The Cayman Islands Monetary Authority has amended the Guidance Notes on the Prevention and Detection of Money Laundering, Terrorist Financing and Proliferation Financing in the Cayman Islands.
The amendments codify how Cayman Islands-regulated financial service providers can use e-KYC (know your customer) and/or digital identification systems for remote onboarding and ongoing monitoring of business relationships, aligning with the global Financial Action Task Force’s guidance on using digital ID systems to conduct customer due diligence (CDD).
Over time, this could be a gamechanger for facilitating the onboarding of customers/clients by Cayman investment funds and other regulated entities. The changes might reduce uncertainties of using e-KYC/digital ID when onboarding clients and monitoring business relationships.
Client onboarding and the challenges in some jurisdictions of finding public notaries or certifiers of documents will be improved by the ability to:
- Verify clients/customers that are corporate legal persons by using publicly available sources, including company registries.
- Use government-issued identification in electronic form as acceptable CDD documents (provided the financial service provider, or FSP, takes a risk-based approach (RBA) and has suitable documented policies and procedures to ensure the authenticity of such electronic document).
• E-KYC refers to the process whereby a client’s identity is electronically verified.
• Digital ID refers to a system that covers the process of identity proofing/enrolment and authentication. Identity proofing and enrolment can be either digital or physical (documentary), or a combination, but binding, credentialing, authentication and portability/federation must be digital.
FSPs need to apply the RBA to remote onboarding and monitoring of business relationships to assess money-laundering/terrorist financing risks.
Any decision to onboard a customer remotely will depend on the risks presented and assessed. Where applicable, FSPs are required to consider the application of tiered customer due diligence. If an FSP identifies a higher risk, additional verification measures are required to ensure accuracy of e-KYC procedures.
FSPs must consider the basic components of the technology solutions including digital ID/e-KYC systems and take an informed RBA when relying on these systems.
FSPs must understand their chosen system’s assurance level and ensure it aligns with the assessed level of money laundering/terrorist financing risks of the particular case. For instance, if simplified due diligence is sufficient in cases of low risk, FSPs may consider digital ID systems/e-KYC processes with lower levels of assurance.
For due diligence, FSPs should have robust documented policies and procedures for their new digital ID system/technology solutions, which may include:
- A tiered approach that leverages technology solutions with various assurance levels;
- Policies for securely collecting and retaining records by the new technology solutions;
- A process for enabling authorities to obtain the underlying identity information and evidence for identification and verification of individuals;
- Anti-fraud and cybersecurity processes to support e-KYC/digital ID proofing and authentication;
- Back-up plans for technology solution failure;
- A description of risk indicators that would prompt an FSP to not use new digital ID system/technology solutions; and
- Procedures for ongoing and independent review of the effectivenes of systems and processes.
When verifying corporate legal persons, FSPs may use public sources like company registries. Government-issued electronic ID is also acceptable, provided the FSP risk assesses it and has suitable policies and procedures to ensure authenticity.
Video-conferencing is considered an e-KYC mechanism. Additional checks have to be conducted in the same way as other non-face-to-face measures. FSPs must implement appropriate controls during the video-conferencing process to verify the identity and authenticity of the presented ID documents.
When onboarding clients that are corporate legal persons or legal arrangements (trusts or foundations), video-conferencing may be used to identify relevant natural people.
“Selfie” photographs may be used for evidence of identity, provided they are in colour and clearly show the person’s face, with that person holding the identity document in the same photograph. A clear scanned copy in colour or photograph of the identity document must also be provided.
Gary Smith is a partner at Loeb Smith Attorneys in the Cayman Islands, and Elizabeth Kenny is a senior associate at Loeb Smith Attorneys in the Cayman Islands
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