Updates to Cayman Beneficial Ownership Regime Now in Force

The Beneficial Ownership Transparency Act, 2023 (the “BOT Act”) introduced by the Cayman Islands mark significant changes to the beneficial ownership regime, aiming to enhance transparency and align with international standards and came into effect on 31 July 2024. The Ministry of Financial Services and Commerce has announced that enforcement of the new requirements will be deferred until 1 January 2025.

Key Updates to the Beneficial Ownership Regime

Broader Scope of Coverage:

• The regulations expand the range of entities required to maintain beneficial ownership registers, including exempted limited partnerships, limited liability partnerships and limited partnerships.
• Trusts and foreign-registered companies continue to be out of scope. However, trustees that are Cayman entities must evaluate their obligations pursuant to the BOT Act.
• The rules now cover more entities, requiring them to comply with the updated beneficial ownership obligations.

Revised Definition of Beneficial Owner:

• The definition has been updated to include individuals who have indirect control through layered ownership structures or those who exercise significant influence without direct ownership.
• This change aims to capture complex ownership arrangements and ensure all relevant parties are identified.

Removal of Exemptions

• Several categories of currently exempt entities are required now to maintain a beneficial ownership register.
• Under the new BOT Act, the only out-of-scope entities that will not be required to maintain a beneficial ownership register are:  
  • entities, or subsidiaries of entities, listed on an approved stock exchange; and
  • entities licensed under Cayman Islands regulatory law (see below).
• A fund registered under the Private Funds Act or Mutual Funds Act is not exempt under the new BOTA, however, such entities are now afforded the option of an “Alternative Route to Compliance” (ARTC). Instead of providing the details of its beneficial owners, a registered fund may provide contact details for a fund administrator licensed under the Mutual Funds Act or another contact person licensed or registered under a Cayman Islands regulatory law located in the Cayman Islands. Such contact person would be responsible for providing details of the fund’s beneficial owners if and when requested by the relevant authority. Stuarts will be providing the service of ‘contact person’ in due course.
• All other exemptions under the current regime will be removed

Entities not eligible for ARTCs must establish and maintain a BOR. An entity may also choose to maintain a BOR rather than rely on an ARTC. Contact us should you need specific advice about a specific circumstance.

More Detailed Reporting Requirements:

• Entities are required to provide more detailed information about beneficial owners, including any indirect interests and the nature of control or influence exercised by these individuals.
• The new reporting requirements will require beneficial owners to declare their nationality/ies and the way in which their control is exercised, whether by voting rights, shareholding or ultimate effective control.
• The Regulations specify that only one nationality must be reported on the beneficial ownership register for a legal person. However, individuals are required to indicate if they hold multiple nationalities, although they are not obligated to disclose the specifics of those additional nationalities.
• Entities that were previously out of scope or exempt will now need to identify their registrable beneficial owners and provide details of such beneficial owners to their corporate service provider.
• There is a stronger emphasis on identifying the ultimate beneficial owners rather than just immediate shareholders.

Enhanced Verification and Due Diligence:

• Companies must implement more rigorous due diligence procedures to verify the identity of beneficial owners, particularly in cases involving foreign entities or complex structures.
• This includes obtaining supporting documentation and conducting regular reviews to ensure ongoing compliance.

Accelerated Reporting and Update Timelines:

• The time frame for reporting changes in beneficial ownership has been reduced to 15 days, requiring entities to act quickly to maintain up-to-date records.
• This shorter timeline aims to ensure that the information remains current and accurate.

Strengthened Penalties for Non-Compliance:

• Penalties for failing to comply with the regulations have been increased, with higher fines and potential criminal sanctions for willful non-compliance.
• Persistent violations could result in significant repercussions, including restrictions on business operations.

Conclusion

The updates under the BOT Act demonstrate the Cayman Islands' commitment to improving corporate transparency and aligning with global standards. Businesses operating in or through the Cayman Islands must stay informed and take proactive measures to ensure compliance with these regulations, focusing on accurate reporting and robust due diligence procedures.

How can Stuarts Help?

We will be reaching out to clients who will be affected by the new BOT Act to guide them through the transition to the new regime and to advise them on the necessary actions in order to ensure compliance by 1 January 2025. If you have any questions or need assistance, please reach out to your usual Stuarts attorney or email our Head of Corporate Megan Wright or our Head of Banking and Regulatory, Jon McLean.

For further details, see our Guidance Note on Cayman Islands Beneficial Ownership Regime.