Cayman Islands modernises beneficial ownership regime to align with global standards

In a significant move to combat financial crime and enhance transparency, the Cayman Islands is set to introduce a modernised beneficial ownership regime (the Regime). The Beneficial Ownership Transparency Act, 2023 (the Act) reflects the jurisdiction's commitment to adhering to the evolving recommendations of the Financial Action Task Force (FATF). This article by Kendra Foster and Nathaniel Luker, both partners of Ocorian Law (Cayman) Limited (Ocorian Law), explores the key changes under the Act and its implications for businesses operating in the Cayman Islands.  Ocorian Law is a business affiliate of, and embedded in, Ocorian Trust (Cayman) Limited (Ocorian Trust).

Responding to FATF's updated guidance on beneficial ownership

The catalyst for the regulatory adjustments is FATF's updated guidance aimed at strengthening the fight against illicit financial activities. FATF has been pivotal in setting global benchmarks for anti-money laundering (AML), counter-terrorist financing (CTF), counter-proliferation financing (CPF) and targeted financial sanctions (TFS) measures. 

FATF revised its recommendations to require countries to ensure that competent authorities have access to adequate, accurate and up-to-date information on the true beneficial owners of legal persons. FATF also updated the guidance that assists countries which implement the revised recommendations. By aligning itself with these revised standards, the Cayman Islands demonstrates its dedication to global compliance and the integrity of its financial services sector.

Key changes to the Regime

The key changes to the Regime that will be made by the Act are described below.

1. Expanded scope: All partnerships formed and registered in the Cayman Islands will be required to comply with the Regime. In addition, some entities that were previously in scope but exempt from the requirement to create and maintain a register of beneficial owners (such as registered persons under the Securities Investment Business Act) will be required to maintain a register once the Act comes into force. Also, the definition of beneficial owners will be broadened so that it captures a wider array of individuals and entities. For clarity, the definition of beneficial owner will be aligned with the definition under the AML regulations of the Cayman Islands. These changes aim to reveal ownership and control in more detail, providing a clearer picture of the individuals ultimately benefitting from the entities registered in the Cayman Islands that fall within the scope of the Regime.
2. Alternative route to compliance: Certain entities will be able to select an alternative route to compliance.  These will include listed entities, licensed entities and registered investment funds. Investment funds that are not registered will not be able to select the alternative route and will be required to maintain a register of beneficial owners. A registered investment fund that is utilising the alternative route to compliance will be required to submit the contact details of an appropriately licensed or regulated service provider capable of providing beneficial ownership information to the competent authority within 24 hours of a request being made or at any other time which the competent authority may reasonably stipulate.  
3. Additional due diligence: Entities that are required to maintain a beneficial ownership register will need to gather and supply additional data as part of the mandatory monthly submissions. The additional data required will include the nature of ownership or control held by each beneficial owner and, in the case of individuals, their nationality.
4. Enhanced verification obligations: A corporate services provider of an entity that is required to provide registered particulars relating registrable persons will be required to review the particulars received and verify the identity of each registrable person using information obtained from reliable sources. 
5. Increased transparency and access: Improvements in the accessibility of beneficial ownership information are anticipated, particularly for competent authorities. This change is designed to facilitate swifter and more effective cross-border cooperation in investigative and compliance efforts. For now, public access to beneficial ownership registers will depend on future parliamentary resolutions that will take into consideration the outcome of the European Court of Justice ruling in November 2022. This ruling outlined that persons gaining access to information contained in a register relating to beneficial owners must have a "legitimate interest" in the information for AML/CTF/CPF/TFS purposes.

Timeline for implementation and recommended steps for affected entities

Once published, the Act will be rolled out in stages later this year. The current rules will stay in place until the new law takes effect.

The changes will impact a broad spectrum of entities, including companies, limited liability companies and partnerships registered in the Cayman Islands. Once the Act is in force, affected entities will need to take proactive steps to comply with the new requirements.  Ocorian Law recommends the steps set out below.

1. Early analysis: Operators of entities formed in the Cayman Islands should consider whether the Act applies to their structures. If it applies and a register is to be maintained, it is recommended that such operators conduct a thorough review of current beneficial ownership information to identify any gaps or inaccuracies. Such operators may wish to engage Cayman Islands legal counsel to assist them with this process and ensure the implementation of any required changes.
2. Early engagement: Registered investment funds which decide to take the alternative route to compliance mentioned above should verify that their corporate services providers or other applicable service providers are able to act as the contact persons for providing information to the competent authority in accordance with the Act. The operators of such entities may wish to engage their registered office providers to provide this service. 
3. Early information-gathering: Entities that fall within the scope of the Regime will need to prepare, establish and maintain a beneficial ownership register and familiarise themselves with their obligations under the Act. These include an obligation to give notice to registrable beneficial owners. 

The Cayman Islands Government has also recently circulated the Beneficial Ownership Transparency Regulations (the Regulations) and Guidance in Complying with Beneficial Ownership Obligations in the Cayman Islands (the Guidance) for industry consultation. Once all feedback has been collated and considered, there may be further changes made to the Regulations and/or the Guidance. 

How can Ocorian help?

Ocorian Law can provide legal advice and solutions to ensure compliance with the modernised Regime. Ocorian Trust is able to assist with the creation and maintenance of beneficial ownership registers and make all of the filings in the Cayman Islands that will be required under the modernised Regime.

To find out more, contact a member of our team today.