What are the due diligence requirements

A Financial Institution will need to follow one or more of the following processes for identification of account holders depending on whether the account holder is an individual or entity:

1. Indicia search – searching relevant indicia by reference to documentation or information held or collected in accordance with opening or maintaining an account eg information held for the purpose of complying with AML rules
2. Self-certification – requesting self-certification from an account holder or a Controlling Person of a Passive NFFE where applicable
3. Publicly available information (entities only) – searching publicly available information to determine the FATCA status of an entity, for example whether it is a Financial Institution that has registered and obtained a GIIN

It should be noted that a self-certification cannot be relied upon if a Financial Institution has reason to know that it is incorrect, unreliable or there is a change in circumstance which changes the account holder’s status.

We set out below a summary of the relevant procedures that a Cayman Islands Reporting FI will need to follow to perform its due diligence obligations which are dependent upon whether the financial account is pre-existing (i.e. held on or before 30 June 2014) or new and whether it is held by an individual or entity. There are also exemptions for accounts with a balance below certain threshold amounts. Some of these procedures may allow a Financial Institution to not have to seek self-certification from an account holder but in practice, given the complexity of the various rules and regulations, we expect that many Financial Institution will adopt a general approach to obtain, as a matter of course, selfcertification from both its existing and new account holders, although that remains to be seen.

Pre-existing Individual Accounts

A Pre-existing Individual Account is a Financial Account maintained by a Financial Institution as of 30 June 2014. Depending on the balance of the account, they will fall into four categories:

• Financial Accounts below the threshold exemption limit – Accounts which have a balance equal or less than US$50,000 (or US$250,000 in respect of Cash Value Insurance Contracts or Annuity Contracts) do not need to be reviewed, identified or reported to the Cayman TIA unless the Financial Institution has elected to disregard such threshold exemptions
• Cash Value Insurance Contracts and Annuity Contracts unable to be sold to US residents (US IGA only) - these do not need to be reviewed, identified or reported to the Cayman TIA
• Lower Value Accounts – these are accounts with a balance or value that exceeds US$50,000 (or US$250,000 for Cash Value Insurance Contracts or Annuity Contracts), but does not exceed US$1,000,000 – a Financial Institution must review its electronically searchable data for evidence of certain US or UK indicia (e.g. identification as a US citizen or UK resident, birthplace, current mailing address, US phone number, power of attorney in favour of a person who has a
• US or UK address). Where such indicia are found, the account would generally be reportable unless an exemption is available. Where no such indicia are discovered through an electronic search, no further action is required unless there is a subsequent change of circumstances
• High Value Accounts – these are accounts with a balance or value that exceeds US$1,000,000 – a Financial Institution must review its electronically searchable data as with Lower Value Accounts plus, where certain information cannot be obtained by an electronic search, a paper record search must be carried out (e.g. its AML/KYC documentation) to identify such information. In addition, if there is a relationship manager for an account holder, the FI must consider whether that relationship manager has actual knowledge that would identify the account holder as a Specified Person. As with the Lower-Value Accounts, if indicia are found, the account would generally be reportable unless an exemption is available

A new Individual Account

A new Individual Account is a Financial Account opened on or after 1 July 2014. When opening a new Individual Account, the Financial Institution must obtain the TIN for US Persons or the date of birth and NI Number for UK Persons.

The threshold exemption for new Individual Accounts is a balance or value which does not exceed US$50,000 for Depository Accounts and Cash Value Insurance Contracts only. These do not need to be reviewed, identified or reported to the Cayman TIA unless the Financial Institution has elected to disregard such threshold exemption.

There the threshold exemption does not apply, the Financial Institution must obtain self-certification to determine where the account holder is tax resident and confirm the reasonableness of this based on the information the FI obtains in connection with the opening of the account.

Pre-existing Entity Accounts

A Pre-existing Entity Account is a Financial Account maintained by a Financial Institution as of 30 June 2014. An account holder must be classified as either:

• a Specified Person
• a US or UK Person other than a Specified Person
• a Cayman Islands Financial Institution or other Financial Institution in an IGA jurisdiction
• a Participating FFI, a Deemed Compliant FFI or an Exempt Beneficial Owner
• an Active NFFE or Passive NFFE
• a Non-Participating Financial Institution

A Pre-existing Entity Account is only reportable where the account is held by one of more entities that are Specified Persons or by Passive NFFEs with one or more Controlling Persons who are Specified Persons. If the account holder is a Non-Participating Financial Institution, only payments made to it are reportable.

The threshold exemption for Pre-existing Entity Accounts applies to a balance or value which does not exceed US$250,000 for any financial account. These do not need to be reviewed, identified or reported to the Cayman TIA until the account balance exceeds US$1,000,000 at 31 December of a calendar year, unless the Financial Institution has elected to disregard such threshold exemption.

A Financial Institution must use information previously recorded on its files, standardised industry codes, electronic searches (provided all AML information is stored electronically) and paper review to determine an entity’s status. If there are US or UK indicia indicating the account holder is a US or UK Specified Person, the account will generally be reportable. A Financial Institution can also obtain self-certifications if it is believed an entity is a Specified Person for example and it does not want to unnecessarily report on that account. The FI should also determine whether the account is held by another FI – and if it is a Cayman FI or another IGA partner jurisdiction and the GIIN has been verified, no further action will be required. To establish whether an entity is a Passive NFFE, the FI must obtain selfcertification from the account holder unless the FI can reasonably determine it is an Active NFFE. For accounts of Passive NFFEs, if an account has a balance that exceeds US$1,000,000, the FI will need to obtain self-certification as to the Passive NFFE’s Controlling Persons’ status as Specified Persons.

New Entity Accounts

A New Entity Account is a Financial Account opened on or after 1 July 2014. An account holder of a new Entity Account must be classified as one of the categories of persons as set out above for Pre-existing Entity Accounts. The same rules apply in relation to which categories of persons are reportable as with Pre-existing Entity Accounts except that there are no threshold exemptions for new Entity Accounts. A Financial Institution will generally be required to obtain self-certification if account holders are identified as being a Specified Person, Passive NFFE with Controlling Persons who are Specified Persons, a Financial Institution (unless a GIIN has been obtained) or NPFIs.

Aggregation of account balances

For purposes of determining the aggregate balance or value of Financial Accounts, all accounts belonging to an individual or entity will need to be aggregated unless the Financial Institution has elected under the FATCA Regulations to not apply the thresholds. In this regard, a Financial Institution is required to aggregate all Financial Accounts, belonging to an individual or entity, maintained by it or by a Related Entity, but only to the extent that the Financial Institution’s current computerised systems link the Financial Accounts by reference to a data element, for example a customer or taxpayer identification number, and allow account balances or values to be aggregated. Each holder of a jointly held Financial Account shall be attributed the entire balance or value for the purposes of applying the aggregation requirements.

It should also be noted that for the purposes of determining if there is a High Value Account, account balances need to be aggregated where there is a relationship manager who knows or has reason to know that accounts are directly or indirectly owned, controlled or established by the same person.