Cayman Islands Investment Funds: Implications of Beneficial Ownership Regime Changes

Although the Ministry has confirmed that there shall be no enforcement action taken in respect of the new framework until 1 January 2025, it is recommended that investment funds begin preparations to ensure they are compliant before year end.

Overview of the Beneficial Ownership Regime in the Cayman Islands

The Cayman Islands’ beneficial ownership regime was introduced in 2017 as a means of complying with international standards and commitments to combat money laundering, tax evasion and terrorist financing by ensuring transparency of in-scope entities.

The beneficial ownership regime has now been enhanced to further demonstrate the jurisdiction’s continuous efforts in this area, in line with the expectations of the Financial Action Task Force.

Effects on Cayman Islands Investment Funds

Cayman Islands investment funds have previously been able to rely on an exemption from the requirements to maintain a beneficial ownership register, most often on the basis of them either being managed, operated or promoted by an investment manager regulated in the Cayman Islands’ or an equivalent jurisdiction or otherwise administered by a licensed fund administrator in the Cayman Islands.

These exemptions have applied whether an investment fund was structured as a Cayman Islands exempted company or an exempted limited partnership.

Similarly, Cayman Islands’ general partners of investment schemes have also been out of scope to date as well as investment managers and advisers registered under the Securities and Investments Business Act (SIBA).

The principal changes to note under the revised regime for investment funds are that:

• all partnerships are now within scope of the legislation; and
• the exemptions available under the previous regime have been removed for CIMA registered investment funds and their general partners, as well as SIBA registered investment managers/advisers.

The “alternative route to compliance”

The revised regime has however introduced an “alternative route to compliance” for investment funds whereby, as an alternative to creating and maintaining a register and reporting to the competent authority, the investment fund can simply provide to their registered office details of a named “Contact Person”, such person being either:

• a licensed fund administrator which is licensed under the Mutual Funds Act; or
• another person in the Cayman Islands that is licensed or registered under another regulatory law for providing beneficial ownership information.

The role of the Contact Person is to act in a liaison capacity between the investment fund and the competent authority. Whilst the beneficial ownership information of the fund will not need to be reported to the competent authority on a monthly basis, the Contact Person must have access to such information in order to be able to provide beneficial ownership information to the competent authority within 24 hours of a request being made.

Importantly, the alternative route to compliance does not apply to general partners of CIMA registered investment funds structured as partnerships or SIBA registered investment managers or advisers and these entities will now under the revised regime be required to create and maintain a register of beneficial owners.

Access to beneficial ownership information

Access to beneficial ownership information may be requested by a wide number of bodies under the new legislation, including the Financial Reporting Authority, the Cayman Islands Monetary Authority, the Anti-Corruption Commission and the Tax Information Authority.

There is the possibility that the Cabinet may, with approval from the Cayman Islands’ Parliament, make regulations empowering the competent authority to make beneficial ownership registers accessible to persons that can demonstrate a “legitimate interest” (e.g. where access to such information is sought by the requester as a means of preventing or combatting money laundering and terrorist financing). However, this is not currently in force and is anticipated to be introduced by further regulations in due course.

Penalties for non-compliance

Whilst enforcement action has been suspended until 2025 under the revised regime, it is important that Cayman Islands entities prepare in advance to ensure they are compliant in time.

Under the revised regime, the Cayman Islands Registrar of Companies can impose an administrative fine of up to CI$5,000 (approximately US$6,100) per breach.

In addition, further penalties may be imposed if breaches are not remedied in a timely manner.

How ZEDRA can help

As the revised regime is now in force, operators of Cayman Islands investment funds should consider the changes and how they will affect their investment fund and related entities.

For CIMA registered investment funds taking the “alternative route to compliance” rather than opting into monthly submissions of their beneficial ownership information to the competent authority via their corporate services provider, ZEDRA can assist in acting as the fund’s named Contact Person for providing information to the competent authority in accordance with the revised regime.

If a related entity of your investment fund is no longer exempt under the revised regime and is now required to create and maintain a beneficial ownership register (for example your fund’s General Partner if structured as a partnership or your fund’s SIBA registered investment manager), ZEDRA’s Cayman Islands’ team are also on hand to assist you in ensuring compliance, including assisting with the creation and maintenance of beneficial ownership registers and effecting all requisite filings in the Cayman Islands.

Please contact Philippa-Lucy Robertson should you wish to discuss any aspect of the revised regime.