Cayman Islands Introduces Beneficial Ownership Register

The Cayman Islands government has now introduced legislative changes which will require relevant companies to prepare and maintain a register of beneficial owners

Cayman Islands Introduces Beneficial Ownership Register

The Cayman Islands government has now introduced legislative changes which will require relevant companies (“Relevant Companies”) to prepare and maintain a register of beneficial owners (the “Register of Beneficial Owners”). This important development is further evidence of Cayman’s progressive and proportionate approach to transparency whilst protecting the fundamental principle of confidentiality in legitimate business and personal dealings. The development of the new beneficial ownership regime is borne out of requests from the UK government that the Crown Dependencies and British Overseas Territories each develop and provide a central public register of beneficial ownership. Cayman has instead agreed a proportionate compromise - and enhancement of its existing regime concerning the collection of beneficial ownership information.

Under the new legislation a Relevant Company is required to prepare and maintain a Register of Beneficial Owners. This information will then be accessible by the appointed competent authority of the Cayman Islands and available for automatic exchange with, and only in the event of a legitimate and lawful request from, the relevant law enforcement or tax authority in the Cayman Islands or the UK. Currently, the new regime only provides for the mutual exchange of beneficial ownership information with the UK but there is scope for this to be expanded if and when agreements are reached with other countries. The purpose of this development is to provide a mechanism for the appropriate authorities to easily identify the ultimate beneficial owners of a company to aid with cross-border investigations.

Relevant Companies: who must comply?

All companies (including limited liability companies (LLCs)) incorporated in (or registered by way of continuation in) the Cayman Islands must comply with the requirement to maintain a Register of Beneficial Owners unless they are a company or subsidiary of a company which is:

1. listed on the Cayman Islands Stock Exchange or another approved stock exchange
2. registered or licensed under one of the following regulatory laws of the Cayman Islands (the “Regulatory Laws”):
   • Banks and Trust Companies Act (2013 Revision)
   • Building Societies Act (2014 Revision)
   • Companies Management Act (2003 Revision)
   • Cooperative Societies Act (2001 Revision)
   • Insurance Act, 2010
   • Money Services Act (2010 Revision)
   • Mutual Funds Act (2015 Revision)
   • Securities Investment Business Act (2015 Revision)
   • any other laws that may be prescribed by the Cayman Islands government from time to time
3. registered or licensed under one of the following regulatory laws of the Cayman Islands (the “Regulatory Laws”):
4. a general partner of a vehicle, fund or scheme referred to in paragraph 3 that is managed, arranged, administered, operated or promoted by an approved person
5. exempted by the relevant regulations bringing the new regime into force (there are no additional companies exempted under the regulations currently)

What are the obligations on a Relevant Company?

A Relevant Company must establish and maintain an electronic Register of Beneficial Owners at its registered office in the Cayman Islands. The Relevant Company is obliged to take “reasonable steps” to identify all persons who qualify as a “beneficial owner” under the legislation (a “Beneficial Owner”) and collect certain prescribed details to be maintained on the register.

Relevant Companies are required to notify in writing (a “Notice”) any person (an individual or “relevant legal entity” - being a legal entity registered in the Cayman Islands which would be a registrable Beneficial Owner if it were an individual (a “Relevant Legal Entity”)) it knows or has reasonable cause to believe is a registrable Beneficial Owner and such persons are under an obligation to respond to such Notice within one month of receipt, or face possible criminal penalties, and confirm or correct the details therein.

A Relevant Company may also send a Notice to a registered shareholder or legal entity that the Relevant Company knows or has reasonable cause to believe is a Relevant Legal Entity, if the Relevant Company knows or has reasonable cause to believe that such shareholder or legal entity knows the identity of a registrable Beneficial Owner.

Upon obtaining such information requested per the Notice, a Relevant Company must provide the prescribed details to its registered office service provider in the Cayman Islands in order for the Register of Beneficial Owners to be prepared/ updated. In addition, a Beneficial Owner who knows that they have not been added to the Register of Beneficial Owners, or that their details are no longer up to date, is under an obligation to notify the Relevant Company of such fact(s) within one month of becoming aware. Failure to do so may lead to imprisonment or fines, or both.

Who is a registrable Beneficial Owner?

1. A Beneficial Owner of a Relevant Company is a person who: 1. holds, directly or indirectly, more than 25% of the shares or interests in the Relevant Company
2. holds, directly or indirectly, more than 25% of the voting rights in the Relevant Company
3. holds the right, directly or indirectly, to appoint or remove a majority of the board of directors or manager of the Relevant Company
4. if no individual satisfies 1-3 above, has the absolute and unconditional legal right to exercise, or actually exercises, significant influence or control over the Relevant Company (other than solely in the capacity of a director, professional advisor or professional manager)
5. has the absolute and unconditional right to exercise, or actually exercises, significant influence or control over a trust or other entity (which is not a legal person) owned by the Relevant Company, other than in the capacity of a director, professional advisor or professional manager

A Relevant Company must also register the particulars of a Relevant Legal Entity that: (i) holds an interest in the Relevant Company or meets one or more of the specified conditions directly in respect of that Relevant Company; and (ii) through which any beneficial owner or Relevant Legal Entity indirectly owns an interest in the Relevant Company.

The Register of Beneficial Owners

The Register of Beneficial Owners should record the following details in relation to the Beneficial Owners:

1. name
2. date of birth
3. residential address or address for service of notices or registered/principal office address for a legal entity
4. information identifying the individual from their passport, driver’s licence or other government-issued ID including identifying number, country of issue and date or issue and expiry or corporate documents in respect of a legal entity
5. the date on which the person became or ceased to be a Beneficial Owner

A Relevant Company shall not enter any information in the Register unless it has been confirmed, or the Relevant Company has reasonable grounds to believe it was supplied or confirmed, by the Beneficial Owner or Relevant Legal Entity to whom the information relates. The Relevant Company is entitled to rely on the information provided in response to a Notice without further enquiry unless the Relevant Company has reason to believe that the response is misleading or false.

What action should be taken?

The beneficial ownership regime is expected to come into force by 30 June 2017, though there will be a transition period of one year to allow Relevant Companies to undertake the necessary due diligence and set up their Register. During the transition period Relevant Companies will not be prosecuted for failing to comply with the requirements of the new regime.We will be liaising with our clients to review their Cayman Islands entities in order to determine their status as Relevant Companies or not. All Cayman Islands companies should document their determination as to their status under the beneficial ownership regime and we can assist with the documentation and processes for undertaking such determination and establishing the Register of Beneficial Owners where required.