Introduction to the New RSOG
The Cayman Islands Monetary Authority (CIMA) has introduced enforceable rules and guidance under a new Rule and Statement of Guidance (RSOG) for Trust and Corporate Service Providers (TCSPs) and Company Managers, effective November 25, 2024. This replaces the 2019 guidelines, expanding its scope and setting clear standards for client treatment, conflict of interest management, safeguarding client funds, and handling complaints. Key requirements include maintaining integrity, managing resources effectively, adhering to advertising standards, and notifying CIMA about significant client relationship changes. Non-compliance may lead to serious enforcement actions, including suspension or revocation of licenses.

Key Updates and Compliance Requirements
The RSOG introduces stricter, more detailed requirements compared to the previous guidelines, focusing on transparency, accountability, and client protection. Businesses must update their policies and procedures to align with these new standards, addressing gaps such as conflict of interest disclosures and client fund segregation. Proactive compliance is essential, as CIMA is expected to rigorously enforce the RSOG. Assistance is available from Walkers’ Regulatory & Risk Advisory team to support businesses in meeting these updated requirements.

New Market Conduct Rules for Trust and Corporate Service Providers (TCSPs) and Company Managers
Issued: September 3, 2024

Overview
The Cayman Islands Monetary Authority (CIMA) has introduced new rules and guidance on market conduct for Trust and Corporate Service Providers (TCSPs) and Company Managers. These new regulations build on the previous guidelines but bring significant changes, including clearer, enforceable rules. Regulated businesses must review their internal policies and make necessary updates to comply with these rules by November 25, 2024. Walkers can assist with this process if needed.

Introduction
On May 22, 2024, CIMA published a new Rule and Statement of Guidance (RSOG) on Market Conduct for TCSPs and Company Managers. The RSOG replaces the earlier Statement of Guidance issued in March 2019, which only provided guidance without enforceable rules. The new RSOG, effective from November 25, 2024, sets out specific requirements that ensure fair treatment of clients and provide greater protection for clients’ assets and money. These changes aim to increase integrity, transparency, and accountability within the industry.

Who is Affected?
The RSOG applies to “Regulated Persons,” which include individuals or businesses that are licensed, registered, or supervised by CIMA under the Banks and Trust Companies Act (BTCA) or the Companies Management Act (CMA). This new rule expands the scope to include subsidiaries registered under the BTCA to offer trust services, in addition to the businesses already licensed under the BTCA and CMA. These businesses include:

• Holders of a Trust Licence, Restricted Trust Licence, or Nominee Trust Licence under the BTCA.
• Holders of a Companies Management Licence or Corporate Services Licence under the CMA.

CIMA will evaluate each business’s compliance based on its size, complexity, structure, and the risk involved in its operations.

Key Requirements in the RSOG
The RSOG sets minimum standards that must be met by all regulated businesses. Here are the main areas of focus:

1. Integrity
   Regulated businesses must conduct their operations with honesty and fairness. They should exercise due skill, care, and diligence in all activities, ensuring clients are treated fairly. Additionally, businesses must maintain clear, accurate records of all communication with clients.
2. Conflict of Interest
   Regulated businesses are required to have a written conflict of interest policy. This policy must identify potential situations where conflicts may arise, explain how these conflicts will be managed, and outline the steps to avoid or mitigate any issues.
3. Advice and Use of Discretion
   Businesses must take all reasonable steps to gather sufficient information before making decisions for clients. They must ensure any decisions made using discretion are for the correct purpose and that all decisions are documented in writing.
4. Client Money and Assets
   The rules require businesses to keep client funds separate from their own funds and from other clients’ funds, unless it is not practically possible to do so. For money held on trust, businesses must ensure that client accounts are clearly marked as such and that the funds are handled with the highest fiduciary responsibility. Client accounts must be reconciled promptly, and businesses must implement strong controls to prevent theft or fraud, including dual signatures for payouts.
5. Resources
   Regulated businesses must maintain appropriate internal policies and procedures to ensure they have the necessary resources to offer services to clients effectively. This includes ensuring proper capacity to manage client accounts under a power of attorney.
6. Advertising and Communication
   All advertising and communication by regulated businesses must be clear, truthful, and not misleading. They must also comply with all applicable laws and regulations. The business must ensure that their communications do not harm the reputation of the Cayman Islands.
7. Terms of Business
   Regulated businesses must enter into written agreements with clients that clearly define the services provided, the fees involved, and the process for making changes to those fees. The agreements should also include details about how complaints are handled, and terms for terminating the business relationship, with at least one month’s notice required. If a business terminates a relationship or transfers services, it must notify CIMA within 14 business days, explaining the reasons and any relevant changes.
8. Directorship Services
   For businesses offering directorship services, they must ensure there are proper policies and controls to verify that directors are fit, competent, and fully understand their duties under applicable laws.
9. Complaints Handling
   Businesses must have an effective system to manage client complaints. This system must be clearly documented, and complaints should be logged with essential details, including the date, the nature of the complaint, and responses. Complaints must be acknowledged in writing within five business days unless agreed otherwise. When closing a complaint, businesses must inform clients about their right to escalate the matter to CIMA or the Ombudsman of the Cayman Islands.

Consequences of Non-Compliance
Failure to comply with the RSOG may result in enforcement actions under CIMA’s Enforcement Manual. These could include suspension or, in severe cases, revocation of the business’s license. The enforcement process will be applied in accordance with the seriousness of the breach.

Key Differences Between the New RSOG and the Previous Guidelines
The new RSOG differs from the 2019 guidelines in several important ways:

• Enforceability: The RSOG introduces enforceable rules, as opposed to the previous guidance, which was non-binding.
• Expanded Scope: The RSOG extends to regulated entities that are registered, not just licensed, under the BTCA.
• More Detailed Requirements: The RSOG includes more specific guidelines, such as stricter rules for managing client money and assets, a more detailed conflict of interest policy, and requirements to prevent businesses from holding accounts for sanctioned entities or shell banks.
• Complaints Management: The RSOG specifies that complaints must be acknowledged within five business days and provides further details on the complaints log, including the requirement to inform clients about escalation options to CIMA or the Ombudsman.
• Notification Requirements: Businesses must notify CIMA within 14 business days if they intend to terminate a client relationship or transfer services, providing reasons and steps taken to address any issues.

Next Steps
Businesses should already be in compliance with the previous guidelines and should now focus on identifying and addressing any gaps in their current policies and procedures to meet the new requirements by November 25, 2024. Key areas to review include improving complaints handling, strengthening conflict of interest policies, and ensuring all advertising is clear and complies with the new standards.

Given that CIMA is expected to take a rigorous approach to enforcement under the new rules, it is critical for businesses to update their internal policies and procedures proactively to reduce the risk of regulatory penalties. For further assistance or questions regarding the new RSOG, please contact a member of Walkers’ Regulatory & Risk Advisory team or your usual Walkers contact.