing or transferring criminal property (Section 133).
Facilitating arrangements involving criminal property (Section 134).
Acquiring or using criminal property (Section 135).

Streamlined FRA Response Timeline

To enhance operational efficiency, the FRA has established a 7-working-day deadline for responding to DAML requests. If no response is received within this timeframe, consent is automatically deemed granted, allowing businesses to proceed with transactions. This provision addresses previous delays that could hinder time-sensitive financial operations.

Revised Disclosure Obligations

The amendments also revise disclosure obligations for financial institutions:

Internal SARs submitted to a nominated officer are no longer sufficient for a defense; external disclosures to the FRA are now mandatory.
The FRA may share SAR information with other authorities, including supervisory bodies and the Steering Group, promoting improved collaboration across agencies.

Pending Regulatory Framework

While the consent regime is now operational, the Cayman government is finalizing regulations to formalize:

Procedures for seeking DAML consent.
Standards regarding SAR formatting and content.

Financial institutions are encouraged to proactively update their AML policies in anticipation of these forthcoming rules.

Additional Regulatory Updates: VASP Registration Process

On December 12, 2024, the Cayman Islands Monetary Authority (CIMA) announced enhancements to the registration process for Virtual Asset Service Providers (VASPs) through its REEFS portal. Effective December 13, 2024, the existing application form (APP 101-84) will be replaced by an updated version aimed at improving efficiency and clarity in the registration process.

Key points regarding this update include:

New Submissions: From December 13, 2024, all new VASP registration applications must utilize the new APP 101-84-05 form.
In-Progress Applications: Applications already underway as of this date may continue using the current APP 101-84 form if submitted before 5 PM on January 30, 2025.
Post-Deadline Submissions: Any incomplete applications submitted after January 30 will need to be resubmitted using the updated APP 101-84-05 form.

A detailed guide for completing the new form will be available on CIMA’s website.

Implications for Financial Institutions

The changes bring several implications for financial institutions operating in the Cayman Islands:

Enhanced Compliance Burden: Institutions must ensure that SARs are filed in conjunction with explicit FRA consent requests, necessitating tighter internal controls and compliance measures.
Operational Adjustments: The introduction of a 7-day deemed consent provision alleviates delays but requires robust monitoring systems to track FRA response timelines effectively.
Risk of Non-Compliance: Proceeding with transactions without FRA consent eliminates the DAML defense, exposing entities to potential criminal liability under POCA.

Timeline and Transition

The original commencement date was set for April 2024, but it was postponed to allow for capacity building within the FRA. As of January 2025, these amendments are in effect and apply immediately to all SAR filings.

Industry Recommendations

In light of these changes, we recommend that financial institutions take proactive steps:

Update AML/CFT Policies: Revise internal procedures to align with the new consent regime, ensuring that both SARs and DAML requests are submitted concurrently.
Train Staff: Conduct training sessions for compliance teams to ensure they understand the implications of the FRA’s 7-day response window and new consent requirements.
Monitor Regulatory Updates: Stay informed about forthcoming regulations that will further refine procedural requirements related to SARs and DAML requests.

These reforms underscore the Cayman Islands' commitment to adhering to FATF recommendations while balancing operational practicality for financial institutions. By adapting swiftly to these changes, firms can mitigate legal risks and maintain compliance in an increasingly stringent AML environment.

For further assistance or guidance on navigating these regulatory changes, please contact our legal team.