To describe the policies and procedures that the Authority will follow when deciding whether to impose an administrative fine and during its imposition on a person who has breached a prescribed provision of the Monetary Authority Law, a regulatory law or the Anti-Money Laundering Regulations.
The Enforcement Manual (the “Manual”) provides the policies and procedures that the Authority will follow when deciding whether to take enforcement action.
The Procedure for Administering Administrative Fines (the “Procedure”), which forms part of the Enforcement Manual provides the policies and procedures that the Authority will follow when deciding whether to impose an administrative fine and during its imposition. In addition, the Procedure provides the process for calculating the amount of any administrative fine, when a person breaches a prescribed provision of the Monetary Authority Law, a regulatory law or the Anti-Money Laundering Regulations. As this Procedure forms part of the Enforcement Manual, it will be read and applied in conjunction with the other sections of the Enforcement Manual.
This Procedure applies to all parties that are subject to the Authority’s power to impose administrative fines.
For the purpose of this Procedure, the definitions below are provided.
(i) licensees under regulatory laws and those connected with them as defined in section 34(16)(d) of the Monetary Authority Act do not gain (including by avoiding losses) from breaching prescribed provisions; and
(ii) persons mentioned within part (i) of this definition be disgorged of all such gains;
(i) $50,000 for an individual; or
(ii) $100,000 for a body corporate;
(i) $100,000 for an individual, or
(ii) $1,000,000 for a body corporate;
The Authority may impose administrative fines and also take any enforcement action for breaches of prescribed provisions.
Where the Authority determines that taking enforcement action pursuant to the regulatory laws is appropriate, either in addition to or instead of the imposition of an administrative fine, the Authority will take the steps set out in the Enforcement Manual and this Procedure, respectively and as applicable.
Where the Authority determines that only an administrative fine is appropriate, it will apply the schedule of prescribed provisions set out in Administrative Fines Regulations.
The Monetary Authority Law and the Administrative Fines Regulations establish three categories of breaches for which administrative fines may be imposed: minor, serious, and very serious. The following is a brief summary of the administrative fine framework set out in the Monetary Authority Law:
Upon the suspicion or discovery of a breach, the Authority will take the following steps:
Examples of the Breach Notice and Fine Notice are attached at Schedule 2.
Investigating the Breach
The Authority has, through the regulatory laws and the Monetary Authority Law, a wide range of statutory powers that enable it to conduct investigations. In addition to investigations for enforcement matters, the Authority regularly invokes its statutory powers for ongoing supervisory purposes that may be unrelated to a breach.
Where a serious or very serious breach is suspected, the Authority may appoint an Investigation Team and will conduct an investigation into the matter. During its investigation the Authority may contact the relevant parties in writing (using “Investigation Letters”). Relevant parties will be allowed to make representations to any matters outlined in the Investigation Letters.
The Authority may issue additional Investigation Letters as may be necessary during the course of its investigation, such as where the Authority requires additional evidence or clarification from a person. Any additional Investigation Letters will be issued in the same manner as the initial Investigation Letters, and the relevant parties will be allowed to make representations in respect of the matters outlined within them.
As time is of the essence during the investigation phase, the Authority will use its judgment to provide timelines for responses to its Investigation Letters. Failure to respond to Investigation Letters in a timely manner may be considered an aggravating factor in determining the administrative fine, or may give rise to enforcement action or an additional administrative fine.
Upon the completion of the investigation phase, the Managing Director may convene the Oversight Committee to consider the conclusions of the investigation.
The Oversight Committee, together with the Compliance Division, will make a recommendation to the Management Committee. If the intended Fine is above $500,000 the Management Committee will then refer the matter to the Executive Committee of the Board for their consideration.
The Oversight Committee
The Board of Directors has granted authority to the Managing Director to decide when to convene an Oversight Committee. The Oversight Committee will be an ad hoc committee and will have broadly the following responsibilities and powers, which have been delegated to it by the Board of Directors:
The Oversight Committee will comprise members of senior management, including the Managing Director or her designate. The voting members of the Oversight Committee will be:
The Head of the Supervisory Division(s) that has conduct of the investigation into the person would only make representations to the Oversight Committee as requested and not take any part in the decision making process.
When appropriate, the Managing Director may substitute any member of the Committee with an alternate. This may be necessary, for example, where a person holds multiple licenses or it is difficult to constitute quorum.
The Oversight Committee is quorate when 4 of 6 members are in attendance.
A person designated by the Managing Director shall be the secretary to the Oversight Committee. The secretary will not be a member of the Oversight Committee.
Whether a matter is finally determined by the Management Committee or the Executive Committee will depend on the seriousness of the breach and the size of the Final Fine Amount.
The Determination Process
Having considered all of the facts, evidence and relevant information, the Oversight Committee and Compliance Division will make a recommendation to the Management Committee regarding; (a) whether there was sufficient evidence of a breach; (b) whether a fine or any other enforcement action would be appropriate; and (c) if relevant the amount of the fine.
For fines of $500,000 or below, the Management Committee will consider the administrative fine and will make a final determination.
For fines of greater than $500,000 the Management Committee will consider the administrative fine and will make a recommendation of the administrative fine to the Executive Committee of the Board for final determination, following the Breach Notice and after the period for written representations from the person has elapsed.
When considering an administrative fine, the Management Committee shall be composed of its usual members, with the exception that the Head or Deputy Head of the Supervisory Division(s) that had conduct of the investigation shall not make any representations to the Management Committee unless requested nor be involved in the decision-making process.
The Management Committee shall first make a provisional determination as to: (a) whether there is sufficient evidence of a breach; (b) whether a fine or any other enforcement action would be appropriate; and (c) if relevant the amount of the fine.
Following the issuance of the Breach Notice and during a specified period of no less than 30 days after the serving of the Breach Notice, the person can make written representations to the Authority regarding the exact breaches. These representations will be considered by the Oversight Committee before their final recommendation to the Management Committee. This recommendation will be made jointly with the Compliance Division. If any other enforcement action is being considered against the same person it may be submitted to the Management Committee at the same time as the Administrative Fine.
Once the Management Committee or the Executive Committee have made a final determination regarding whether there is sufficient evidence to impose an Administrative Fine, the Compliance Division will then issue the Fine Notice if required.
The standard to which the Authority will operate throughout this process of imposing a discretionary fine will be on the balance of probabilities.
The Compliance Division will issue a Fine Notice to the person detailing the Final Fine Amount and terms of payment of the Discretionary Fine.
The Breach Notice for a Proposed Discretionary Fine
The Breach Notice for a Proposed Discretionary Fine or “Breach Notice” will contain a statement notifying the person of the period in which they are to make any written representations to the Authority regarding the matters set out in the Breach Notice. The representation period will differ depending on the specific facts of each case. However, the representation period will not be shorter than 30 days.
If the Authority receives no reply or representations within the period specified in the Breach Notice, the Authority will consider the allegations or matters detailed in the Breach Notice to be undisputed and the Authority may then proceed to issue a Fine Notice.
If a person has committed more than one breach, a Breach Notice or Fine Notice may refer to multiple breaches.
The Replies from the Person during the Representation Period
Upon receipt of the affected person’s written representations, the Oversight Committee will consider those representations in accordance with the requirements set out in the Administrative Fines Regulations.
In order to ensure that a person’s reply is received in a timely manner and to ensure appropriate communication, the Breach Notice will specify the address and Division at the Authority where a person’s reply is to be sent. Communication with the person during the representation period will be conducted through email.
Early Settlement of Administrative Fines
A person that is facing an administrative fine may wish to voluntarily settle at an earlier stage and enter into a Discount Agreement. This process is outlined in Part III of this Procedure.
The Fine Notice for a Discretionary Fine
Once the Management Committee or Executive Committee, as the case may be, has approved the final administrative fine, the Authority will then issue a Fine Notice of the Discretionary Fine to the person.
The Fine Notice will contain details of the breach, the Final Fine Amount and the terms of payment. A Fine Notice is final, subject only to a person’s statutory appeal rights.
Method by which a Person May Receive a Breach Notice or Fine Notice for a Proposed Discretionary Fine
Breach Notices and Fine Notices will be sent by email to the last given email address which the Authority has on record for:
Each person is responsible, under the relevant regulatory laws, for ensuring that their contact email information is up-to-date. In addition, the Authority has electronic systems (such as REEFs and the Director Registration and Licensing Portal) through which licensees and registrants are able to update their email addresses with the Authority in real time.
The Authority may give a person notice, including the sending of both the Breach Notice and Fine Notice by sending it to an e-mail address that the person had last given to the Authority. This provision allows for notices to be sent to:
It is therefore, the responsibility of all persons that are subject to the Authority’s regulatory or supervisory oversight to ensure that their contact information (including email address) is accurate and up-to-date.
If the Authority does not receive a reply to a Breach Notice from a person, the Authority may utilise the Procedure for Lost Contact to provide notice to the person; however, if the Authority determines that the Procedure for Lost Contact is not required, the Authority may proceed directly to issuing a Fine Notice. The Authority may also utilise the Procedure for Lost Contact to issue a Fine Notice.
The Authority considers the enforcement of the regulatory laws, the regulations, rules, and Anti-Money Laundering Regulations to be a matter of substantial public importance. On that basis, full details of administrative fines imposed including person names, provisions breached, the amount of the fine imposed, the date of each individual breach, a summary of facts supporting the breach, and any further relevant information, will all normally be published by the Authority.
In exceptional circumstances, such as where there is a risk to (a) national security; (b) critical ongoing investigations; or (c) the Islands’ financial stability, the decision whether or not to fully disclose details of the administrative fines will be made by the Executive Committee of the Board of Directors of the Authority.
The Authority’s penalty-setting regime is based on the following principles:
The total amount payable by a person subject to an administrative fine may be made up of two elements: (i) disgorgement of the benefit received as a result of the breach; and (ii) a financial penalty reflecting the nature and seriousness of the breach. These elements are incorporated in a five-step framework, which can be summarised as follows:
These steps will apply in all cases.
Where a breach committed by a corporate body is shown to have been committed with the consent, connivance, knowledge or neglect of any relevant, finable individual, that individual person may also be subject to an administrative fine as well as the corporate body.
The Authority recognises that a penalty must be proportionate to the breach. The Authority may decrease the level of the penalty arrived at after applying Step 2 of the framework if it considers that the penalty is disproportionately high for the breach concerned which the Authority may take into account.
The lists of factors and circumstances in this Part are not exhaustive. Not all of the factors or circumstances listed will necessarily be relevant in all cases and there may be other factors or circumstances not listed which are relevant.
Step 1 – Disgorgement
The Authority will seek to deprive a person (or individual) of the financial benefit derived directly from the breach (which may include the profit made or loss avoided) where it is practicable to quantify this. The Authority will ordinarily also charge interest on the benefit from the time the breach started
Where the success of a person’s (or individual’s) entire business model is dependent on breaching the Authority’s rules or other requirements of the regulatory system and the breach is at the core of the person’s regulated activities, the Authority will seek to deprive the person (or individual) of all the financial benefit derived from such activities. Where a person (or individual) agrees to carry out a redress programme to compensate those who have suffered loss as a result of the breach, the Authority will, when calculating the financial benefit derived directly from the breach, take any redress into consideration. In such cases, the final penalty might not include a disgorgement element, or the disgorgement element might be reduced.
Step 2 - The Seriousness of the Breach
The Authority will determine a figure that reflects the seriousness of the breach. In many cases, the amount of revenue generated by a person (or individual) from a particular product line or business area is indicative of the harm or potential harm that its breach may cause, and in such cases the Authority will determine a figure which will be based on a percentage of the person’s (or individual’s) revenue from the relevant products or business areas. The Authority also believes that the amount of revenue generated by a person (or individual) from a particular product or business area is relevant in terms of the size of the financial penalty necessary to act as a credible deterrent. However, the Authority recognises that there may be cases where revenue is not an appropriate indicator of the harm or potential harm that a person’s breach may cause, and in those cases the Authority will use an appropriate alternative. For example, the Authority may also consider the breach’s effect on the performance of the Authority’s statutory functions; any inconvenience or distress to consumers and / or members of the public; or any negative impact on the image of the Cayman Islands as a financial services centre.
In those cases where the Authority considers that revenue is an appropriate indicator of the harm or potential harm that a person’s (or individual’s) breach may cause, the Authority will determine a figure which will be based on a percentage of the person’s “relevant revenue”. “Relevant revenue” will be the revenue derived by the person during the period of the breach from the products or business areas to which the breach relates. Where the breach lasted less than 12 months, or was a one-off event, the relevant revenue will be that derived by the person (or individual) in the 12 months preceding the end of the breach. Where the person (or individual) was in existence for less than 12 months, its relevant revenue will be calculated on a pro rata basis to the equivalent of 12 months’ relevant revenue.
Having determined the relevant revenue, the Authority will then decide on the percentage of that revenue which will form the basis of the penalty. In making this determination the Authority will consider the seriousness of the breach and choose a percentage between 0% and 40%. This range is divided into five fixed levels which represent, on a sliding scale, the seriousness of the breach. The more serious the breach, the higher the level. For penalties imposed on persons (or individuals) there are the following five levels:
The Authority will assess the seriousness of a breach to determine which level is most appropriate to the case.
In deciding which level is most appropriate to a case, the Authority will take into account various factors, which will usually fall into the following four categories:
Factors relating to the impact of a breach committed by a party include:
Factors relating to the nature of a breach by a person include:
Factors tending to show the breach was deliberate include:
Factors tending to show the breach was reckless or negligent include:
Additional criteria to which the Authority will have regard when determining the appropriate level of financial penalty to be imposed are set out under regulations 4 and 5 of the Administrative Fines Regulations.
In following this approach, factors which are likely to be considered ‘level 4 factors’ or ‘level 5 factors’ include:
Factors which are likely to be considered ‘level 1 factors’, ‘level 2 factors’ or ‘level 3 factors’ include:
In those cases where revenue is not an appropriate indicator of the harm or potential harm that a person’s breach may cause, the Authority will adopt a similar approach, and so will determine the appropriate Step 2 amount for a particular breach by taking into account relevant factors, including those listed above. In these cases the Authority may not use the percentage levels that are applied in those cases in which revenue is an appropriate indicator of the harm or potential harm that a person’s breach may cause.
Step 3 - Mitigating and Aggravating Factors
The Authority may increase or decrease the amount of the financial penalty arrived at after Step 2, but not including any amount to be disgorged as set out in Step 1, to take into account factors which aggravate or mitigate the breach. Any such adjustments will be made by way of a percentage adjustment to the figure determined at Step 2.
The Authority will consider the relevant criteria set out in regulations 5 and 6 of The Monetary Authority (Administrative Fines) Regulations in determining whether there are any factors that may have the effect of aggravating or mitigating the breach.
The weight given to the criteria outlined in regulations 5 and 6 are set out in Schedule 1 to this Procedure.
Step 4 - Adjustment for Deterrence (the deterrence principle)
If the Authority considers the figure arrived at after Step 3 is insufficient to deter the person who committed the breach, or others, from committing further or similar breaches then the Authority may increase the penalty. Circumstances where the Authority may do this include:
Step 5 – Discount Agreement
The Authority and the person on whom a penalty is to be imposed may seek to agree the amount of any financial penalty and other terms. In recognition of the benefits of such agreements, the amount of the financial penalty which might otherwise have been payable will be reduced to reflect the stage at which the Authority and the person concerned, reached an agreement. The settlement discount does not apply to the disgorgement of any benefit calculated at Step 1. The process for agreeing an early settlement by way of a Discount Agreement is outlined in Part III of this Procedure.
The Authority’s approach to determining penalties is intended to ensure that financial penalties are proportionate to the breach. The Authority recognises that penalties may affect firms and individuals differently, and that the Authority should consider whether a reduction in the proposed penalty is appropriate if the penalty would cause the subject of enforcement action serious financial hardship.
Where an individual or firm claims that payment of the penalty proposed by the Authority will cause them serious financial hardship, the Authority will consider whether to reduce the proposed penalty only if:
The onus is on the individual or firm to satisfy the Authority that payment of the penalty will cause them serious financial hardship.
In assessing whether a penalty would cause an individual serious financial hardship, the Authority will consider the individual’s ability to pay the penalty over a reasonable period (normally no greater than three years). The Authority‘s starting point is that an individual will suffer serious financial hardship only if during that period his net annual income will fall below $14,000 and his net worth will fall below $16,000 as a result of payment of the penalty. Unless the Authority believes that both the individual’s income and net worth will fall below these respective thresholds as a result of payment of the penalty, the Authority is unlikely to be satisfied that the penalty will result in serious financial hardship.
The Authority will consider all relevant circumstances in determining whether the income and net worth threshold levels should be increased in a particular case.
The Authority will consider agreeing to payment of the penalty by instalments where the individual requires time to realise his assets, for example by waiting for payment of a salary or by selling property.
For the purposes of considering whether an individual will suffer serious financial hardship, the Authority will consider anything that could provide the individual with a source of income, including savings, property (including personal possessions), investments and land.
The Authority may also consider the extent to which the individual has access to other means of financial support in determining whether he is able to pay the penalty without being caused serious financial hardship.
Where a penalty is reduced it will be reduced to an amount which the individual can pay without going below the threshold levels that apply in that case. If an individual has no income, any reduction in the penalty will be to an amount that the individual can pay without going below the thresholds. See paragraph 1 under 'Individuals'.
There may be cases where, even though the individual has satisfied the Authority that payment of the financial penalty would cause serious financial hardship, the Authority considers the breach to be so serious that it is not appropriate to reduce the penalty. The Authority will consider all the circumstances of the case in determining whether this course of action is appropriate, including whether:
The Authority will consider reducing the amount of a penalty if a firm will suffer serious financial hardship as a result of having to pay the entire penalty. In deciding whether it is appropriate to reduce the penalty, the Authority will take into consideration the firm’s financial circumstances, including whether the penalty would render the firm insolvent or threaten the firm’s solvency. The Authority will also take into account its statutory objectives, for example in situations where consumers would be harmed or market confidence would suffer, the Authority may consider it appropriate to reduce a penalty in order to allow a firm to continue in business and/or pay redress.
There may be cases where, even though the firm has satisfied the Authority that payment of the financial penalty would cause it serious financial hardship, the Authority considers the breach to be so serious that it is not appropriate to reduce the penalty. The Authority will consider all the circumstances of the case in determining whether this course of action is appropriate, including whether:
Early settlement is available to parties to encourage early resolution through voluntary settlement of administrative fines. The Authority and the person on which an administrative fine is to be imposed may seek to negotiate the amount of the fine, and other terms, as part of an early settlement. A person may wish to enter into an early settlement with the Authority, and may do so prior to or after receiving a Breach Notice for the Proposed Discretionary Fine. The Authority may, but need not, negotiate with a person to attempt to reach an early settlement, whether or not the Authority has given a Breach Notice for the Proposed Discretionary Fine.
In cases where early settlement is agreed upon, a discount may be applied by the Authority up to a maximum of 40%. The discount does not apply to the disgorgement of any financial and economic benefits derived by the person from the breach (as provided for in the disgorgement principle). Where the Authority and the person agree the terms of the early settlement, the Authority and the person will enter into a discount agreement.
In accordance with the requirements of the Monetary Authority Law, arriving at an early settlement reflects an efficient use of the Authority’s time and resources and reduces the cost and supervisory burden of a protracted administrative fines process. In recognition of the benefits of such processes, the amount of the fine which might otherwise have been payable, that is, the usual fine, may be reduced to reflect the stage at which the Authority and the person enter into a binding discount agreement.
A person may write to the Managing Director at any time indicating its desire for an early settlement as part of its breach resolution process. The Authority will consider the request and where it agrees to the negotiation of an early settlement, this in no way indicates the suspension of an investigation. The investigation of the breach will continue in accordance with the Administrative Fines Regulations, this Procedure and any other relevant procedures.
The Authority may deviate from the application of these procedures in certain exceptional circumstances, which will be determined at the sole discretion of the Authority.
The Discount Agreement
If a person requests the early settlement of an administrative fine, the process is as follows:
The fully executed discount agreement is binding on the Authority and the person.
The terms of the early settlement will usually be published, save for exceptional circumstances and at the discretion of the Authority. The public release will provide an account of the admitted breaches and all relevant details including, amongst other things, the name of the person, the breaches, investigations summary and the fines imposed, including any discount applied.
At any point during this process, the Authority may, in its discretion, decide to conclude the early settlement discussions. This decision may be as a result of a lack of cooperation by the person as displayed by, for example, failure to meet specific requests, terms or timeframes.
The Settlement Discount
This Procedure allows for the Authority to apply a discount, up to a set maximum, to a fine that it would otherwise expect to impose on a person after considering the breach and other relevant factors. The settlement discount will be applied to the usual fine, which will be determined by reference to the Authority’s penalty-setting regime4 . The decision to agree to early settlement and the level of the discount applied must take account of some key factors including:
The Authority may reduce the usual fine by a stipulated percentage subject to the stage at which the early settlement was initiated by the person by way of writing to the Authority requesting such; and based on the established criteria presented in Table A. Table A presents the four stages of the Authority’s administrative fines process for the purpose of determining the discount to be applied. For the maximum discount to be applied at any stage of the process the Authority should be satisfied that following initiation of early settlement discussions by the person, all requirements set by the Authority were fully met and that the person made good faith attempts to cooperate and provide full information to the Authority.
Table A: Discount Criteria
|1||Up to 40%||Stage 1 refers to the period preceding the Authority’s discovery of the breach. Essentially, this applies to cases where the Authority becomes aware of the breach solely because the person advises the Authority of the breach.|
|2||Up to 30%||Stage 2 refers to the period from the commencement of the breach investigation by the Authority until, but not including, the date on which the Breach Notice for Proposed Discretionary Fine is issued to the person.|
|3||Up to 20%||Stage 3 refers to the period from the end of Stage 2 until the expiration of the period (including any extensions granted) allowed to the person for providing written representations in response to the Breach Notice for Proposed Discretionary Fine. In cases where these representations are submitted to the Authority prior to the set deadline, Stage 3 will end on the date on which the Authority is in receipt of the written representations.|
|4||Up to 10%||Stage 4 refers to the period from the end of Stage 3 until, but not including the date on which the Fine Notice of Discretionary Fine is issued by the Authority.|
In addition to the discounted fine, or instead of the discounted fine, the Authority may impose an enforcement action on the person. This enforcement action may form part of the discount agreement, and may be considered when determining the discount applied.
If the person does not enter into a binding discount agreement or fails to settle the agreed fine within the timeframes set by the Authority, the discount agreement will be void at the expiration of the period. During Stage 4 or any time prior, a further request to enter into another discount agreement negotiation may be submitted by the person for consideration by the Authority. The Authority will not consider discount agreements and/or requests for early settlements on the date of or following the issuance of the Fine Notice of Discretionary Fine.
In the event that a discount agreement cannot be agreed by all parties, the breach will be dealt with in accordance with the Manual and this Procedure.
Where the person enters into a Discount Agreement, that person may not appeal against the decision of the Authority to issue the fine or the fine amount, if the fine is no more than the amount agreed to in the Discount Agreement.
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