CAYMAN ISLANDS Law and Practice Contributed by: Jason Ta, Gemma Walters, Paul Walters and Ben Magahy, Travers Thorp Alberga
2.13 Conjunction of Unregulated and Regulated Products and Services Generally, unregulated business lines would be sepa - rated from regulated business lines and run through separate legal entities. This is done: • as a risk-mitigation tool to ring-fence the risk of regulated business from the risk of unregulated business; • to streamline operations of regulated businesses and avoid the complexity, cost and supervisory oversight of running unregulated business within the same legal entity as a regulated business; • for increased flexibility in the scaling of both the regulated and unregulated business lines; and • to ensure maximum flexibility on a potential exit of the businesses (which could be done at differ - ent times to different purchasers on different deal terms and – in the case of the unregulated busi - ness – without regulatory scrutiny of the purchaser of the business). 2.14 Impact of AML and Sanctions Rules Virtual asset service providers will be carrying out “relevant financial business” (see 2.11 Implications of Additional, Non-Financial Services Regulations ) and will be required to comply with AML rules. This requires them to perform KYC identity verification and (in some instances) source-of-funds checks on their customers. In addition, care should be taken with affil - iates of virtual asset service providers, such as those facilitating real world asset tokenisation, as they will be subject to AML rules even if they are not regulated as virtual asset service providers if they are conduct - ing “relevant financial business”. All Cayman Islands persons are required to observe Cayman Islands sanctions provisions (which are essentially the same as the sanctions provisions in the United Kingdom) extended to the Cayman Islands by statutory instruments. The list of sanctions regimes currently in force in the Cayman Islands is available on the Financial Reporting Authority website. Unregulated companies providing technology servic - es will generally not be carrying on “relevant financial business” (see 2.11 Implications of Additional, Non- Financial Services Regulations ) and will therefore not
be required to comply with the AML rules, however, the sanctions regimes will still apply and so some form of KYC is generally undertaken. 2.15 Financial Action Task Force (FATF) Standards The AML and sanctions rules in the Cayman Islands generally follow the standards imposed by the Finan - Under Cayman Islands law, there is no explicit reverse solicitation safe harbour, but as a general principle, the regulatory regime will only capture persons that have a Cayman Islands nexus (ie, either they are Cayman Islands persons or they are foreign persons soliciting business or marketing their business in the Cayman Islands). cial Action Task Force (FATF). 2.16 Reverse Solicitation 3. Robo-Advisers 3.1 Requirement for Different Business Models Cayman Islands law does not expressly contemplate or regulate robo-advisers, although they could be regulated depending on how they are implemented. For example, if a robo-adviser platform was set up in order to provide investment advice on securities to its customers then it would be regulated as a securities adviser under SIBA. 3.2 Legacy Players’ Implementation of Solutions Introduced by Robo-Advisers It is difficult to determine whether legacy players are implementing solutions introduced by robo-advisers. However, it is not uncommon for crypto funds and high-frequency and algorithmic trading funds to be managed by entities that rely on proprietary robo- advice algorithms or licensed software. 3.3 Issues Relating to Best Execution of Customer Trades This is not applicable in the Cayman Islands.
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