Background
On 30 August 2023 the Beneficial Ownership Transparency Bill, 2023 was gazetted (the "Bill"). The Bill has been the subject of extensive consultation with industry stakeholders, members of the public, government partners, and international entities, particularly to ensure that the existing beneficial ownership regime in the Cayman Islands (further information on which is available here (the "Existing BoR") is aligned with current international standards.
In this respect, we have seen many jurisdictions over recent months enact similar proposals. The final rule on Beneficial Ownership Information Reporting Requirements was issued in the U.S. on 29 September 2022 and becomes effective on 1 January 2024. The UK has three registers, the People with Significant Control register; the trusts register; and the Overseas Entities register. In terms of the latter, overseas entities had to register with Companies House and tell them who their registrable beneficial owners or managing officers were by 31 January 2023.
We would note the following important points in relation to the Bill:
- the feedback provided through industry discussions was critical in shaping the creation of the Bill;
- the Bill remains to be presented at Parliament (which is expected at some point during Q4 2023);
- further guidance and regulations in respect of the proposed Bill will follow; and
- the obligations under the existing legislation, will remain in
force until
commencement of the Bill, which has been drafted to allow the commencement by Cabinet Order
of different provisions at different times, as part of a phased approach.
Proposed Changes
We have set out below some of the key changes:
Expansion of Scope to Limited Partnerships
The proposed Bill will expand the scope of the Existing BoR to exempted limited partnerships and limited partnerships.
Changes to Exemptions
A number of exemptions currently available under the Existing BoR are proposed to be removed. The effect of these changes are that entities which currently fall outside of the scope of the Existing BoR will, if the Bill is passed, need to comply with the Cayman Islands beneficial ownership regime.
In particular, the following exemptions are proposed to be removed for entities which:
- are a subsidiary of a regulated legal entity; and
- are, or are a subsidiary of an entity which is, managed, arranged, administered, operated or promoted by an "approved person"1.
Entities which are registered with the Cayman Islands Monetary Authority under the Securities Investment Business Act (as revised) or the Virtual Asset (Service Providers) Act (as revised) will no longer be exempt and will be required to establish and maintain a beneficial ownership register.
Investment Funds
Investment funds registered under the Mutual Funds Act (as revised) or the Private Funds Act (as revised) will be able to rely on an "alternative route to compliance" which will require them 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 in the Cayman Islands. The contact person must provide the competent authority with requested beneficial ownership information within 24 hours (or such other time required by the competent authority) of a request being made.
It is important to note that this "alternative route to compliance" is only available to registered funds. Unregistered funds or vehicles forming part of a registered fund's structure will likely be in scope of the Cayman Islands beneficial ownership regime.
Legislative Consolidation
The Bill consolidates the beneficial ownership rules in the Companies Act, Limited Liability Companies Act, and Limited Liability Partnership Act into a single Act. This consolidation streamlines the beneficial ownership framework, bringing ease of use to industry participants.
Alignment of "Beneficial Owner" Definition
The proposed Bill amends the definition of Beneficial Owner so that it is aligned with the equivalent definition under the Cayman Islands Anti-Money Laundering Regulations (as revised) (the "AMLRs") albeit the percentage for determining "control" will remain at 25% or more and not 10% or more as is required under the AMLRs. This change provides consistency of definitions across the legislation so that parties do not need to apply different rules under the Cayman Islands beneficial ownership and anti-money laundering regimes.
Additional Information on Beneficial Owners
The proposed Bill will require the following additional information to be provided by in scope beneficial owners:
- the nature of ownership or control held; and
- in the case of individuals, their nationality. This change was felt necessary in order to assist the Cayman Islands in identifying its exposure to certain anti-money laundering risks. Further guidance is expected in respect of the meaning of the term "nationality" in the Bill.
Recommended Actions
Whilst no action is required until such time as the Bill is passed and comes into force (which is anticipated to be on a phased basis), we would recommend that entities which avail themselves of an exemption under the Existing BoR consider whether they would fall under the scope of the proposed changes and take the time to understand the obligations that will apply if the Bill is passed.
Entities that are currently in scope will also need to consider any steps that might be necessary to comply with the additional reporting requirements outlined above.
Footnote
1. means a person or a subsidiary of a person that is:
- Regulated, registered or holds a licence in the Cayman Islands under a "regulatory act"; or
- Regulated in an equivalent jurisdiction that is designated a having measures for combating money laundering and the financing of terrorism which are equivalent to that of the Islands in accordance with Section 5(2) of the Proceeds of Crime Act (2020 Revision); or
- Listed on the Cayman Islands Stock Exchange or an approved stock exchange (see Schedule 4 of the Companies Act (2023 Revision) for a list of approved stock exchanges).
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.
