Recently passed legislation has made some important revisions to the Cayman Islands beneficial ownership register regime that first came into force on 1 July 2017 (the "Regime").
The amending legislation (the "Amendments"), among other things, make some critical changes to the types of entity that are either within the scope of, or exempt from, the Regime, with the effect that some entities that were previously within the scope of the Regime are now exempted and, by contrast, some entities that were previously exempted from the Regime are now within scope. In addition, all entities that are exempted from the Regime will now be required to make a filing to that effect prior to 30 June 2018.
The Regime requires certain Cayman Islands companies ("companies") and Cayman Islands limited liability companies ("LLCs") to maintain a beneficial ownership register that records details of the individuals who ultimately own or control more than 25% of the equity interests or voting rights, or who have rights to appoint or remove a majority of the company directors, or LLC managers, together with details of certain intermediate holding companies.
Each company or LLC that falls with the Regime's ambit (an "In-Scope Entity") is required to complete and maintain a beneficial ownership register at its Cayman Islands registered office with a licensed corporate services provider (a "CSP").
Which entities were originally out of scope?
The Regime initially exempted from the primary obligation of maintaining a beneficial ownership register those companies and LLCs that were:
(a) listed on the Cayman Islands Stock Exchange or another approved stock exchange (e.g. NYSE, NASDAQ, London or Hong Kong Stock Exchanges);
(b) registered or licensed under one of the Cayman Islands regulatory laws (e.g. a hedge fund registered under the Mutual Funds Law (2015 Revision));
(c) managed, arranged, administered or promoted by an "approved person" as a special purpose vehicle, private equity fund, collective investment scheme or investment fund;
(d) a general partner of any special purpose vehicle, private equity fund, collective investment scheme or investment fund that is managed, arranged, administered, operated or promoted by an "approved person"; or
(e) a "subsidiary", being a company or LLC where:
(i) more than 75% of the interests or voting rights are, collectively, held by one or more exempt entities;
(ii) exempt entities have the right to appoint or remove a majority of directors or managers; or
(iii) it is, itself, a subsidiary or another exempt subsidiary
(the "Subsidiary Exemption").
An "approved person" is a person or a subsidiary of a person that is (i) regulated, registered or licensed under a Cayman Islands regulatory law or regulated in an approved jurisdiction (e.g. investment advisors or managers regulated by the SEC or the FCA would fall within this limb), or (ii) listed on the Cayman Islands Stock Exchange.
What changes have been made to the exemptions?
The Amendments have introduced three additional exemptions and now exempt from the primary obligations of the Regime any company or LLC that:
(a) is regulated in a jurisdiction approved as having an AML / CFT framework equivalent to that of the Cayman Islands, as determined by the Anti-Money Laundering Steering Group under section 5(2)(a) of the Proceeds of Crime Law (2017 Revision) (an "Approved Jurisdiction");
(b) is a general partner of any special purpose vehicle, private equity fund, collective investment scheme or investment fund that is registered or holds a licence under a Cayman Islands regulatory law (e.g. the general partner of a partnership that is registered as a mutual fund under the Mutual Funds Law (2015 Revision)); or
(c) holds, directly, a legal or beneficial interest in the shares of a legal entity that is licensed in the Cayman Islands where the conditions of such licence include full disclosure of the legal and beneficial owners of the licensee.
The Subsidiary Exemption also extends to subsidiaries of these newly exempted entities with the important result that the Cayman Islands subsidiary of an entity regulated in an Approved Jurisdiction will now be exempted.
The list of Approved Jurisdictions replaces the list of Schedule 3 jurisdictions and, importantly, each of Mexico, Panama and Turkey are no longer Approved Jurisdictions.
Limitations on the Exemptions
The Amendments also made the following important changes and clarifications to the existing exemptions:
(a) A company or LLC registered as an excluded person under section 5(4) of the Securities Investment Business Law (2015 Revision) ("SIBL", and such person, a "SIBL Excluded Person") will no longer be exempt from the primary obligations of the Regime (other exemptions may, of course, apply);
(b) A SIBL Excluded Person will no longer be an "approved person" (unless they qualify under another head) and, accordingly, an entity that was relying, for its exemption, on being managed, arranged, administered, operated or promoted by a SIBL Excluded Person may need to revisit its analysis;
(c) The Directors Registration and Licensing Law, 2014 will not be a regulatory law for the purposes of the Regime;
(d) A legal entity will not be considered to be managed, arranged, administered, operated or promoted (as the case may be) by an "approved person" solely as a consequence of that entity having appointed:
(i) an individual who is an employee of a legal entity that holds a licence under a regulatory law as a director or manager. This clarifies that employees of licensees are considered to be independent from their employers when serving as directors or managers of a legal entity; or
(ii) an approved person to provide its registered office in the Cayman Islands.
What is the new filing obligation for exempted entities?
The Amendments introduce an obligation on any company or LLC that is exempted from the Regime (an "Exempted Entity") to provide its CSP with a written confirmation which must:
(a) identify the grounds for its exemption; and
(b) provide certain additional information regarding any regulated entity or approved person upon whom the exemption relies.
Both the manner in which the written confirmation must be given and the extent of the additional information are to be finalised in separate regulations. Once the confirmation has been filed with the CSP, the CSP must file the relevant information with the competent authority.
What is the timeline for compliance?
Whilst the Regime does have a transitional "non-enforcement" grace period running until 30 June 2018, all companies and LLCs should move towards immediate compliance with the Regime to avoid committing serious breaches and criminal offences for non-compliance.
In-Scope Entities will be initially compliant once they have established a beneficial ownership register and recorded the status "enquiries pending" on that register, provided they do then take steps to identify their registrable persons. To remain compliant, In-Scope Entities must ultimately identify their registrable persons, collect and record the required particulars of such registrable persons and continue to monitor their ownership and control structure for any subsequent changes (including to the required particulars of registrable persons).
Exempted Entities will be initially compliant once they have filed their written confirmation of exemption with the CSP. They must then continue to monitor any changes that may affect the availability of the relevant exemption.
What actions should Cayman Islands companies and LLCs take?
All Cayman Islands companies and LLCs should now complete their analysis as to whether they are an In-Scope Entity or an Exempted Entity. Some companies and LLCs that had already made an initial determination may need to re-examine that determination in light of the changes made by the Amendments.
In-Scope Entities should immediately contact their CSP so that a beneficial ownership register can be established, and should then take reasonable steps to identify, obtain and hold information about their beneficial owners and relevant legal entities.
Exempted Entities should notify their CSP of this determination and should then prepare and file the relevant written confirmation (though the form of this confirmation remains uncertain pending further regulations).
All companies and LLCs must then keep both their status under the Regime and, where applicable, the identity and required particulars of their registrable persons under review so as to ensure information remains up to date.