Beneficial Ownership Regime in the Cayman Islands

• Amendments to the Companies Act, Limited Liability Companies Act, Limited Liability Partnership Act and Companies Management Act


• Scope and exemptions


• Obligations of in-scope entities

1. The Beneficial Ownership Regime applies to Cayman Islands companies, limited liability companies and limited liability partnerships (together, "In-Scope Entities"), unless an exemption is applicable (see section 2 below). The Beneficial Ownership Regime does not currently apply to Cayman Islands trusts, other forms of partnerships or to foreign registered companies.

2. The Beneficial Ownership Regime also imposes obligations on corporate service providers ("CSPs"), such as Cayman Islands registered office providers.

1. There are a wide range of exemptions which would take an In-Scope Entity (or a subsidiary of an In-Scope Entity) out of scope of the Beneficial Ownership Regime, including where it is:

a. listed on the Cayman Islands Stock Exchange or another approved stock exchange;

b. registered or holding a licence under a regulatory law, which includes, among others, the Mutual Funds Act, the Private Funds Act, the Securities Investment Business Act and the Banks and Trust Companies Act;

c. managed, arranged, administered, operated or promoted by an "approved person"¹ as a special purpose vehicle, private equity fund, collective investment scheme or investment fund, including where the vehicle, fund or scheme is a Cayman Islands exempted limited partnership;

d. regulated in a equivalent jurisdiction that is designated as having measures for combating money laundering and the financing of terrorism which are equivalent to that of the Cayman Islands;²

e. a general partner of a vehicle, fund or scheme referred to in paragraph (c) which vehicle, fund or scheme — (i) is registered or holds a licence under a regulatory law; or (ii) is managed, arranged, administered, operated or promoted by an approved person;

f. holding directly a legal or beneficial interest in the shares of a legal entity which holds a licence under the Banks and Trust Companies Act, the Companies Management Act, the Insurance Act, Part III of the Mutual Funds Act or the Securities Investment Business Act (each as amended); or

g. as otherwise exempted by the Beneficial Ownership (Companies) Regulations.

In this advisory, we refer to In-Scope Entities that benefit from an exemption as "Exempt Entities", and In-Scope Entities that do not benefit from an exemption as "Non-Exempt Entities".

¹An “approved person” is a person or a subsidiary of a person that is regulated, registered or holding a licence in the Cayman Islands under a regulatory law or regulated in an equivalent jurisdiction (please see below) or listed on the Cayman Islands Stock Exchange or another approved stock exchange.

²The Anti-Money Laundering Steering Group published a list of equivalent jurisdictions in 2018, which can be found here.

This list remains relevant for the purposes of the Beneficial Ownership Regime, however please note that the concept of equivalent jurisdictions has been removed for the purposes of the Cayman Islands Anti-Money Laundering Regulations.

1. Obligations on Exempt Entities

Duty to file written confirmation

An Exempt Entity must file with its CSP written confirmation of the specific exemption it is benefitting from and instructions to file the written confirmation with the Registrar of Companies.

The written confirmation must also include certain prescribed information in relation to the specific exemption it is relying on. For example, where an investment fund seeks to rely on the exemption set out in 2.1(c) above, it will need to provide the name of the approved person and the regulator or the stock exchange that is relevant to the approved person, and the jurisdiction in which that regulator or stock exchange is established.

Duty to keep written confirmation up to date

Where an Exempt Entity becomes aware that any information in the written confirmation has ceased to be true, it shall, within one month, provide its CSP with an amended written confirmation of the exemption correcting the erroneous information, including any additional information required, and instructions to file the amended confirmation of exemption with the Registrar of Companies.

2. Obligations on Non-Exempt Entities

Duty to establish and maintain a beneficial ownership register

Non-Exempt Entities are required to establish and maintain a private beneficial ownership register ("Register"), which must be kept at its registered office (ie the registered office maintained by the CSP).

As part of this process, Non-Exempt Entities must identify "registrable persons". This includes: (i) "beneficial owners"; and (ii) "relevant legal entities".

"Beneficial Owners"
A Non-Exempt Entity must identify its "beneficial owners" by applying the following three stage test:

a. First, whether any natural person holds, directly or indirectly, 25% or more of the ownership, voting rights or right to appoint/remove a majority of the directors of the company (or equivalent office-holders for limited liability companies and limited liability partnerships);

b. Second, if there are no natural person(s) satisfying the first test, to consider whether any natural person has the absolute and unconditional legal right to exercise, or actually exercises, significant influence or control over the company through the ownership structure, other than solely in the capacity of a director (or equivalent), professional advisor or professional manager; and

c. (a) Third, if there are no natural person(s) satisfying the first or the second test, but there is a trustee of a trust that meets the first test or the second test in relation to the company limited liability company or limited liability partnership, to consider whether any natural person has the absolute and unconditional legal right to exercise, or actually exercises, significant influence or control over that trust, other than solely in the capacity of a director (or equivalent), professional advisor or professional manager.

The tests are to be considered in three distinct stages and it is not necessary to consider the applicability of all three tests in all cases (for example, the second test is only considered if the first test does not apply on the facts, and the third test is only considered if the second test does not apply on the facts).

Not all Non-Exempt Entities will have beneficial owners that are identified by applying the tests above. This is a question of fact. However, a Register must still be established and maintained (please see further below).

"Relevant legal entities"
A Non-Exempt Entity must also identify all "relevant legal entities". For this purpose, a "relevant legal entity" is a legal entity that: (i) is incorporated, formed or registered (including by way of continuation or as a foreign company) under the laws of the Cayman Islands; and (ii) would be a "beneficial owner" (as set out above) if it were an individual.

Duty to serve notice

A Non-Exempt Entity must serve notice in writing on registrable persons it has identified (and to any person that it knows or has reasonable cause to believe is a registrable person). The notice will require the individual or entity, within one month of receiving it, to confirm whether or not they are a registrable person and, if they are, to confirm or correct the information in the notice provided by the Non-Exempt Entity. There is also a legal duty on registrable persons to supply the relevant information.

The Non-Exempt Entity does not have to give notice if it knows that the individual or entity is not a registrable person or if it has already received all the required particulars in relation to that person. Further, the registrable person does not have to supply the information if it is legally privileged or if it would contravene applicable law.

Required particulars

The Beneficial Ownership Regime prescribes specific information that must be recorded on the Register. For individuals, this includes their name, address, date of birth, details from their unexpired and valid passport, driver's licence or other government issued identification document and the date on which the individual became (or ceased to be) a beneficial owner. For legal entities, this includes its name, address of registered or principal office, legal form, registration number (if applicable) and the date on which it became (or ceased to be) a relevant legal entity.

If a Non-Exempt Entity is in the process of taking reasonable steps to find out if there is anyone who is a registrable person, the Register must say “Enquiries Pending” and, if the Non-Exempt Entity has identified a registrable person but all the required particulars of that person have not yet been confirmed, the Register may state “Confirmations Pending”.

If a Non-Exempt Entity has no registrable persons, it may record "No Registrable Persons".

Duty to keep Register up to date

If a Non-Exempt Entity becomes aware of a relevant change with respect to a registrable person, it must provide a notice to the registrable person, as soon as reasonably practicable, requesting confirmation of the change and, following such confirmation, request its CSP to update the Register accordingly. For this purpose, a "relevant change" will occur if the registrable person ceases to be a registrable person or there is a change in their particulars. The Beneficial Ownership Regime was amended on 10 June 2022 with the intention of clarifying that individual registrable persons must now ensure that the Register contains details of their unexpired and valid passport, driver's licence or other government issued identification document such that individual Registrable Persons must now provide details of their replacement unexpired and valid passport, driver's licence or other government issued identification document to their CSP.

3. Obligations on Corporate Service Providers

An In-Scope Entity may engage its CSP for the purposes of complying with the Beneficial Ownership Regime. Where a CSP is engaged, there are certain direct obligations imposed on the CSP itself. This includes a direct obligation to, as applicable to:

• establish and maintain a Register on behalf of a Non-Exempt Entity;
  
  
• give notice to a Non-Exempt Entity if it considers that the Non-Exempt Entity has failed to comply with certain obligations without reasonable excuse, including to keep its Register up to date, or if it has made a statement that is false, misleading or deceptive;
  
  
• issue a restrictions notice to shareholders or members as a means of compelling them to provide information to enable the Non-Exempt Entity to identify its beneficial owners and any relevant entities and send a copy of the notice to the Registrar of Companies within two weeks of issuing it;
  
  
• regularly deposit beneficial ownership information with the Registrar of Companies; and
  
  
• respond to any request for additional information from the Registrar of Companies within the specified time period.

4. Who can access Registers?

A centralised electronic platform ("Platform") has been established by the Registrar of Companies on which Registers are maintained. The Platform is not publically accessible. It can only be accessed by the Registrar of Companies itself or at the request of the following regulatory bodies: the Financial Reporting Authority, the Cayman Islands Monetary Authority, the Anti-Corruption Commission, the Tax Information Authority, a financial intelligence unit (eg the Financial Crime Unit of the Royal Cayman Islands Police Service3) or any other body which is assigned responsibility for monitoring compliance with money laundering regulations.

5. Statutory offences and enforcement
Offence

Failure to establish or maintain a Register

Penalty

• First offence: CI$25,000.
• Second or subsequent offence: CI$100,000.
• Third offence: Court may order the entity be struck from the register.

Offence

Failure to comply with notices (including failure to comply with a restriction notice or knowingly or recklessly making a statement that is false in a material particular)

Penalty 

On summary conviction

• CI$5,000 and/or 12 months' imprisonment.

On conviction on indictment

• First offence: CI$25,000.
• Second or subsequent offence: CI$50,000 and/or two years' imprisonment.

Offence

Failure to provide information (including registrable persons failing to supply relevant information or knowingly or recklessly making a statement that is false in a material particular)

Penalty 

On summary conviction

• CI$5,000 and/or 12 months' imprisonment.

On conviction on indictment

• First offence: CI$25,000.
• Second or subsequent offence: CI$50,000 and/or two years' imprisonment.

Offence

Failure to provide additional information requested by the Registrar of Companies within the specified time period

Penalty 

CI$500 and, if the default was knowingly and wilfully authorised or permitted, a further penalty of CI$1,000 plus a daily default fine of CI$100.

Offence

Breach of a restrictions notice

Penalty 

On summary conviction – CI$5,000.

6. Administrative fines

In addition to the above, the Registrar of Companies has the power to impose additional administrative fines for non-compliance with various aspects of the Beneficial Ownership Regime. Administrative fines are CI$5,000 for each breach, with an additional fine of CI$1,000 imposed for every month that the breach continues, until the total amount due reached is CI$25,000. Where an administrative fine remains unpaid for 90 days, the Registrar of Companies may strike the companies, limited liability company or limited liability partnerships off the register, resulting in the entity being dissolved.

7. Future developments

In September 2021, the Ministry of Financial Services published a consultation paper concerning proposed enhancements to the framework of the Beneficial Ownership Regime. This included the following proposals, upon which market participants were invited to provide feedback:

• extending the legislative framework to include exempted limited partnerships and limited partnerships;
  
  
• the creation of a single Act of Parliament to consolidate the Beneficial Ownership Regime and also to introduce certain changes, including amending the definition of "beneficial owner" and introducing/modifying certain reporting requirements; and
  
  
• reviewing access to information rights, including introducing public registers of beneficial ownership information.

Following the end of the consultation period, the Ministry of Financial Services is in the process of reviewing feedback. Further consultation will take place as the legislative process continues.

¹The Registrar of Companies will also execute a search where a senior official of the Financial Crime Unit of the Royal Cayman Islands Police Service certifies that it is made in response to a request from a jurisdiction which the Cayman government has entered into an agreement with for the sharing of beneficial ownership information. At the time of writing, only the UK is identified as such a jurisdiction.