The Cayman Islands is in the process of implementing fundamental changes to its beneficial ownership regime. Most significantly, these include the removal of exemptions applicable under the previous regime, as well as more detailed and stringent rules as to who qualifies as a registrable beneficial owner.
Private wealth structures, many of which previously relied on an exemption, will be impacted. Although trusts are not directly in scope, their underlying corporate structures are, and the determination of registrable persons will require careful analysis of control mechanisms that exist under a trust or other arrangement. Settlors, protectors or any other power holder who has right (including a right of consent) in relation to the exercise of shareholder voting powers in the trust's underlying company may therefore be registrable under the new regime.
What and when?
The statutory requirement for companies to maintain a register of beneficial owners is not new in the Cayman Islands, and a beneficial ownership regime has been in place since 2017. However, the Beneficial Ownership Transparency Act (the "BOT Act") has expanded the scope of this regime and enhanced the definition of what constitutes a "beneficial owner".
While the BOT Act came into force on 31 July 2024, enforcement will not commence until January of 2025, offering a grace period for affected entities to bring themselves into compliance.
Who is impacted?
All Cayman Islands companies, as well as other Cayman entities such as LLCs, foundations and limited liability partnerships, will need to consider how they are affected and take steps to comply. Cayman trusts are not directly in scope, therefore there is no requirement for a trustee to maintain a beneficial ownership register in respect of the trust. However, Cayman trusts will typically have one or more underlying Cayman companies which will be in scope, as will private trust companies, many of which were previously exempt.
Although not necessarily the case, settlors, protectors, beneficiaries and other power holders may be registrable in relation to the trust's underlying Cayman company depending on the terms of the trust and the extent to which such person can exercise control in relation to that company.
How are they impacted?
In order to comply with the regime, unless an 'Alternative Route to Compliance' is available (which would not ordinarily be the case for private wealth structures), companies must maintain a register with the particulars of persons identified as "beneficial owners", with such information being subject to filing requirements.
The BOT Act provides that a registrable "beneficial owner" is any individual who satisfies the following:
- ultimately owns or controls, whether through direct or indirect ownership or control, 25% or more of the shares, voting rights or partnership interests in the applicable entity;
- otherwise exercises ultimate effective control over the management of that entity; or
- is identified as exercising control of that entity through other means.
It is apparent from the BOT Act, its regulations and guidance that the identification of registrable persons involves a broader analysis than simply identifying shareholders or other indirect owners and imports a requirement to consider control mechanisms which may be present within the broader corporate or trust structure or as a matter of practice.
Key considerations for trust and private wealth structures
Trustees (whether an individual or corporate trustee) that meet any of the above criteria may be registrable in relation to an underlying Cayman company, as will any other person with indirect ownership or control of the company. Trust deeds, nominees and other arrangements such as powers of attorney, will all be relevant to the analysis where they provide a person with rights or powers which could amount to control in respect of the subject company.
Of particular relevance to trusts and private wealth structures is that a person will be construed as controlling a right if such right is "exercisable only with that person's consent or concurrence".1 This means that powers of consent, such as the right to consent to the Trustee's exercise of shareholder voting rights, can clearly amount to "control" of that company for the purpose of the BOT Act. Given that powers of this nature are common in private wealth structures, this will bring many new individuals into scope of being registrable.
Further, where an individual has the right to appoint or remove the directors of a Cayman company (irrespective of whether they are a shareholder), such person will likely be construed as a registrable beneficial owner for the purpose of the BOT Act.2
In summary, for companies that form part of a private wealth structure, it will be important to identify whether a trust or other legal arrangement provides any person with the rights or powers of control, including through the withholding of consent, to:
- direct the exercise of shareholder voting rights;
- appoint or remove directors; or
- direct or manage the company's affairs.
The register will also record the nature of the registrable person's interest.
Will registers be public?
No, there are presently no plans for beneficial ownership registers to be broadly accessible to the public. Although the BOT Act does allow for the making of further regulations relating to public access, it is not anticipated there will be any such access unless and until it becomes a global standard as access should be appropriately balanced with privacy and data protection considerations. It is also anticipated any future access would be limited by a 'legitimate interest test', whereby such person would be required to evidence a legitimate interest in order to access information, for example on the basis that the company in question is linked to money laundering or terrorist financing. As such, any future public access is likely to be significantly restricted.
What to do?
All Cayman entities should assess the impact of the changes and, where applicable, undertake the exercise of identifying registrable persons in advance of the 1 January 2025 compliance deadline. Where a company's shares are held on trust, this will require analysis of the rights and powers under the trust and in many cases it will be prudent to seek professional advice on the terms of the trust. Conyers is well-placed to advise and guide clients through the transition to the new regime, including as to potential options for the continued preservation of privacy.
Footnotes
1 See R. 29(3)(c) of the Beneficial Ownership Transparency Regulations, 2024
2 See Part 2 of the Guidance on Complying with Beneficial Ownership Obligations in The Cayman Islands, issued on 31 July 2024
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.