Left behind

'Compliance' in the middle, pointing to 'law', 'requirements', 'rules', 'standards', governance', reulations', 'transparancy', 'policies'.

The Cayman Islands has had a busy half year when it comes to regulatory compliance. In addition to the rolling out of registration under the Non-Profit Organisation Law, the reporting under the Beneficial Ownership Regulations went live in June. These observations are being made from the perspective of a service provider to service providers.

When policy and regulations are being developed, focus at industry level is often on the active businesses, and quite a lot of influence is exerted by the “squeakiest wheels,” as it were.

Policy is shaped and legislation follows, but the practical implications of implementation appear to be unevenly considered and the pain unevenly shared.

At minimum, the implementation phase of any new project or regulatory regime requires adequate human resources, a budget and a plan. Those involved on either side of the implementation must know (i) what is the objective? (ii) who are the doers? (iii) who are the thinkers? (iv) who are the facilitators? (v) who will be the overseer, and (vi) who will firefight.
Companies and legal entities in liquidation, whether solvent or insolvent, often appear to be overlooked when new regulatory and compliance requirements are rolled out. Unlike active companies, the harsh reality is that there may be no or very little capacity for the liquidating entity to pay for the implementation of a new regulatory measure or new compliance requirement. In insolvent liquidations, there is often no paying client to whom an additional cost can be easily passed along.

In this context, there are many practical issues. Information flow could be truncated, relevant parties may be unresponsive to requests from liquidators, thus their efforts to ensure compliance with new regulatory measures are frustrated from the start. Additionally, the legal provisions, exemption regimes and implementing regulations are not always framed with liquidations in mind.

Some acknowledgment of this was recently made, culminating in an amendment to the Beneficial Ownership regulations. As a result, companies in liquidation (insolvent or voluntary) now benefit from a longer reporting cycle, being 90 days, instead of the 30 days designated for active in-scope companies. However, and without a doubt, complying with the June 30 deadline for filing the BOR, although highly publicized, was frustrating to some and costly to all.

It is well understood that liquidating entities are a part of the overall risk matrix for the jurisdiction as a whole and may indeed pose unique risk. So, the suggestion being made here is not that such entities get a sweeping exemption from measures aimed at meeting Cayman’s AML/CFT initiatives or other global standards, but instead, that a responsive approach be more closely considered.

What would be ideal, is for companies in liquidation to be specifically considered at the inception of the policy development cycle, and for there to be constructive engagement by all stakeholders to ensure that implementation is painless, that compliance is cost effective and produces the desired output and quality of data the competent authority seeks from such entities.

The responsibility is a shared one. Regulators and those affected, along with those who represent those affected, should continue to collaborate on the development of new regulatory measures more meaningfully. Failure to engage when there is a useful opportunity may result in the implementation of a measure in a way that is unsuitable for reasons never-before discussed, envisaged or explored. With the proliferation of regulatory compliance obligations, testing for those entities in liquidation must continue be contemplated and prioritized. Those responsible for an orderly winding up should not be left behind.