(i) instruct its corporate service provider to establish and maintain a private beneficial ownership register at its registered office; (ii) identify, and monitor changes to, its beneficial owners; and (iii) provide its corporate service provider with all necessary information to keep such register up to date. These beneficial ownership registers are kept on a centralised electronic platform which is not publically available but can be accessed by the Registrar of Companies on its own behalf or on behalf, and at the request, of certain regulatory bodies. For a detailed summary of the current beneficial ownership regime applicable in the Cayman Islands (the "
Current BOR")
see here.
On 23 November 2023, the Beneficial Ownership Transparency Act, 2023 (the "
BOTA"), together with nine consequential amendment acts, was passed by Parliament and these acts were gazetted on 15 December 2023. The BOTA is in substantially the same form as the Beneficial Ownership Transparency Bill, 2023 that was gazetted on 30 August 2023 following industry consultation on proposed changes to the beneficial ownership regime applicable in the Cayman Islands. The BOTA makes a number of changes to the Current BOR.
The BOTA will come into force on the date(s) to be specified in a future commencement order and it is anticipated that the provisions of the BOTA will be introduced in a phased approach. The Ministry of Financial Services and Commerce in the Cayman Islands (the "
Ministry") is working on developing accompanying regulations and guidance (the "
Related Regulations and Guidance"), which will undergo industry consultation, and it is expected that the BOTA will not come into effect until these have been finalised. The Current BOR will remain in place until the BOTA comes into force.
The key changes which the BOTA makes to the Cayman Islands beneficial ownership regime and some practical next steps, in particular for vehicles in an investment fund structure and special purpose vehicles, are summarised below.
Key changes
- Expansion of scope: The BOTA expands the scope of the Cayman Islands beneficial ownership regime. The reason for this is two-fold: (i) exempted limited partnerships and limited partnerships will be brought within the scope of the regime (the Current BOR does not apply to partnerships other than limited liability partnerships); and (ii) a number of the exemptions available under the Current BOR, pursuant to which otherwise in-scope entities are not required to comply with the regime, are to be removed. The effect of these changes is that a number of entities which do not fall within the scope of the Current BOR or are in-scope but exempted from the requirement to establish and maintain a beneficial ownership register will need to comply with the regime when the BOTA comes into force. The Ministry considered that these changes ensure the beneficial ownership regime is in line with expected international standards and the Cayman Islands' reputation as a leading offshore jurisdiction for financial services.
- Consolidation of existing legislation: Currently the Cayman Islands beneficial ownership regime is set out across numerous pieces of primary legislation (including the Companies Act, the Limited Liability Companies Act and the Limited Liability Partnership Act) as well as three accompanying regulations (being the Beneficial Ownership (Companies) Regulations, the Beneficial Ownership (Limited Liability Companies) Regulations and the Beneficial Ownership (Limited Liability Partnership) Regulations), which can make it hard to navigate this regime. The BOTA consolidates the provisions of the Cayman Islands beneficial ownership regime in one single Act of Parliament, which is intended to make it easier for users of the regime to identify and understand their obligations, as well as to highlight the importance of transparency in the jurisdiction.
- Alignment of the definition of "beneficial owner": The BOTA amends the definition of "beneficial owner" so that it is more aligned with that under the Cayman Islands Anti-Money Laundering Regulations (the "AML Regulations"), save that the relevant percentage for determining "control" remains at 25% or more (not 10% or more, which is the threshold under the AML Regulations). This amendment is intended to increase consistency across legislation in the Cayman Islands where the concept of "beneficial owner" is used so that parties do not need to be familiar with and apply different rules for different regimes.
- Increased data requirements: The BOTA requires marginal additional information (as compared to the Current BOR) on beneficial owners to be provided, in particular the nature of ownership or control held and, in the case of individuals, their nationality. The Ministry believes that the reporting of nationality will assist the jurisdiction with understanding its exposure to certain risks, including terrorist and proliferation financing risks.
- Access to beneficial ownership information: In October 2019, the Cayman Islands made a commitment to have a public register of beneficial ownership information by December 2023. However, the judgment of the European Court of Justice in November 2022 on this topic (the "Judgment") in the context of European Union anti-money laundering and data protection legislation raised questions on the constitutionality of implementing a register of beneficial ownership information which all members of the public could access. The BOTA does not currently provide for public access to beneficial ownership information but would do so if and when regulations providing for such access are proposed by Cabinet and affirmed by a future resolution of Parliament. The Ministry has stated that it is currently progressing to provide access to those members of the public who meet a "legitimate interest test" as discussed in the Judgment, which would include access to parties who are genuinely seeking beneficial ownership information so as to prevent or combat money laundering and terrorist financing, under specific circumstances.
Next steps
Entities that are currently in scope of the Current BOR
Entities that are currently in scope of the Current BOR will likely continue to have beneficial ownership reporting requirements once the BOTA comes into force, although their beneficial ownership analysis may need to be reviewed given the new definition. Such entities may wish to take steps now to ensure that, once the BOTA comes into force, they are able to comply with the increased reporting requirements summarised above.
Entities that are currently out of scope of, or exempted under, the Current BOR
Exempted limited partnerships and limited partnerships, and those entities which currently benefit from an exemption under the Current BOR, should ascertain whether they will be required to establish and maintain a beneficial ownership register once the BOTA comes into force. If so, such entities may wish to take time to understand the obligations that will apply to them under the BOTA.
For those entities that benefit from the exemption under the Current BOR as a result of being an entity which is, or a subsidiary of an entity which is, managed, arranged, administered, operated or promoted by an "approved person" as a special purpose vehicle, private equity fund, collective investment scheme or investment fund (or the general partner of such a vehicle, fund or scheme), this exemption is not included in the BOTA. Under the BOTA this exemption is replaced with an alternative route to compliance specifically for investment funds registered under the Private Funds Act or the Mutual Funds Act, which will not be required to establish and maintain a beneficial ownership register. Instead, pursuant to the BOTA, such registered investment funds are required only to provide the contact details of a licensed fund administrator or another contact person licensed or registered under a regulatory law for providing beneficial ownership information located within the Cayman Islands.
Investment vehicles and entities within a fund structure which do not need to register under the Private Funds Act or the Mutual Funds Act will be required to establish and maintain a beneficial ownership register when the BOTA comes into force. Due to the ownership structures of such entities, there may be no individual who ultimately owns or controls, directly or indirectly, 25% or more of the shares, voting rights or partnership interests in the in-scope entity, meaning that the beneficial owner may be an individual who otherwise exercises ultimate effective control over the management of the entity or an individual who is identified as exercising control of the entity through other means. If there is no such individual, a director or chief executive officer of the entity will be identified.
The exemption under the Current BOR for entities which are registered with the Cayman Islands Monetary Authority under the Securities Investment Business Act or the Virtual Asset (Service Providers) Act is not included in the BOTA. Therefore, when the BOTA comes into force such entities will be required to establish and maintain a beneficial ownership register.
