Michalis Parides
In our previous related newsletter, we safely considered the possibility that the removal of the Cayman Islands from the FATF’s grey list would result in its removal from the EU’s AML list.
As expected, the EU has officially announced the removal of the Cayman Islands from its AML/CFT list of high-risk jurisdictions. This decision, effective from 7 February 2024, is a recognition of the Cayman Islands' comprehensive reforms in enhancing its anti-money laundering and countering the financing of terrorism frameworks.
Background:
The European Commission's publication of the Delegated Regulation (EU) 2024/163 on 12 December 2023 in the Official Journal of the EU sets the stage for this significant change. The Cayman Islands' removal from the EU's list of 'high-risk third countries', known as the EU AML List, aligns with its ongoing commitment to comply with international financial standards and addresses past strategic deficiencies in its AML/CFT regimes.
Implications for the Financial Sector:
The removal of the Cayman Islands from the EU AML List carries considerable implications for the financial sector. Firstly, following the de-listing, Article 4 of the EU Securitisation Regulation will no longer restrict the establishment of securitisation special purposes entities (SSPEs) in the Cayman Islands. This change is poised to rejuvenate the securitisation market, providing more flexibility and choice for entities considering the jurisdiction for their financial structuring needs.
Moreover, this development is crucial for the future of Cayman funds, especially in light of the upcoming amendments to the Alternative Investment Fund Managers Directive (AIFMD 2.0). With the Cayman Islands' de-listing, these funds will continue to be marketable within the EU, adhering to the revised regulatory framework expected to come into effect in the first half of 2026.
Considerations for Existing Structures and Due Diligence:
While the shift in the EU's stance opens new opportunities, it also necessitates a re-evaluation of existing structures. Entities with SSPEs established in alternative jurisdictions during the Cayman Islands' period on the EU AML List may need to consider their positioning and whether a jurisdictional shift is advantageous or required. Furthermore, the expected reduction in entities performing enhanced due diligence on those established in or resident in the Cayman Islands underscores a broader impact on compliance and operational protocols within the financial sector.
Conclusion:
The Cayman Islands' removal from the EU AML List signifies a pivotal change, re-affirming the jurisdiction's status as a compliant and attractive destination for global financial activities. This development necessitates a strategic reassessment of existing structures and an understanding of the evolving regulatory landscape. As the global financial sector continues to navigate these changes, the Cayman Islands stands poised to regain and enhance its position in the international market.
If you would like further information, please reach out to your usual Royal Pine contact or email financialservices@royalpine.com
* This publication has been prepared as a general guide and for information purposes only. It does not purport to be comprehensive or to render professional advice. Before making any decision or taking any action that may affect you and/or your business, bespoke advice should be obtained.
