Onsite Inspection Function
The onsite inspection process is fundamental to the effective execution of the Authority’s postlicensing regulatory and supervisory mandate. All Licensees may be subject to the risk-driven onsite inspection process which enables the Authority to review and assess their compliance with applicable laws, regulations, rules, statements of guidance, internal policies and procedures, as well as best practices. On-site inspections can take on different forms, depending on the nature, complexity and purpose of the inspection, and may involve performing a full or limited scope inspection. The Authority conducts thematic reviews, which involve a group of Licensees being assessed on specific supervisory themes.
Synopsis of Onsite Inspections Conducted
During 2018, the Authority conducted a total of 164 inspections (2017:117 inspections) across all sectors. Of the total inspections conducted, 53 inspections were primarily focused on the Anti Money Laundering/Countering Financing of Terrorism (“AML/CFT”) and Sanctions. All inspections conducted during 2018 by license type is illustrated below.
Overview of Inspections Findings and Requirement
There were a total of 1,144 requirements documented in final inspection reports issued by the Authority during 2018. The majority (92%) of the inspection requirements were in the following five (5) key risk areas: AML/CFT and Sanctions Risk (42%), Corporate Governance (22%), Operational Management (19%), Business Continuity Management (5%) and Internal/External Audit (4%).
Entity Risk Rating | AML/CFT & Sanctions Risk | Corporate Governance | Operational Mgmt/Risk | Business Continuity Mgmt | Internal/External Audit |
---|---|---|---|---|---|
High | 318 | 78 | 84 | 13 | 29 |
Medium | 162 | 164 | 128 | 46 | 18 |
Low | 3 | 6 | 3 | 0 | 0 |
Total | 483 | 248 | 215 | 59 | 47 |
The following two tables provide a non-exhaustive summary of key findings from the 2018 inspections which relate to AML/CFT & Sanctions and Corporate Governance. This information highlights common recurrent areas of non-compliance and/or breach.
AML/CFT & Sanctions
AML/CFT & sanctions key areas of deficiencies identified resulting in a requirement:
Policies and Procedures
Periodic Reviews and On-going Monitoring
Customer Due Diligence/Know Your Customer Documentation
AML/CFT Training
Risk-Based Approach
Corporate Governance Key Areas of Deficiencies Identified Resulting in a Requirement
The Authority understands the various challenges that its Licensees may encounter in meeting regulatory requirements. However, as expressed during various stakeholder dialogues, the Authority and Licensees alike continue to concentrate on fostering a compliant and risk-aware environment in line with FATF Standards.
The Authority encourages all Licensees to remain vigilant in addressing AML/CFT and sanctions risk. Financial Service Providers should take note of the deficiencies outlined above, and where applicable, take remedial steps to ensure that their policies, procedures and practices consider pertinent risks and are compliant with applicable laws and regulations
Looking Ahead
The Cayman Islands was evaluated during 4 – 15 December 2017 against international standards on AML/CFT as part of the Caribbean Financial Action Task Force ("CFATF") peer review process.
The CFATF applied a relatively new methodology which focused on effectiveness as opposed to only technical compliance, as in the past. Countries are now required to demonstrate the effectiveness of their overall AML/CFT regime. There are a number of anticipated enhancements arising from the peer review which could result in some changes being made to the Authority’s supervisory regime. Licensees are encouraged to remain proactive in monitoring industry developments and regulatory requirements. The Authority continues to provide support and guidance to industry through its prudential meetings, participation at training and conferences, publications, statements of guidance, and other resources available on the Authority’s website.
There were also a number of enhancements made to the Cayman Islands regulatory framework aimed at strengthening the Financial Services Industry and adhering to international standards. Of note is the enactment of amendments made to the Monetary Authority Law (2017) and the issuance of the Monetary Authority (Administrative Fines) Regulations, 2017, which grant the Authority power to impose administrative fines for specific breaches of the Anti-Money Laundering Regulations, 2018. The on-site inspection process will continue to be a key component in assessing Licensees compliance with the jurisdictions regulatory framework.
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