Cayman Proactively Prepares for 5th Round FATF Mutual Evaluation – the Countdown to 2027
The Cayman Islands were removed from the FATF’s increased monitoring “grey list” on 27 October 2023 after satisfying all elements of its action plan, including effective sanctions, beneficial ownership enforcement, and demonstrable money-laundering prosecutions. Subsequent recognition followed, with the UK delisting Cayman as a high risk jurisdiction in December 2023 and the EU removing Cayman from its AML list effective 7 February 2024. Cayman has since participated in FATF proceedings under the Regional Bodies Guest Initiative and is preparing for the FATF’s 5th round mutual evaluation, expected to commence regionally ahead of an onsite review which will commence in 2027. The National Risk Assessment (NRA) process is already underway, and industry members and licensees may be asked to participate in that process.
The upcoming 5th Round Mutual Evaluation represents a critical opportunity for the Cayman Islands to demonstrate the effectiveness of its AML/CTF framework and its commitment to global best practices. This evaluation will scrutinise both the technical compliance of the jurisdiction’s laws and regulations, as well as the practical effectiveness of their implementation.
In preparation for the evaluation, Cayman Islands stakeholders — including government agencies, financial institutions, and professional service providers — are expected to review and, where necessary, enhance their internal policies, procedures, and controls. This process involves ensuring that customer due diligence, record-keeping, and reporting obligations are robust and in line with FATF recommendations. Additionally, there is an emphasis on ongoing training and awareness to ensure that all relevant personnel are equipped to identify and mitigate potential risks.
The 5th Round Mutual Evaluation is not only a regulatory exercise but also an opportunity for the Cayman Islands to reinforce its reputation as a well-regulated and transparent international financial centre. Proactive engagement and thorough preparation will be essential to achieving a positive outcome, which in turn will support continued access to global financial markets and bolster investor confidence. Further detail is included in CIMA’s latest announcement.
Increased Regulatory Enforcement
Conyers is seeing a marked increase in regulatory investigation and enforcement across various regulatory regimes:
- CRS: The Department for International Tax Cooperation (DITC) have been sending CRS Breach Notices to Financial Institutions that have failed to register as a Financial Institution, failed to submit their annual reporting of their reportable accounts, and/or failed to submit their annual CRS Compliance Form. These Breach Notices set out the required remediation actions and set a deadline for the Financial Institution to make ‘representations’ to the DITC if the entity wishes to explain the reason for the breach and seek a possible waiver or reduction of the penalty. If no representations are received by the deadline, and if remediation has not been completed, the Financial Institution will receive a CRS Penalty Notice. These have typically ranged from CI$10,000 per breached requirement, and in situations of multiple breaches have been up to the value of CI$57,000. CRS inspections, including in relation to entities classified as Specified Insurance Companies, are also underway.
- Economic Substance: The DITC have been sending Compliance Notices (which identify a perceived breach) followed by Penalty Notices to entities which have failed to file a required Economic Substance Return or Tax Resident Overseas Form by the due date. These notices include a deadline for the required remediation to be completed, and explain that if this date is not met, the entity will be deemed to have not satisfied the Economic Substance Test and will receive an additional penalty notice for that breach. We have also seen entities receiving penalty notices for a failure to satisfy the Economic Substance Test. These penalties can range from a maximum of CI$10,000 for initial failures, and increase to a maximum of CI$100,000 (and the potential to be struck off) for a failure to satisfy the test in relation to reporting period which commences after the entity had already received an initial failure penalty.
- Administrative Fines: CIMA continues to exercise its powers under the Admin Fines Regime to levy fines against financial service providers for breaches of regulatory laws. CIMA issued two new administrative fines in September 2025 (including against a licensed insurance agent) in relation to breaches under the Anti-Money Laundering Regulations, the Rule on Internal Controls and in one case, under the Securities Investment Business Act. These breaches were identified in onsite inspections. The fine amounts were CI$85,043.84 and CI$230,038.72.
Actuarial Valuations
In September 2025, CIMA issued a consultation paper proposing amendments to the Rule and Statement of Guidance on Actuarial Valuations.
The key features of the proposed updates to the rule include:
- sensitivity testing;
- introduction of an uncertainty margin to be attached to reserves;
- additional requirements regarding the structure and specifics of actuarial appraisals;
- a new requirement for the external peer review actuary to perform an independent valuation; and
- introduction of an economic framework that would take a total balance sheet approach, considering both assets and liabilities.
The consultation is in the early stages and any feedback on the consultation is required to be provided to CIMA by 13 February 2026.
Reminder on Updates to AML Manuals
Finally, as we are approaching Board meeting season, when licensees are reviewing and readopting their policies and procedures, AML Manuals will need to be updated to reflect the new DAML Consent Regime which was covered in the previous edition of Conyers Coverage. If you would like assistance with these amendments please reach out to your usual contact or to Róisín, Sarah or Cristina.
For the latest Cayman Islands regulatory updates from our team, please refer to the most recent Regulatory & Risk Advisory Outlook, available here.