Lucy Frew
Partner
Cayman Islands
Introduction
As noted in our recent advisory, the Cayman Islands' beneficial ownership reporting regime was updated on 31 July 2024, although enforcement of these changes has been suspended until 1 January 2025. While gathering beneficial ownership information about investors has long been a part of investment funds' obligations under the Cayman Islands' AML regime, funds and entities within their structures have generally benefitted from an exemption from reporting that information under the prior beneficial ownership reporting requirements. These exemptions have now been withdrawn, although (as described herein) registered funds have an alternative route to compliance if they do not wish to maintain a beneficial ownership register.
This advisory focusses specifically on the impact of these developments for those within the fund governance function: steps that should be taken between now and the end of 2024, and ongoing obligations that should be kept under review as part of the regular oversight of the fund. It is not intended as a complete overview of the beneficial ownership regime generally – please see our more detailed advisory or contact your Walkers team.
Deciding on a compliance approach
Appointing a Contact Person (registered funds only):
Investment funds that are registered under the Mutual Funds Act (as amended) or the Private Funds Act (as amended) have the option to appoint a 'Contact Person' instead of reporting details of their registrable beneficial owners. This is likely to be less costly and less administratively burdensome than reporting beneficial ownership information and any changes, and in practice we expect most funds will use that option.
The particulars of the Contact Person are filed with the Cayman Islands Registrar (as the 'competent authority' under the regime) by the fund's registered office (as 'corporate service provider' under the regime) on a regular basis. The Contact Person is not required to maintain a beneficial ownership register but must have access to such information in order to be able to provide the Registrar with any requested beneficial ownership information within 24 hours of a request being made (or such other time as the Registrar may reasonably stipulate).
The Contact Person must be licenced by the Cayman Islands Monetary Authority for providing beneficial ownership information. Registered office providers such as Walkers Professional Services and certain fund administrators can serve in the role.
In practice, we expect that most funds will appoint their registered offices rather than their administrators, as the registrable beneficial owners of a fund (for the purposes of the regime) may not be known to the administrator even where they maintain the investor records. This is because the registrable beneficial owners for these purposes may not be investors at all as the fund may be widely held by a broad range of investors and appear (on the investor record alone) to have no beneficial owners. Instead, they may be individuals who control the fund through mechanisms other than ownership, which is not information typically held by administrators. In these circumstances there will be further analysis to perform, often with Walkers' assistance, to determine an appropriate response to the request.
Requirements for other entities
All other entities within a fund structure that are not registered funds (such as Cayman general partners, carry vehicles, holding vehicles, intermediate entities and so on), will need to establish a beneficial ownership register, and the required particulars will then be filed by the fund's registered office on a regular basis. These entities will not be able to use the alternative route to compliance available to registered funds.
Walkers is supporting our clients through the ongoing identification and initial reporting exercise – please get in touch with your Walkers team if you require more information.
Compliance in practice
Changes to beneficial owners (where relevant):
The fund's registered office will report the details of the Contact Person (or the details of the registrable beneficial owners or senior managing officials, for entities that do not or cannot appoint a Contact Person) on a regular basis to the Registrar. However, the responsibility for keeping that information up to date rests with the relevant entity. For funds that have appointed a Contact Person, this is straightforward as the Contact Person's details will be unlikely to change for the period of the appointment (although if it does, the fund must, within 30 days, provide its registered office with written confirmation of the change).
Other entities within the structure, must, if they become aware of a relevant change with respect to a registrable beneficial owner, must provide a notice to the registrable beneficial owner no later than 30 days after it learns of the change requesting confirmation of the change and, following such confirmation, instruct its registered office to update the Register accordingly.
Process for responding to requests for information
For funds that have appointed a Contact Person, the fund's investment manager (or equivalent) is likely to be the first point of contact in the event of a request for information being received. While the beneficial ownership reporting regime does not require a specific procedure for dealing with these requests to be established, as a practical compliance measure some thought should be given to how the investment manager will respond to such a request given the potential 24 hour anticipated response time. While based on experience stipulated response timelines will be greater than 24 hours, it is important to be prepared for a minimum response time.
Where WPS are appointed as Contact Person, your Walkers team will generally be copied to any request for information.
Are any changes required to fund documents?
The fund's gathering of investor details and looking through to beneficial owners is not new (it has been a longstanding part of the fund's AML / CTF and FATCA / CRS reporting, for example), and modern offering documents will typically include extensive disclosures about the possibility of investor information being provided to competent authorities in accordance with the fund's obligations under applicable law. As such, we do not anticipate most funds needing to make any specific updates to their offering or subscription documentation at this stage. Walkers will review and enhance disclosures where relevant in the ordinary course of our role as counsel to the fund, for example upon the next general refresh of the offering memorandum.
What questions should directors / principals ask?
Those responsible for fund governance (directors, GP principals, etc.) should familiarise themselves with the beneficial ownership regime and how their funds intend to comply with it. While specific compliance measure will vary between structures, this section suggests some common areas of focus we expect most governing bodies will incorporate into their regular oversight functions.
- Will the fund appoint a Contact Person, and how will that appointment be recorded (typically, we would expect at the next regular governance meeting or by written resolutions) Contact Persons can only be appointed subject to their agreement and cannot be appointed unilaterally.
- For other entities within the fund structure, have registrable beneficial owners (or a senior managing official) been identified?
- Going forward, who will be responsible for reviewing beneficial ownership registers and notifying the registered office of any updates where relevant?
- Has the Contact Person (if appointed) indicated their process for outreach upon receipt of a request for information? Does the investment manager (or equivalent) and the administrator have a process for coordinating a timely response?
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