Cayman Islands Beneficial Ownership Transparency Act, 2023 – a consolidated and enhanced framework

05 August 2024

Introduction

The Cayman Islands Beneficial Ownership Transparency Act, 2023 (the "Act") was passed in November 2023 and came into force on 31 July 2024, thereby replacing the previous regime.

The objects of the Act are to enhance and consolidate the beneficial ownership legislative framework in the Cayman Islands.

Under the Act a number of key changes have been made to the beneficial ownership regime in the Cayman Islands which include:

new in-scope entities;
expansion of the definition of beneficial ownership to align with the Cayman Islands Anti-Money Laundering Regulations (as Revised) (the "AML Regulations");
removal of exemptions and new required particulars; and
potentially, limited public access through public registers.

What entities does the Act apply to?

The Act imposes various statutory duties on all "Legal Persons". For the purposes of the Act, the following are considered to be Legal Persons:

a company that is incorporated, formed or registered in the Cayman Islands;
a limited liability company registered under the Limited Liability Companies Act;
a limited liability partnership registered under the Limited Liability Partnership Act;
a limited partnership registered under the Partnership Act;
a foundation company; and
an exempted limited partnership registered under s9 of the Exempted Limited Partnership Act.

In each case, the definition does not include a foreign entity registered under the applicable Cayman Islands legislation.

The scope of the new regime is expanded to include limited partnerships and exempted limited partnerships, which were previously excluded altogether.

It also expressly now includes foundation companies, although they were already impliedly included as companies under the previous regime.

What are the exemptions available?

Under the Act, the following Legal Persons have no duty to identify "Beneficial Owners" (as defined below) or "Reportable Legal Entities" (as defined in the Act):

a Legal Person that is listed (or is the subsidiary of a listed entity) on the Cayman Islands Stock Exchange or an approved stock exchange;
a Legal Person that is licensed under, amongst others:
- Banks and Trust Companies Act;
- Companies Management Act;
- Insurance Act;
- Mutual Funds Act; or
- Securities Investment Business Act;
a fund registered under the Mutual Funds Act or the Private Funds Act (although see below); or
another Legal Person that is exempted by the Cayman Islands Cabinet.

For registered funds, an alternative route to compliance is available. That is, the fund must provide 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. This person must provide the competent authority with requested beneficial ownership information within 24 hours of a request being made.

Previously, the range of exemptions is much broader and includes legal entities:

registered under a regulatory law, such as a private trust company;
regulated in an equivalent jurisdiction;
managed, arranged, administered, operated or promoted by an approved person as an SPV, private equity fund, collective investment scheme or investment fund; and
that are subsidiaries of such legal entities (the meaning of subsidiary is very broad such that, for example, holding companies of trusts were previously excluded).

Who is a "Registrable Beneficial Owner"?

A Registrable Beneficial Owner is:

an individual that is a Beneficial Owner of the Legal Person; and
a Reportable Legal Entity:
- that directly holds a relevant interest in the Legal Person or meets one or more of the specified conditions; or
- through which an individual Beneficial Owner or other Reportable Legal Entity indirectly holds:
  - a partnership interest, shares or voting rights; or
  - ultimate effective control over management.

A "Beneficial Owner" in relation to a Legal Person is an individual who meets any of the following conditions:

the individual ultimately owns or controls, whether through direct or indirect ownership or control, 25% or more of the shares, voting rights or partnership interests in the Legal Person;
the individual otherwise exercises ultimate effective control (which includes ownership or control exercised through a chain of ownership or by means of control other than direct control) over the management of the Legal Person; or
the individual is identified as exercising control of the Legal Person through other means (in relation to informal means such as through close personal connections to relatives or associates, FATF acknowledges that these cases are harder to detect and will, in practice, be less relevant with routine collection of beneficial ownership information by a registry).

This definition has been amended considerably from the current rules to align it with the definition of "Beneficial Owner" under the AML Regulations, save that the threshold for holding shares, partnership interests or voting rights is 25% not 10% as it is under the AML Regulations.

If no individual meets one of those conditions but the trustee of a trust does, then the trustees are the Beneficial Owners if they have ultimate effective control over the activities of the trust.

A professional advisor (such as a lawyer, accountant, or financial advisor, who provides advice or direction in a professional capacity) or a professional manager (such as a liquidator, receiver or restructuring officer) is not a Beneficial Owner.

If there is no individual who meets one of the conditions, the senior managing official (i.e. a director or chief executive officer) of the Legal Person is identified as the "contact person".

What are the statutory duties imposed by the Act?

Duty to establish and maintain a beneficial ownership register

Firstly, there is a duty on the registered office service provider to establish and maintain a register containing adequate, accurate and current beneficial ownership information in relation to the Legal Person.

Secondly, there is a duty on the corporate services provider to regularly deposit beneficial ownership information in such manner as may be prescribed by regulations. It is not anticipated that there will be a material departure from the current arrangements, under which corporate services providers must deposit beneficial ownership information monthly by the General Registry's Corporate Administration Portal.

Duty of Legal Persons to identify Registrable Beneficial Owners

Unless an exemption applies, a Legal Person has a duty to identify:

every individual that is a Beneficial Owner of the Legal Person;
every Reportable Legal Entity; and
the trustees of a trust who are treated as a Beneficial Owner of the Legal Person.

Further, the Legal Person has a duty to provide in writing to its corporate services provider the current and valid required particulars of Registrable Beneficial Owners.

As part of the broad duty to identify Registrable Beneficial Owners, Legal Persons have a duty to give notice in writing:

to Beneficial Owners and Reportable Legal Entities and to any other person they know or have reasonable cause to believe is a Registrable Beneficial Owner. This notice must require the person to whom it is sent, within 30 days:
- to state whether or not they are a Registrable Beneficial Owner; and
- to supply (or to confirm or correct) required particulars; and
to any other person holding a partnership interest, shares or voting rights, or ultimate effective control over management. This notice must require the person to whom it is sent:
- to state whether it knows the identity of a Registrable Beneficial Owner (or any person likely to have that knowledge); and
- to supply (at the Legal Person's expense), within 30 days, any required particulars within its knowledge.

Duty of Registrable Beneficial Owners to supply information

A Registrable Beneficial Owner has a duty, within 30 days of receiving a notice from the Legal Person, to:

notify the Legal Person that they are a Registrable Beneficial Owner;
state the date on which they became a Registrable Beneficial Owner; and
give the required particulars.

Duty of corporate services provider to review particulars

A corporate services provider has a duty to:

review the required particulars provided; and
take reasonable measures to verify the identity of the Beneficial Owner or Reportable Legal Entity using information obtained from reliable sources.

The reason for taking such measures is so that the corporate services provider is satisfied that the required particulars are accurate and current before entering them in the beneficial ownership register.

Duty to keep beneficial ownership register current

If a "relevant change" occurs with respect to a Registrable Beneficial Owner whose required particulars are stated in its beneficial ownership register, the Legal Person has a duty to give notice to the Registrable Beneficial Owner as soon as reasonably practicable (and not later than 30 days after it learns of the change or had reasonable cause to believe that the change had occurred) requesting confirmation of the change.

The statutory time limit of 30 days is a change to rules, which currently require that a notice be given "as soon as reasonably practicable after it learns of the change".

A "relevant change" occurs if:

a Registrable Beneficial Owner ceases to be a Registrable Beneficial Owner in relation to the Legal Person; or
any other change occurs as a result of which the required particulars are incorrect, incomplete or not current.

Duty to notify relevant changes

In addition to the duty imposed on a Legal Person which learns of a relevant change, a Registrable Beneficial Owner has a proactive duty to:

notify the Legal Person of a relevant change;
state the date on which the relevant change occurred; and
give the Legal Person any information needed to update the beneficial ownership register.

The duty must be complied with within 30 days of the date on which the person discovered the relevant change.

What are the required particulars?

Except in the case of a Legal Person to which an exemption applies, the required particulars in respect of an individual are:

full legal name;
residential address;
address for service of notices;
date of birth;
nationality;
information from their unexpired and valid passport, driver's license or other government-issued ID, including:
- identification number;
- country of issue; and
- date of issue and expiry;
nature in which the individual owns or exercises control of the Legal Person; and
the date on which they became or ceased to be a Registrable Beneficial Owner.

The requirement to include nationality is not contained in the current rules.

The required particulars in respect of a Relevant Legal Entity are:

corporate or firm name;
registered or principal office;
legal form of the entity and the law by which it is governed;
nature in which the relevant Legal Person owns or exercises control of the Legal Person;
the register in which it is entered and its registration number in that register; and
the date on which it became or ceased to be a Registrable Beneficial Owner.

Restrictions notices

If a corporate services provider is of the opinion that the Legal Person has:

failed to comply with its duties to give notice to its Registrable Beneficial Owners or to keep its beneficial ownership register current; or
has made a statement regarding relevant matters that is false or misleading,

the corporate services provider must give a notice to the Legal Person requiring it to provide missing particulars or a justification and correction in respect of a false or misleading statement.

If the Legal Person fails to comply with this notice, the corporate services provider must issue a restrictions notice to the Legal Person with regard to the shares or other relevant interest. In addition, the corporate services provider must send a copy of the restrictions notice to the competent authority within 14 days of its issue.

In deciding whether to send a restrictions notice, the corporate services provider must have regard to the effect of the notice on the right of persons in respect of the relevant interest, including third parties, persons with a security interest over the relevant interest and other Beneficial Owners.

The effect of a restrictions notice is, amongst other things:

any transfer or agreement to transfer the relevant interest is void;
no rights, including voting rights, are exercisable in respect of the relevant interest; and
other than in a liquidation, no payment may be made of sums due from the Legal Person in respect of the relevant interest, whether in respect of capital or otherwise.

Access to beneficial ownership information

The competent authority must maintain a search platform by which various persons may be provided with access to information on all beneficial ownership registers maintained.

Those persons are:

the Royal Cayman Islands Police Service;
the Financial Reporting Authority;
the Cayman Islands Monetary Authority;
the Anti-Corruption Commission;
the Tax Information Authority;
the Maritime Authority of the Cayman Islands;
the Civil Aviation Authority of the Cayman Islands;
the Registrar of Lands;
an entity undertaking procurement in accordance with the Procurement Act; and
any other body which:
- is assigned responsibility for monitoring compliance with anti-money laundering regulations, such as CARA and CIIPA;
- a licensed financial institution; or
- a designated non-financial business and profession.