Cayman Islands Beneficial Ownership Transparency Act

The new Cayman Islands Beneficial Ownership Transparency Act (or “BOTA“) is now in place, effective from July 31st, 2024. As advised in our previous article, this act introduces new rules about transparency in ownership, and for the first time, many funds are now included in these requirements. While enforcement won’t begin until January 1st, 2025, it’s important for fund managers and stakeholders to start understanding what this means and how to comply.

A New Focus on Transparency for Funds

Under previous regulations, most funds didn’t have to keep a beneficial ownership register. This changes with the updated BOTA, which now requires funds operating in the Cayman Islands to maintain these records. For many funds, this means keeping track of key details about who ultimately owns or controls the fund, so regulators can access this information if needed.

For most funds, the process is straightforward: there will typically be a single entry in the beneficial ownership register for the entity holding shares on behalf of investors. However, to meet all the requirements, funds will need to work closely with their administrators and registered offices to ensure they’re capturing and reporting the right details accurately.

Participating Shares and Ownership Structures: What You Need to Know

Funds that issue participating shares, whether when they’re first set up or as part of raising new capital—will need to take a closer look at the ownership of these shares. For each participating shareholder, you’ll need to check if they meet certain criteria for reporting under the BOTA.

While this might sound complicated, it’s largely about understanding who ultimately controls or owns a substantial stake in the fund. Many of the details required here are similar to what’s already gathered for Anti-Money Laundering (AML) purposes, so fund managers may find they already have much of the information needed. But ensuring compliance with BOTA may require an even closer collaboration with your administrator, who can assist in tracking and updating beneficial ownership data.

Key Thresholds for Reporting: The “Majority Stake Test”

If an investor owns 25% or more of the preference shares in a fund, that’s the trigger to look more closely at their ownership structure. This is often called the “majority stake test.” The goal is to follow each layer of ownership until you reach either a person or an entity that has significant control, meaning 50% or more of the voting rights or actual control over fund decisions.

Once you identify the end of this ownership chain, you’ll need to record certain details in the fund’s beneficial ownership register, including:

• Name of the legal entity or individual
• Registration number (if it’s a legal entity)
• Legal form (like corporation, LLC, partnership, etc.)
• Registered office address (for entities)
• The nature of control or ownership over the fund
• The date they became a “registrable person” (someone who meets the criteria for reporting)

Having a strong partnership with your registered office can help streamline this process, ensuring that all necessary information is gathered and documented in line with BOTA requirements.

Individual Ownership: Additional Details Required

If your analysis leads to an individual person instead of a corporate entity, a bit more information is needed for the register. For individuals, you’ll need to include:

• Full name
• Date of birth
• Nationality (and any additional nationalities, if applicable)
• Identification type (like a passport or driver’s license)
• Identification number and country of issue
• Residential and service addresses (can be the same)
• Nature of control over the fund
• Date they became a registrable person

Each person or entity meeting these criteria is considered a “registrable person,” meaning their details must go into the fund’s beneficial ownership register. Administrators and registered offices will play an important role in gathering and verifying this information, which ensures accurate compliance.

Timing and Compliance: Staying Ahead of the Deadline

The BOTA requires that beneficial ownership information be updated within 30 days of any change—like when a new investor buys a significant portion of preference shares or gains control over the fund. Since this is a short window, fund managers will want to set up efficient processes to capture these changes and report them on time.

Close coordination with administrators and registered offices will be crucial in meeting these timelines. By working together, funds can make sure they’re ready to submit updates as soon as any changes in ownership occur.

The good news is that enforcement doesn’t start until January 1st, 2025, which means there’s still time to get everything in order. Using this period to prepare will ensure your fund is fully compliant by the time enforcement kicks in.

Final Thoughts

The new BOTA may feel like a big change, but it’s manageable. By setting up your processes now and collaborating with your administrator and registered office, you’ll be ready to comply with the updated rules. The aim of this legislation is to increase transparency in beneficial ownership, ensuring funds operate with integrity and accountability in the Cayman Islands.

With these adjustments in place, funds can continue operating smoothly and confidently, knowing they meet the latest regulatory standards.

For specific guidance on the specifics and details on the Beneficial Ownership Transparency Act and how your business may be impacted by these measures, please contact your usual Vale Law attorney or any of:

Shelley Do Vale: shelley.vale@valelaw.ky

Santiago Mtnez-Carvajal: sc@valelaw.ky