Cayman Islands to be Added to the EU List of High-Risk Third Country - Damalion - Independent consulting firm.

On 7 January 2022. the European Commission approved a draft regulation including the Cayman Islands to its list of countries categorized with strategic deficiencies in their anti-money laundering and “know your client” regimes. Under Article 4 of the EU Securitization Regulation, providing securitization special purpose entities may not be established in any country included on that list. 

Tackling Strategic Deficiencies to Enhance EU Anti-Money Laundering Regime 

Applying Article 4 of the EU Securitization Regulation to EUY investors remains unclear. Still, the general agreement remains that EU investors must not invest in Cayman Islands-domiciled securitization vehicles while the Cayman Islands are on the list. Accordingly, managers and sponsors of collateralized loan obligations (CLOs) are starting to consider alternative jurisdictions for new collateralized loan obligations (CLOs), with the United States cited as one of them. 

It is expected that the EU Commission will finalize its proposal to include the Cayman Islands in the loss of high-risk third countries for anti-money laundering purposes in the coming weeks. Once added to the list, the EU obliged entities will be required to apply enhanced customer due diligence when forging business relations or undertaking transactions involving Cayman Islands transactions. The following changes to the EU list of high-risk third countries are also suggested:

  • The Bahamas, Botswana, Ghana, Mauritius, and Iraq will be removed from the list. 
  • In addition to the Cayman Islands, Burkina Faso, Mali, Morocco, Jordan, Haiti, the Philippines, and South Sudan will be included in high-risk third countries. 
  • Turkey is currently under review but will not be added to the list subject to relevant mitigating actions. 

Moving Forward

Fund managers must review anti-money laundering processes and procedures to ensure adherence with enhanced due diligence regarding Cayman Islands transactions. 

If you are looking for a domicile for your securitization vehicle, Damalion help managers and initiators to set up in premier jurisdictions such as Luxembourg. Our vast global service network will advise you on expert measures, ensuring compliance every step of the way. Reach out to a Damalion expert today to learn more.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.