Here’s how we would build an Anti Money Laundering (AML) framework for an offshore fund company from the perspective of a fund manager.

A common misconception among hedge fund groups is that AML obligations stop at the administrator or that intra-group relationships reduce the need for formal controls. From a Cayman regulatory perspective, that assumption is risky.

Even where the investment manager and the fund sit within the same group, CIMA will expect the investment manager to have treated the fund itself as its client for AML purposes. Group structure does not remove the obligation to understand, assess and document risk.

AML failures rarely occur because a policy was missing. They occur because the framework was never designed to reflect how regulators view responsibility in practice.

Start with a proper risk assessment of the fund

For an investment manager, the first step is recognising the fund as a client relationship in its own right. That means performing a documented risk assessment of the fund, considering its investor base, jurisdictions, asset classes, distribution model, intermediaries and service providers.

This is not a duplication exercise. It is about evidencing that the manager understands the risks inherent in the structure it is managing and has calibrated controls accordingly.

Make accountability explicit, even intra-group

Intra-group arrangements often create ambiguity. Strong AML frameworks remove it.

The investment manager should be able to demonstrate:

  • Ownership of its AML policy as it applies to client funds;
  • Clear approval processes for higher-risk fund structures or investor profiles;
  • Defined escalation routes for issues arising at administrator or fund level; and
  • Regular reporting to the board.

Delegation to administrators does not equate to abdication. Oversight remains with the manager.

Onboarding the fund as a client

CIMA will expect the investment manager to have onboarded the fund in the same way it would an external client. That includes identifying beneficial ownership, understanding the fund’s governance, reviewing service providers, and documenting the source of assets and operating flows.

This does not mean duplicating administrator work line-by-line, but it does require an independent assessment and retained evidence.

Apply the three lines of defence within the group

A defensible AML framework aligns with the three lines of defence, even in a group structure.

  1. The first line of defence sits with operational teams and administrators performing onboarding and monitoring.
  2. The second line of defence is the investment manager’s compliance and risk function, which sets standards, challenges decisions, reviews escalations and ensures the fund is treated as a client relationship.
  3. The third line of defence is independent testing, internal audit or external review, confirming that intra-group reliance is justified and controls are effective.

When group relationships collapse these lines into one, regulators see heightened risk.

Ongoing monitoring and escalation

Treating the fund as a client means ongoing monitoring, not a one-off exercise. Changes to investor profiles, strategy, jurisdictions or service providers should trigger review. Escalations must be documented and decisions defensible.

Training and testing

Staff need to understand that “group” does not mean “exempt”. Training should reflect real fund scenarios and regulatory expectations. Regular testing ensures that the framework works as intended and evolves as the fund grows.

Conclusion

From CIMA’s perspective, group structure does not dilute AML responsibility. The investment manager is expected to understand its client, even when that client is a related fund.

A framework that recognises this reality protects the manager, supports regulatory engagement, and demonstrates governance that sophisticated investors increasingly expect.

If you would like a Cayman-focused review of your AML framework through this lens, we would be happy to help.

AML Cayman Islands