Since 2017 the Cayman Islands has had a beneficial ownership regime which requires each in-scope entity to: (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.
Following industry consultation on proposed changes to the Current BOR, the Beneficial Ownership Transparency Bill, 2023 (the "Bill"), together with nine consequential amendment bills, was gazetted on 30 August 2023. These bills are expected to be presented at a meeting of Parliament anticipated for the fourth quarter of this year. If the Bill is passed, it will make a number of significant changes to the Current BOR. However, the existing legal obligations will remain in place until the new provisions are introduced in a phased approach. The Ministry of Financial Services & Commerce in the Cayman Islands (the "Ministry") is also working on developing accompanying regulations and guidance, which will undergo consultation with industry members in due course. The key proposed changes and some practical next steps, in particular for vehicles in an investment fund structure, are summarised below.
Key points to be aware of in the Bill
- Expansion of scope: The Bill, if enacted, will expand the scope of the beneficial ownership regime applicable in the Cayman Islands. 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 currently fall within the scope of, or are exempted from, the Current BOR will need to comply, following enactment of the Bill, with the beneficial ownership regime applicable in the Cayman Islands. The Ministry considers these changes necessary to ensure that the beneficial ownership regime in the Cayman Islands is in line with expected international standards in this area, which is important if the Cayman Islands is to maintain its reputation as a leading offshore jurisdiction for financial services.
- 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 and the initial consultation paper in respect of the Bill envisaged certain beneficial ownership information being available to the public. However, the judgment of the Court of Justice of the European Union in November 2022 on this topic has raised questions on the constitutionality of implementing a public register of beneficial ownership information in the Cayman Islands. Consequently, the Bill now provides that beneficial ownership information can only be made available to the public if and when regulations have been proposed by Cabinet and affirmed by a future resolution of Parliament. Therefore, if the Bill is enacted, such information will not become publically available unless and until such resolution of Parliament.
- Consolidation of existing legislation: The Current BOR 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 Bill consolidates the provisions of the Cayman Islands beneficial ownership regime currently contained in the Companies Act, the Limited Liability Companies Act and the Limited Liability Partnership Act 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 Bill, if enacted, will amend 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" will remain 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 reporting requirements: The Bill, if enacted, will require 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 would assist the jurisdiction with understanding its exposure to certain risks, including terrorist and proliferation financing risks.
Conclusion and next steps
In our view, taken as a whole, the changes proposed by the Bill are to be welcomed as they will simplify and strengthen the beneficial ownership regime applicable in the Cayman Islands at a time when it is important for the jurisdiction to demonstrate that it is implementing expected international standards in this area.
- Entities that are currently in scope of the Current BOR, will likely continue to have beneficial ownership reporting requirements following the enactment of the Bill. Such entities may wish to take steps in due course to ensure that they are able to comply with the increased reporting requirements summarised above should the Bill be enacted.
- We recommend that exempted limited partnerships and limited partnerships, and those entities which currently benefit from an exemption under the Current BOR, ascertain whether they would fall within the scope of the beneficial ownership regime as expanded by the Bill. If so, such entities may wish to take time to understand the obligations that will apply to them if the Bill is enacted.
- This is of particular relevance to entities that benefit from an 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 Bill but 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 or maintain a beneficial ownership register. Instead, 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 (the "Alternative Route ").
- 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 or maintain a beneficial ownership register. Due to the ownership structures of such entities, their beneficial owner will often be an individual who exercises ultimate effective control over the management of the entity or a director or chief executive officer of the entity.
- 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 Bill and will be required to establish or maintain a beneficial ownership register.
- Walkers can assist with all aspects of compliance with the beneficial ownership regime applicable in the Cayman Islands, including confirming whether your entities will be in scope of the expanded regime, and if necessary, assisting with identifying registrable beneficial owners. Walkers Professional Services is able to assist with all practical aspects of establishing and maintaining a beneficial ownership register on behalf of any entity that is required to do so and also will be able to assist by serving as the relevant contact person for registered investment funds benefiting from the Alternative Route.
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.