Cayman Islands’ Beneficial Ownership Transparency Act is now in force

As of 1 January 2025, all Cayman Islands’ legal entities will be required to have fully implemented and complied with the Beneficial Ownership Transparency Act 2023 and the Beneficial Ownership Transparency Regulations 2024 (together referred to as BOTA).

The legislation, which officially came into effect on 31 July 2024, has the overall aim of expanding the scope of the Cayman Islands’ beneficial ownership reporting regime (BORR) established back in 2017. The initial BORR required in-scope entities to instruct their corporate service provider (CSP) to establish and maintain a register of beneficial ownership information, and file it with the Cayman Islands General Registry.

The new BORR introduced a number of substantial updates – it applies to all Cayman Islands legal entities (each a Legal Person), and includes a significant change in beneficial ownership requirements for investment funds – aligning the jurisdiction with international standards to tackle money laundering, tax evasion and terrorist financing.

Summary of key changes

Enhanced definition of a beneficial owner

Beneficial Owner – refers to an individual who:

• ultimately owns or controls, whether directly or indirectly, 25 percent or more of shares, voting rights, or partnership interests in the entity;
• exercises ultimate effective control, either through a chain of ownership or by other means, over the entity; or
• exerts control over the management of the entity.

Reportable Legal Entity (RLE) – refers to another Legal Person that can demonstrate ownership or control within the definition of the Beneficial Owner directly in relation to the first Legal Person. It should be noted that there is no requirement for a Legal Person to report individual Beneficial Owners of such RLE. This is because the RLE will have its own reporting obligations under the BORR through which such individual Beneficial Owners are identified to the Registry.

Registrable Beneficial Owner (RBO) – refers to both an individual beneficial owner and a RLE.

Extended scope and removal of previous exemptions

Under the old requirements, a number of categories of entity were exempt, However, these now fall within the scope of BOTA. The new regime applies to all Legal Persons detailed below, and those that were previously out-of-scope or exempt are now required to identify their RBOs and share their details with their Cayman Islands Monetary Authority (CIMA)-licensed CSP. As a result, there is going to be a significant increase in the number of Cayman entities that will need to maintain beneficial ownership registers.

More stringent reporting requirements

The increased obligations of in-scope entities are as follows:

• There is a requirement to provide more detailed information about beneficial owners; this includes indirect interests and the nature of control or influence exercised by these individuals.
• Beneficial Owners are now required to declare their nationality(ies) and the way in which their control is exercised – whether by voting rights, shareholding or ultimate effective control.
• Only one nationality must be reported on the beneficial ownership register for a Legal Person, however, individuals are obligated to divulge if they hold multiple nationalities. Although it should be noted that there is no obligation to disclose the specifics of those additional nationalities.
• BOTA places a much stronger emphasis on identifying the ultimate beneficial owners of Cayman entities rather than just immediate shareholders.

Shorter reporting timeframes

The timeframe for reporting beneficial ownership information has been reduced to 15 days, with the aim of ensuring that information remains current and accurate, so entities must act quickly.

Stronger penalties for non-compliance

A number of offences, which include but are not limited to, a failure to establish or maintain a beneficial ownership register and making false statements, will result in much stronger penalties under the new regime. Increased penalties in the form of higher fines, ranging from CI$5,000 to CI$100,000, and potential criminal sanctions will apply for those who are willfully non-compliant.

Moreover, continual non-compliance will result in additional repercussions; this could include restrictions to business operations (for example, restrictions on the transfer of interests, or the ability to make distributions in the case of funds classified as Legal Persons) and being struck off the Companies Register.

Lastly, the Registry can also impose further administrative fines (CI$5,000 for each breach) for non-compliance with various aspects of BORR, with CI$1,000 added for every month that the breach continues, until a total amount of CI$25,000 is due. If unpaid for 90 days, the reportable Legal Person will be struck off the register and the entity will be dissolved.

Alternative routes to compliance

The new BORR allows for alternative routes to compliance for the following types of Legal Person, namely entities that are:

1. listed on an approved stock exchange;
2. licensed/regulated directly by CIMA; or
3. registered with CIMA under the Mutual Funds Act or Private Funds Act.

If an alternative route to compliance is chosen by any of the abovementioned Legal Persons this means that their CSP is no longer responsible for submitting or maintaining beneficial ownership information to the competent authority. Those opting to take an alternative route to compliance must provide their CSP with written confirmation of the category of Legal Person to which they belong, and comply with the corresponding required particular as set out below:

The role of CSP

CSPs will play an important role in the new BORR and they are responsible for the following tasks:

1. To establish and maintain beneficial ownership registers for their clients;
2. To submit (at a minimum) monthly filings to the General Registry of beneficial ownership details;
3. To take reasonable steps to verify the accuracy of beneficial ownership information submitted;
4. To notify the Legal Person if there are inaccuracies, or if there is missing data, in the information submitted; and
5. To issue restriction notices to entities that fail to comply with relevant obligations.

Will beneficial information be made public?

BOTA does not mandate open public access to the beneficial ownership registers submitted. However, restricted access will be available to two specific groups:

• Regulatory authorities (Royal Cayman Islands Police Service, the Financial Reporting Authority, and CIMA); and
• Foreign authorities (for example, the UK may request beneficial ownership information under the terms of specific agreements).

Actions to take

As mentioned above, entities that were previously out-of-scope or exempt from the previous regime should have already taken action to identify their RBOs and share the necessary details with their CSP. If not, they should take immediate action to remedy this now. Examples of these entities include Cayman Islands general partners, special purpose vehicles, trading subsidiaries, and entities registered under the Securities Investment Business Act or Virtual Assets (Services Providers) Act, amongst others.

Further to this, entities that are registered with CIMA as mutual funds or private funds, should have already provided their CSP with details of a Contact Person with the responsibility of facilitating communication between the entity and the competent authority.

It is important that entities now ensure their ongoing compliance with this new beneficial ownership requirement and take proactive steps to ensure their CSP is aware of any changes that may need to be considered as part of their regular reporting.