Cayman drops 'excluded persons' regime

Pedro Gonçalves
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Cayman drops 'excluded persons' regime

Cayman is introducing a a regulatory and supervisory framework for ‘excluded persons', people exempt from requiring a license to conduct securities investment business or being overseen by the island's regulator.

Lawmakers approved amendments to the Securities Investment Business Licensing Law this week following criticism from the Caribbean Financial Action Task Force (CFATF).

The exempted persons regime is designed to impose a lesser regulatory burden for financial service providers who exclusively serve sophisticated or HNWIs, because those investors can carry out the necessary due diligence that is otherwise undertaken by Cayman Islands Monetary Authority for licensed entities.

Attorney General Samuel Bulgin said the the characterisation of Cayman's ‘excluded persons' regime, which is now being eliminated, was another case of misperception.  "It has been magnified to give the impression that a significant amount of those who are involved in the security sector in the Cayman Islands are not subject to any kind of regulatory oversight at all; [that] they are some sort of a rogue and nobody knows what they are doing, which could not be further from the truth," the he said.

Of the 2,885 excluded persons, 45% are involved in the security sector and subject to some sort of licensing regime. The majority of the remaining 55% were attached to a regulated fund and therefore subject to regulatory oversight.

"Whether it is adequate or not is another issue," Bulgin added, Cayman Compass reports.

He said this would leave only 10% to 12% of the remaining 55% that would not be subject to any regulatory oversight.

Cayman suffers from this "magnified representation" which "gives the entirely wrong impression", he added.

The bill debated in the Legislative Assembly  will require most excluded persons to register with the authority and will subject them to more stringent reporting requirements.

Single family offices are explicitly exempt from registration given that they manage only one family's wealth rather than third-party funds. Single family offices are also carved out of financial regulation in other jurisdictions like the United States, Switzerland or Jersey, Minister Rivers noted.

Other non-registerable persons include entities for which securities business is incidental to their main activities and those who do not conduct securities business.

"In a nutshell," Rivers said, "the bill seeks to remedy the recognised shortcomings of SIBL, namely to deal with the pejorative connotation associated with the term ‘excluded person.'"

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