British Virgin Islands: Cayman Islands Beneficial Ownership Regime: Some Out Of Scope Companies Now In Scope

Last Updated: 2 January 2018
Article by Ian Gobin and Matt Taber

Most Read Contributor in British Virgin Islands, December 2017

The Cayman Islands have recently amended the beneficial ownership register regime for Cayman Islands companies and LLCs1, refining the regime that was introduced in July 2017 (as detailed in our earlier alert). These changes mean that some previously out of scope companies must now maintain a register, all out of scope companies must now file a written confirmation with their corporate services provider as to the exemption on which they are relying and there is now an explicit obligation on corporate services providers to regularly file beneficial ownership information received from companies with the competent authority in the Cayman Islands.

What does this mean for the investment funds industry?

Investment funds which are registered with the Cayman Islands Monetary Authority (CIMA) under the Mutual Funds Law are still exempt from having to maintain a register but will now need to file written confirmation of the basis for their exemption with their corporate services provider. 

Changes to the exemptions, set out in more detail below, mean that a corporate Cayman Islands investment manager/advisor which is registered as an excluded person under the Securities Investment Business Law (Revised) (SIB Law) must now maintain a beneficial ownership register, unless another exemption applies. Some unregulated corporate funds which are managed, arranged, administered, operated or promoted by an excluded person will also now need to maintain a register, unless another exemption applies. The other changes expand or clarify the existing exemptions available, so that some companies which previously concluded that they must maintain a register may now be exempt. Where a Harneys affiliate provides the registered office for a Cayman Islands company or LLC, we will be contacting clients to assist them with compliance with the updated regime, as applicable.

Which companies are now exempt and what are the changes?

All companies which are incorporated or registered by way of continuation in the Cayman Islands under the Companies Law and LLC Law (in scope companies) must maintain a beneficial ownership register except a company or subsidiary of one or more legal entities, any of which is:

  • Listed on the Cayman Islands Stock Exchange (CSX) or an approved stock exchange
  • Registered or holding a licence under a Cayman Islands regulatory law, other than a company which is registered as an excluded person under the SIB Law. Previously, excluded persons under the SIB Law were exempt as they were classed as being registered under a regulatory law. Those companies must now maintain a beneficial ownership register, unless another exemption applies. Regulated funds under the Mutual Funds Law remain exempt
  • Managed, arranged, administered, operated or promoted by an approved person2 as a special purpose vehicle, private equity fund, collective investment scheme or investment fund. This exemption now includes where the vehicle, fund or scheme is a Cayman Islands exempted limited partnership. A company which is registered as an excluded person under the SIB Law is no longer classed as an approved person and so unregulated funds which are managed, operated or promoted by an excluded person must now maintain a beneficial ownership register, unless another exemption applies. The changes also clarify that this exemption is not available to a company solely because it has appointed as a director an individual who is an employee of a legal entity that is licensed under Cayman Islands regulatory laws and that appointing an approved person to provide the company's registered office in the Cayman Islands does not allow a company to use this exemption
  • Regulated in an "equivalent jurisdiction"3, this new exemption applies to companies and LLCs which are regulated in an equivalent jurisdiction outside the Cayman Islands, adding to the existing exemption above for companies that are managed or operated by an approved person in Cayman or a jurisdiction whose regulatory regime is deemed to be equivalent
  • A general partner of a vehicle, fund or scheme which is (i) registered or holds a licence under a Cayman Islands regulatory law (this part of the exemption is new and will include for example a general partner of a partnership that is registered as a mutual fund under the Mutual Funds Law) or (ii) is managed, arranged, administered, operated or promoted by an approved person
  • Holding directly a legal or beneficial interest in shares of a company which holds a licence under certain regulatory laws4This is also a new exemption

New filing obligation for out of scope companies and LLCs

Companies and LLCs which are not required to maintain a beneficial ownership register must now file written confirmation of that exemption with their Cayman Islands corporate services provider. This will be in a prescribed form, which is expected to be confirmed shortly by separate regulations, and will include details of the exemption that applies and certain information about the regulated legal entity, regulated parent or approved person referred to in the exemption. It will also include instructions to file the written confirmation with the competent authority in the Cayman Islands. This will give the competent authority an overview of all companies, whether they are required to maintain a beneficial ownership register or exempt. 

What must you do now?

The changes are in force now and, although breaches will not be prosecuted until after the initial grace period ends on 30 June 2018, Cayman Islands companies and LLCs should review their analysis of their obligations under the beneficial ownership regime to make sure they are compliant.

In scope companies must ensure that they have complied with the requirements of the law with regard to identifying beneficial owners and creating and maintaining a register.

Companies and LLCs which had previously concluded that they were exempt from the regime should:

  • check to see if they are still exempt. If they are, then they must now file details of that exemption with their corporate service provider
  • if they are no longer exempt under the original exemption, does another exemption apply?
  • If no exemption applies they must now establish and maintain a register. 

Funds which are regulated under the Mutual Funds Law (ie registered with CIMA) do not need to take further action at this stage but will need to file written confirmation of their exemption with their corporate service provider once the format of that filing has been published.

Where a Harneys affiliate provides the registered office for a Cayman Islands company or LLC, we will be contacting clients to assist them with compliance with the updated regime, as applicable. 

Your usual Harneys contact will also be pleased to provide further advice on whether a company is in scope or may benefit from an exemption, or assist with any aspect of compliance with the Cayman Islands beneficial ownership regime.

Footnotes

1 Limited liability companies established under the Limited Liability Companies Law (Revised) (LLC Law)

2 An approved person is a person (or a subsidiary of a person) that is regulated, registered or licensed under a Cayman Islands regulatory law (other than an excluded person under the SIB Law) or regulated in an equivalent jurisdiction, such as investment advisors or managers regulated by the SEC or FCA or fund administrators based in the Cayman Islands, or listed on the CSX or another approved stock exchange

3 Current equivalent jurisdictions approved by the Government's Anti-Money Laundering Steering Group are Argentina, Australia, Austria, Bahamas, Bahrain, Barbados, Belgium, Bermuda, Brazil, British Virgin Islands, Canada, Cyprus, Denmark, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hong Kong, Iceland, India, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Liechtenstein, Luxembourg, Malta, Netherlands, New Zealand, Norway, People's Republic of China, Portugal, Singapore, Spain, Sweden, Switzerland, United Arab Emirates, United Kingdom and United States of America<

4 Banks and Trust Companies Law (Revised), Companies Management Law (Revised), Insurance Law (Revised), fund administration licence under the Mutual Funds Law (Revised) or the SIB Law

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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