BLOG — Oct 03, 2024

Five Key Takeaways from the New Cayman Islands Beneficial Ownership Reporting Rules

On July 31, 2024, the Cayman Islands Beneficial Ownership Transparency Act of 2023 (“the Act”) came into effect. The Act mandates stringent identification and reporting of beneficial owners for entities in the Cayman Islands, aligning with international standards. Final Regulations and Guidance were released on August 7, 2024, providing a comprehensive framework for compliance, including enhanced identification and verification procedures, expanded reporting obligations (e.g., annual reviews), and stringent record-keeping guidelines. The first wave of entities must comply with these new requirements by December 30, 2024.

Five Key Actions for Compliance

  1. Identify Beneficial Owners – Implement procedures to identify individuals with significant control or ownership, including those with 25% or more shares or voting rights.
  • Significant influence or control over the entity can exist even if a beneficial owner does not meet the 25% ownership threshold (e.g., power to appoint or remove directors, significant veto rights, influence over financial policies, or influence over decisions of a company, such as through a significant contractual relationship or other arrangements).
  1. Verify Documentation – Collect and verify necessary documents, such as government-issued IDs, proof of address, and corporate documents. Ensure authenticity through cross-referencing and background checks.
  • Corporate documents (e.g., articles of incorporation, bylaws or operating agreements, and shareholder agreements).
  • Financial documents (e.g., bank statements, tax returns, and audited financial statements).
  • Legal documents (e.g., trust deeds, power of attorney, and court orders).
  • Professional licenses and certifications (e.g., business licenses and professional certifications).
  • Utility bills.
  • Employment records (e.g., employment contracts and pay stubs).
  • Ownership and investment records (e.g., stock certificates and investment account statements).
  • Identification documents for related parties (e.g., IDs of directors, officers, and major shareholders).
  1. Maintain Accurate Records – Keep detailed records of the verification process, including copies of documents and verification logs (including any cross-references and background checks conducted).
  • These records must be stored in a secure manner which maintains data integrity.
  1. Perform Periodic Updates – Conduct annual reviews and update records whenever there is a significant change in ownership or control, such as the sale of shares or changes in the board of directors.
  • This annual review requirement distinguishes the Cayman Islands regulatory regime from its counterpart in the U.S., the Corporate Transparency Act, which does not include an annual review requirement.
  1. Report to Central Registry – Submit detailed reports on beneficial owners to the central registry, including the nature of control or ownership, percentage of ownership, and voting rights. Ensure timely submission to avoid penalties.

Key Compliance Dates

  • July 31, 2024 – The Act comes into effect.
  • August 7, 2024 – Final regulations and guidance released by the Cayman Islands Ministry of Financial Services.
  • December 30, 2024 – Compliance deadline for the first wave of entities (Category 1 covered reporters).
  • April 29, 2025 – Compliance deadline for the second wave of entities (Category 2 covered reporters).
  • December 30, 2025 – Deadline to complete initial annual review for the first wave of entities (Category 1 covered reporters).
  • April 29, 2026 – Deadline to complete initial annual review for the first wave of entities (Category 1 covered reporters).

Penalties and Enforcement Mechanisms

Significant penalties and enforcement measures are outlined in the regulations to ensure that institutions comply with the Act. The regulations introduce higher fines for entities that fail to comply with the reporting and record-keeping requirements, including administrative fines up to $100,000 USD for repeated offenses, daily penalties for ongoing non-compliance, and the possibility of being struck off the register. Criminal penalties may also apply, with fines up to $100,000 and potential imprisonment for severe offenses.

The regulations introduce stringent enforcement mechanisms to ensure compliance with beneficial ownership transparency requirements. Regulatory authorities are empowered to conduct periodic audits and inspections, which involve a thorough review of an entity's records and processes to verify adherence to the regulations. During these audits, entities must provide access to all relevant documentation, including identification and verification records of beneficial owners, and demonstrate that they are maintaining accurate and up-to-date information. In cases of severe non-compliance, regulatory authorities have the power to initiate legal actions, which can impose fines, enforce corrective measures, or even dissolve the entity if non-compliance persists.

Conclusion

Entities operating within the Cayman Islands must take immediate steps to understand and implement the new requirements outlined in the regulations and guidance issued to implement the Act. This is especially true for the first wave of entities (Category 1 covered reporters), which will be required to come into compliance by December 30, 2024. By proactively addressing these requirements, entities can avoid significant penalties and enforcement actions.

To ensure full compliance and to mitigate risks, find out more about our Counterparty Manager Suite of Solutions.

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