The Beneficial Ownership Transparency Act 2023 (Act) was passed by the Cayman Islands Parliament on 23 November 2023 and was effective as at 31 July 2024.
The key aim of the Act is to pull together the various rules relating to beneficial ownership previously split between several laws and regulations for specific types of entities, into a single piece of unified legislation. The beneficial ownership provisions for companies, limited liability partnerships (LLPs) and limited liability companies (LLCs) are now contained in the Act and simplify the beneficial ownership regime to ensure a consistent approach to the treatment of in-scope entities.
The current beneficial ownership regime now applies to companies incorporated under the Companies Act, LLCs, LLPs, foundation companies, limited partnerships and exempted limited partnerships. Enforcement relating to compliance with the new requirements is suspended until early 2025 in accordance with a statement released by the Ministry of Financial Services and Commerce.
The Act amends the definition of “beneficial owner” so that it is more aligned with the definition 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 current AML Regulations). This amendment seeks to increase consistency across the laws of the Cayman Islands where the construct of “beneficial owner” is used.
The Act removes most of the previous exemptions that exclude certain entities from the requirement to maintain beneficial ownership register. These include:
- 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 Act but an alternative route to compliance has been provided, specifically for investment funds registered with the Cayman Islands Monetary Authority (CIMA) under the Private Funds Act or the Mutual Funds Act, which will not be required to establish or maintain beneficial ownership register. Rather, such registered funds are required 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 i.e. the registered office services provider.
- Investment structures and entities which do not need to register under the Private Fund Act or Mutual Fund Act will be required to establish or maintain a beneficial ownership register, for example, single investor funds. These types of ownership structures tend to have a beneficial owner that is an individual who exercises ultimate control over the management of the entity and/or is a director or manager of the entity.
- Entities registered with CIMA under the Securities Investment Business Act, or the Virtual Asset (Service Providers) Act are not included in the exemptions in the Act, although they may fall under the category of being licensed under a regulatory law and may or may not be required to establish and maintain a beneficial ownership register.
In November 2022, the European Court of Justice ruled that publicly accessible beneficial ownership registers amounted to a breach of the fundamental rights to (i) respect of person’s private life, and (ii) protect personal data (Articles 7 and 8). Please note that the changes to the Act do not extend to the beneficial ownership registers being made available to the general public. The Cayman Islands retains, as is common practice, in its dealings with competent authorities, the ability to share beneficial ownership information where necessary to combat financial crime money laundering and terrorist financing.
Requirement for Cayman Island Companies
A Cayman entity must maintain a register of its beneficial owners (the BOR) to be kept at its registered office, unless it can benefit from an alternative route to compliance by appointing a Contact Person (defined below) by virtue of being a legal entity or subsidiary which is:
- Listed on the Cayman Islands Stock Exchange or another approved stock exchange;
- Registered or licensed by the Cayman Islands Monetary Authority (CIMA);
- Being wound up by a liquidator (in certain circumstances); and
- A not-for-profit organisation designated under section 80 of the Companies Act (2023 Revision), (together, the Categories).
Contact person
Only an entity that is either licensed or registered with CIMA to supply beneficial ownership information, generally a corporate services provider (CSP) or a fund administrator who holds a Mutual Fund Administrators Licence under the Mutual Funds Act, can be designated as a Contact Person. Trafalgar CS Ltd. is available to serve as a Contact Person, pending agreement. Please reach out to one of the contacts listed below if you would like to discuss further.
The Contact Person acts as an intermediary, ensuring communication between the Legal Person (defined below) and the appropriate regulatory authority. While the Contact Person does not need to keep a beneficial ownership register or beneficial ownership details for the Legal Person they represent, they must be able to access this information and provide the requested beneficial ownership information to the regulatory authority within 24 hours of the request (or any other reasonable timeframe set by the regulatory authority) of the request.
Legal person
A “Legal Person” is (a) a company, (b) a limited liability company, (c) a limited liability partnership, (iv) a limited partnership, (v) a foundation company, (vi) an exempted limited partnership or (vii) any other legal person that may be prescribed by the regulations.
Meaning of beneficial owner
“Beneficial Owner” means an individual who:
(a) 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;
(b) exercises ultimate effective control (i.e. through a series of ownership layers or other forms of indirect control) over the management of the Legal Person; or
(c) is identified as exercising control of the Legal Person through other means,
together, conditions (a) to (c) are referred to as the “Specified Conditions”.
Governments, government departments, international organisations whose members include two or more countries, or their governments and public authorities are all deemed to be individuals and fall within the definition of Beneficial Owner.
If no individual meets any of the Specified Conditions but the trustees of a trust do meet one of these conditions concerning the Legal Person, then the trustees are considered to be the Beneficial Owners of the Legal Person provided that they have ultimate effective control over the trust’s activities, and excluding control solely in their capacity as Professional Advisor or Professional Manager.
A person who acts exclusively as a “Professional Advisor” (such as a lawyer, accountant, or financial advisor who provides advice or direction in a professional capacity) or as a “Professional Manager” (such as a liquidator, receiver, or restructuring officer fulfilling statutory duties) does not meet the Specified Conditions.
If no person qualifies as a Beneficial Owner based on the specified criteria, the Senior Managing Official of the Legal Person must be identified. This can include individuals such as a director or the chief executive officer. Unlike individual Beneficial Owners, a Senior Managing Official might also be a Professional Advisor or Professional Manager. While Legal Persons can have multiple directors, only one will be the Senior Managing Official. This is usually the individual with greater authority, such as the managing or executive director or the chairman.
Ongoing obligations of legal person
Where a Legal Person does not fall within the Categories whereby a Contact Person can be appointed as the intermediary with the regulatory authority, the Legal Person has an obligation to identify registrable beneficial owners which include:
(a) every individual who is a Beneficial Owner of the Legal Person;
(b) every Reportable Legal Entity (defined below); and
(c) the trustees of a trust if they have ultimate effective control over the activities of the trust other than solely in their capacity as Professional Advisor or Professional Manager.
Looking through the ownership structure, a “Reportable Legal Entity” is another Legal Person (other than a foreign company, foreign entity or a foreign limited partnership) that if it were an individual would be a Beneficial Owner of the first mentioned Legal Person. To be a registrable beneficial owner, the Reportable Legal Entity must either (i) directly hold a Relevant Interest (defined below) in the Legal Person, or (ii) indirectly possess a Relevant Interest in the initial Legal Person. A “Relevant Interest” consists of a partnership interest, shares, or voting rights in a Legal Person or having ultimate effective control over the management of the Legal Person.
A Legal Person does not need to report individual Beneficial Owners of a Reportable Legal Entity because the Reportable Legal Entity will be required to fulfil its own reporting duties under the beneficial ownership regime, identifying such Beneficial Owners to the Cayman Islands Registrar.
If the directors become aware of a relevant change regarding a registrable beneficial owner whose required particulars are recorded in its BOR, they must notify the registrable beneficial person in writing as soon as reasonably possible after becoming aware or reasonably suspecting the change has occurred, requesting confirmation of the change. The notice requires persons within no later than 30 days from the date of the notice to state whether or not they are a registrable beneficial owner and if so, confirm or correct the change. Within the 30-day timeframe, the Cayman entity shall document the details and instruct the CSP to update its BOR with (a) the confirmed details of the relevant change; (b) the date the change was made; and (c) any additional necessary amendments to the BOR.
Specific information must be recorded in the BOR. For individuals, this includes their full legal name, address, date of birth, nationality/nationalities, details from their unexpired and valid passport, driver’s licence or other government issued identification document, the nature in which the individual owns or exercises control of the Legal Person, and the date on which the individual became (or ceased to be) a registrable Beneficial Owner. For Reportable Legal Entities, this includes their name, address of registered or principal office, legal form, governing law, the nature of the Reportable Legal Entity’s ownership or its exercise of control of the Legal Person, register in which they are entered and registration number (if applicable) and the date on which the Reportable Legal Entity became (or ceased to be) a registrable beneficial owner.
Corporate service provider (CSP) – notice to comply
Where a CSP is of the opinion that a Legal Person (i) has failed to comply with section 8 (duty to give notice to registrable beneficial owners) and section 14 (duty to keep register current) of the Act without reasonable excuse; or (ii) has made a statement that is false or misleading regarding the beneficial ownership of an entity, the CSP shall provide a notice to the Legal Person (Notice).
On receipt of the Notice the Legal Person shall provide the missing information required and provide justification and correction to any statement that is false or misleading. If the Legal Person fails to provide the required information within 30 days of the date of receipt of the Notice, the CSP shall (i) issue a restriction notice to the Legal Person (Restriction Notice) and (ii) send a copy of the Restriction Notice to the competent authority (outlined below). The Restriction Notice will give the Legal Person a further 30 days to comply with the Restriction Notice; or provide the CSP with a valid reason sufficient to justify its failure to comply with the Restriction Notice. Where the Relevant Interest (i.e. shares and as further defined above) is subject to pre-existing security granted to a third party who is not affiliated with the Legal Person, the Restrictions Notice shall not take effect.
The issuance of a Restrictions Notice has several effects, such as voiding any transfer or agreement to transfer a Relevant Interest preventing any rights being exercised in relation to the Relevant Interest, and preventing any dividends being paid pursuant to the rights of the Relevant Interest. CSPs do not want to interfere with the running of an entity’s business but the Act places a statutory obligation to ensure compliance with the beneficial ownership regime or the CSP could face penalties for non-compliance. CSPs will have to decide whether to send a Restriction Notice and have regard to the effect of such notice on the rights of persons, including third parties, persons with security interests, registered shareholders and other beneficial owners.
A Restriction Notice can be withdrawn if the CSP is (i) satisfied that there is a valid reason to justify the Legal Person’s failure to comply with the Notice; (ii) the Notice is complied with; or (iii) the CSP discovers the rights of a third party in respect of the relevant interest are being unfairly affected by the Restrictions Notice.
A Legal Person can apply to the Grand Court of the Cayman Islands to apply for the restriction imposed by the Restriction Notice to be set aside.
Access to beneficial ownership information
Information about beneficial ownership will only be accessible to the public when specific regulations are proposed by Cabinet and endorsed by a future Parliamentary resolution. Thus, this information will not be publicly available until such a resolution is passed. It is anticipated that limited access might be granted to individuals with “legitimate interests” in the future, with various safeguards in place.
Currently, only competent authorities can request access to the centralised platform holding beneficial ownership information. The competent authorities include the Royal Cayman Islands Police Service (RCIPS), the Financial Reporting Authority, CIMA, 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 or an entity undertaking procurement in accordance with the Procurement Act and any other body which is assigned responsibility under the Proceeds of Crime Act for monitoring compliance with money laundering regulations, any licensed financial institution, or designated non-financial business and profession (i.e. accountants and law firms).
The United Kingdom (UK) and the Cayman Islands Government have agreed to share beneficial ownership information. Under this agreement, the UK can ask the RCIPS to request a search by the competent authority, sharing the information with UK law enforcement. Other countries can still request information through existing laws, agreements, or legal arrangements, such as the Tax Information Authority Act and the Monetary Authority Act.
Penalties for non-compliance
Legal entities may face penalties for several offenses. These include: not establishing or maintaining a beneficial ownership register, not complying with notices or making false statements in response to such notice (such as failing to adhere to a Restriction Notice or knowingly providing false information), and not supplying required information (including a registrable beneficial owner neglecting to provide necessary details or intentionally giving false information). Penalties for offences vary from fines of CI$5,000/US$6,098 to CI$100,000/US$121,951 and may include imprisonment. The court can strike a Legal Person off the register for repeated violations.
The Registrar of Companies also has the power to impose fines for a number of breaches under the Monetary Authority (Administrative Fines) Regulations (2022 Revision) and any amendment thereof (the Administrative Fines Regime), which apply to ‘in-scope’ entities who fail to take reasonable steps to identify beneficial owners and Reportable Legal Entities, fail to ensure their BOR remains up to date and/or fail to provide particulars of registrable beneficial owner information to their CSPs or certain notices to their registrable persons. Of particular note, Cayman entities whose BOR indicates a status of ‘pending’ for three or more calendar months will be presumed to be in breach and liable to fines under the Administrative Fines Regime. There are several other technical breaches for which Legal Persons and/ or their CSPs may be fined.
If you require further information concerning the beneficial ownership regime in the Cayman Islands, please contact us and we will be pleased to assist you on +1 (345) 949 9710 or via email at info@nelsonslegal.com or Trafalgar CS Ltd admin@trafalgarcs.com.
This guide gives a general overview of this topic and is not legal advice, and you may not rely on it. If you would like legal advice on this topic, please get in touch. Our regulatory team will be happy to assist you with any questions or queries you have regarding your regulatory requirements in the Cayman Islands.
