The Cayman Islands are an attractive base for globally managed wholesale funds, and in Part 1 we explored some of the reasons why.
We covered some preliminary considerations for Australian fund managers including onshore / offshore structuring and considerations when selecting service providers.
In Part 2, we look at the key areas for consideration as you move to implementation.
AML/CTF position
In short: Where designated services are provided and AML/CTF Act obligations are delegated, ensure that relevant criteria are satisfied for legislative reliance.
Where a designated service under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) is provided in Australia (if the geographical link is satisfied) that provider must enroll with AUSTRAC and comply with the relevant obligations imposed under the AML/CTF Act. It is crucial to determine if any designated services are being provided by Australian service providers for an overseas Cayman Fund.
The Cayman Fund itself is likely the issuer of shares. Depending on the arrangements, an Australian investment manager could be providing designated services in respect of the Cayman Fund which include, but are not limited to, acquiring or disposing of securities on behalf of another, selling a security in the course of its business, arranging for custodial or depository services or providing financial services advice. Where these occur, they may attract AML/CTF obligations.
If the investment manager is then delegating those obligations, to an administrator, custodian, or otherwise, it will need to be comfortable that those service providers are in a position to satisfy the relevant AML/CTF obligations. There are provisions in the AML/CTF Act permitting reliance on these service providers where certain criteria are satisfied. These must be satisfied for the investment manager to be able to legitimately rely on the service providers for its own obligations under the AML/CTF Act (for which the arrangement applies).
Custodial services
In short: Check your custody agreement for alignment with the recent changes in Australian law.
In a similar way to AML/CTF obligations, there are reliance provisions in the law regarding custody that permits an investment manager to rely on the custodian to satisfy the relevant NTA requirements, instead of needing to satisfy those obligations themselves. However, this will only apply if you have obtained written assurance within the past 13 months from a custodian (that holds the right authorisations) that, at the time the assurance is given, the Custodian complied with the NTA requirements and is not an incidental provider. If this will be relied on, entities should ensure that their custodian agreement includes an obligation to provide this assurance.
In March 2024 [CO 13/1410] Holding assets: Standards for providers of custodial and depository services was replaced with ASIC Corporations (Custody Standards for Providers of Custodial and Depository Services) Instrument 2024/17 and in September 2023 CO 13/761 Financial requirements for custodial or depository service providers was replaced with ASIC Corporations (Financial Requirements for Custodial or Depository Service Providers) Instrument 2023/648. See our previous article for more detail about the changes to the NTA requirement. To the extent that the Custodial agreement refers explicitly to the custodial obligations above, these should refer to the current ASIC instruments and law.
Privacy position
In short: Understand where your data is coming from, who is using and holding that data, if individuals are appropriately notified and whether any extra-territorial obligations apply.
It is important to have a very clear view on how information is transferred from a subscriber to the relevant service provider. In identifying the transfer process, entities should clarify which service providers will be holding or processing that data, the relevant obligations from the jurisdiction where they are based and where the investor is based.
For any cross-border data transfers, depending on the location of the processor and any sub-processors, certain agreements (e.g. subscription agreements) may need to comply with the Cayman Islands Data Protection Act and/ or Australian information and privacy laws. This compliance may involve specific disclosures to investors. Depending on the jurisdictions in which the investors reside, there may also be privacy obligations with extraterritorial reach, for example the GDPR for investors that are EU residents.
All of these circumstances should be considered in the suite of offer documents for the Cayman Fund.
If you are considering exploring the Cayman Islands to expand your financial services offerings, we are happy to assist with compliance from an Australian perspective. For more information, please contact Richard Beissel, Loretta Weber-Pang or Barbara Vrettos from our Financial Services Team.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.