Cayman Islands enhances and consolidates beneficial ownership legislation

On 23 Nov, Parliament passed the Beneficial Ownership Transparency Bill (2023). It consolidates and enhances Cayman’s beneficial ownership rules in line with evolving global standards and consolidates the framework in a single act.

The changes to the beneficial ownership regime demonstrate Cayman’s continuous efforts in adopting the changing international standards to tackle money laundering and terrorist financing. They will also help prepare Cayman for future rounds of FATF evaluations.

In addition to various updates and amendments, the new Act combines the beneficial ownership rules of the Companies Act, the Limited Liability Companies Act, and the Limited Liability Partnership Act in a single piece of legislation.

No public register of beneficial ownership

The Beneficial Ownership Transparency Act contains a clause that would enable Cabinet to make regulations to provide a limited form of public access to specified beneficial ownership information. Such regulations will have to be affirmed by Parliament and would be subject to prior public consultation.

In October of 2019, the Cayman Islands made a commitment to introducing public registers of beneficial ownership information when this became a global standard.

The undertaking was made in response to evolving standards and in particular to an order in council, drafted but not enacted by the UK government under Section 51 of the UK Sanctions and Anti Money Laundering Act. The order in council would have imposed publicly accessible registers of beneficial ownership information of companies in the UK overseas territories if they had not implemented them by 31 Dec 2023.

However, on 22 Nov. 2022, the European Court of Justice issued a judgment that declared public access to beneficial ownership information in Luxembourg and other EU member states was a disproportionate interference with the data protection and privacy rights guaranteed under the European Charter of Fundamental Rights.

Following the ECJ judgment, the Ministry of Financial Services sought expert legal and constitutional advice on public registers and how to engage with the UK Foreign, Commonwealth and Development Office in light of the 2019 commitments.

Minister of Financial Services André Ebanks told Parliament during the presentation of the bill, “It was concluded by our technical team and our external Constitutional counsel, that the ECJ judgment constitutes a material change in circumstance since the Cayman Islands made the 2019 commitments and that the implementation of a register of beneficial interest accessible to the general public by the end of 2023 is not only not feasible, but importantly, it is not constitutionally sound.”

The Act now contains a clause and a specific provision to permit Cabinet to make regulations to provide constitutionally permissible public access.

Because the ECJ judgment leaves room for a limited form of public access which may not be a disproportionate interference with privacy rights, access may be granted to certain parties who meet a legitimate interest test.

Changes in preparation for future FATF evaluations

The new act takes into account increased transparency around beneficial ownership information included in the European Union’s Fifth Anti-Money Laundering Directive and changes to FATF standards.

In March 2022, the FATF strengthened its standards relating to beneficial ownership information of legal persons. These revisions included an expansion of the types of entities the standards apply to with additional required data points, such as nationality and the nature of ownership or control of the beneficial owner.

In addition, the changes to the FATF standards require the provision of improved access to the beneficial ownership information by competent authorities, financial institutions, and designated non-financial businesses and professions.

Minister Ebanks said implementing the revisions to the FATF standards into legislation and having a demonstrable track record of effectiveness will serve the Cayman Islands to get ahead of the next round of FATF mutual evaluations which commence in 2025 and are anticipated to cover the Cayman Islands in 2026.

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