Following the recent removal of the Cayman Islands from the FATF grey list, the Cayman Islands has passed the Beneficial Ownership Transparency Bill 2023 to better align the beneficial ownership regime more closely with the Cayman Islands' anti-money laundering regulations but not (importantly) extending access to beneficial ownership registers to the general public.

Expected to be in force by the end of 2023, with implementing regulations to follow in a phased approach during the first half of 2024, the new law will bolster the Cayman Islands' continuing commitment to transparency while also protecting privacy and confidentiality.

The primary changes are to:

  • introduce a new definition of beneficial owner;
  • bring additional forms of legal entity within scope;
  • remove and replace existing exemptions; and
  • introduce additional line items for reporting purposes.

Affected entities and their corporate service providers will need to update their systems and processes urgently in order to satisfy these new requirements.

As is currently the case, ordinary resident companies, not engaging a corporate services provider for the provision of registered office services, must establish and maintain their own beneficial ownership registers.

Beneficial Owner

The overall objective of the regime is to ensure transparency of the beneficial ownership of Cayman Islands entities. Under the new law, a Beneficial Owner in relation to a legal person means an individual who either (a) ultimately owns or controls, whether through directly or indirectly, 25% or more of the shares, voting rights or partnership interests in a legal person; or (b) otherwise exercises ultimate effective control (through a chain of ownership or other than by direct control) over the management of the legal person; or (c), where there is no individual fitting within (a) or (b), an individual who exercises control of the legal person through other means (for example as a director or a CEO), but does not include an individual acting solely as a professional advisor or professional manager as defined in the new law.

If no individual meets any of the criteria with respect to a legal person but the trustees of a trust, that is the beneficial owner of the legal person, meet one of the Beneficial Owner criteria in their capacities as trustees of that trust, those trustees are then the beneficial owners of the legal person if they have ultimate effective control over the trust.

Extended Scope

The meaning of 'legal person' has also been amended to include partnerships (excluding foreign partnerships registered in the Cayman Islands) and will, once the Bill is enacted, extend to all companies (excluding foreign companies registered in the Cayman Islands); limited liability companies; foundation companies; limited partnerships; limited liability partnerships and exempted limited partnerships.

Removal and Replacement of Exemptions

Former automatic exemptions for listed entities (or their subsidiaries), for entities licenced under a Cayman Islands regulatory law and for private and mutual funds will be replaced. Such legal persons will be required to provide written confirmation to their corporate services provider in order to show an alternative route to compliance as follows:

Entities listed on an approved exchange (or their subsidiaries) Name and jurisdiction of the exchange
Entities licenced under a Cayman Islands regulatory law Regulatory law under which the legal person is licenced
Funds registered under the Private Funds Act or the Mutual Funds Act Contact details of a licensed fund administrator or another contact person licensed or registered under a Cayman Islands regulatory law for providing beneficial ownership information located within the Cayman Islands

A licensed fund administrator or contact person for private or mutual funds will be required to provide the Registrar of Companies with the requested beneficial ownership information within 24 hours of a request being made or at any other time as the Registrar may reasonably stipulate.

All other exemptions will be removed.

Additional Required Particulars

New required particulars to be introduced for individuals include address for service of notices, nationality and the nature in which the individual owns or exercises control of the legal person.

Similarly, required particulars of a reportable legal entity will include the nature of the reportable legal entity's ownership or its exercise of control of the legal person.

Conclusion

As a leader in ongoing anti-money laundering initiatives, the Cayman Islands continues to show its commitment to transparency with the approval of the Beneficial Ownership Transparency Bill 2023 in line with international standards.

With the Cayman Islands' continued focus on quality, innovation and expertise, it seems reasonable to expect that the changes brought about by the Bill will be absorbed by the market and in no way hinder the Cayman Islands' continued success.

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.