You may have heard that the BVI and the Cayman Islands are introducing registers of beneficial ownership. The good news is that, for the funds industry anyway, which is being engulfed by more and more regulatory red-tape, this should be one of the least onerous new developments to your business.
The BVI legislation in relation to the beneficial ownership register comes into force on 30 June 2017 and the Cayman legislation comes into force on 1 July 2017. Each requires information about the beneficial ownership of BVI business companies and Cayman Islands companies (including LLCs) to be uploaded onto a secure and private register maintained within the relevant jurisdiction.
In response to an exchange of notes with the UK government last year, both regimes will allow the register to be searched by a small group of local governmental bodies and only in very specific circumstances where they have received a legitimate request for beneficial ownership information from designated taxation, law enforcement and criminal investigatory authorities in the UK.
Whilst wanting to meet these contractual obligations, the governments of each jurisdiction have balanced this with ensuring that the system is as secure as it can be and have primarily focused on ensuring that the privacy of legitimate commercial interests of individuals that have elected to use a BVI or Cayman domiciled vehicle remains upheld, particularly in the regulated global financial services industry.
From our industry’s perspective, we have been very pleased to see that the legislative draftsmen in both jurisdictions have recognised that regulated entities already have robust systems in place to identify their clients/ investors and have excluded these entities and their subsidiaries from the regime.
Therefore, the obligation to provide beneficial ownership information in either regime does not apply to companies listed on any recognised stock exchange or certain companies which are regulated in the jurisdiction such as regulated funds, investment managers and investment advisers.
In addition, Cayman has exemptions for the general partners of these types of regulated entities and for any company managed, arranged, administered, operated or promoted by an “approved person” (eg investment advisors or managers regulated by the SEC or the FCA or Cayman Islands or BVI-regulated fund administrators), as a special purpose vehicle, private equity fund, collective investment scheme or investment fund.
So how might I be affected?
In the BVI, private equity funds structured as BVI business companies will fall within the regime (although clearly the vast majority of private equity funds we are establishing are electing to use a limited partnership structure, which puts them firmly outside of scope), as will any BVI business companies which are general partners of funds structured as limited partnerships and that are not licensed in the BVI to perform that role.
In the Cayman Islands, private equity funds structured as a company or the general partner of a limited partnership private equity fund will fall within the regime in more limited circumstances. For example, a private equity fund which is structured as a company will not be exempted, where its US based investment manager is not regulated by the SEC and it has appointed an administrator which is located, but not regulated, in the US.
Cayman Funds which find themselves in this specific position may want to engage a different office of their administrator to be their administrator of record (for example, if the administrator has a Cayman Islands or BVI office which is licensed) to ensure that they can benefit from the exemption.
So, if I do happen to fall under the regime, how do you assess who the beneficial owners are anyway and what information must the register contain?
The beneficial owners will generally be each individual who is deemed to be the “ultimate” beneficiary of the Company, for example, because he or she:
- holds, (in)directly, more than 25 per cent of the shares, or limited liability company interests with a right to share in more than 25 per cent of the capital or profits in the Company;
- holds, (in)directly, more than 25 per cent of the voting rights of the Company;
- holds the right, (in)directly, to appoint or remove a majority of the board of directors or managers (for an LLC); or
- otherwise exercises significant control over the management of the company.
The definitions of beneficial ownership are slightly different for the BVI and Cayman and so if you need a detailed analysis on this then it’s best to reach out to one of our blog team for the details. The registers also have to include details of certain relevant legal entities which would be deemed a beneficial owner of the company if they were an individual. Again, there are nuances between the jurisdictions as to which legal entities are required to be entered and we’d be more than happy to provide this level of detail if required.
It is of course immediately apparent that given the 25 per cent ownership/control threshold for being a beneficial owner, the circumstances in which investors into any fund will need to be recorded on the register are likely to be very limited, even where a fund does fall under the regime.
The information which must be contained in the register in respect of each beneficial owner or registrable person is also slightly different between the BVI and Cayman regimes but, for both, includes basic identification information such as name, address and date of birth for individuals and date of incorporation for entities.
So alongside everything else I am trying to process right now, what do I need to do on this front?
For most of our clients, absolutely nothing. However, we are here to help and so if you think that your vehicle may not qualify for one of the exemptions, we would recommend reaching out to me or any other member of our blog team to make sure that you are doing everything that you need to. There may also be some fairly straightforward restructuring that we can help you with to ensure that you can take advantage of the exemptions available.
Hopefully for the vast majority of you that began reading this blog, you were able stop reading after the seventh paragraph and focus on far more important things in life like, in my case, how much bug spray I need to pack for my long weekend, camping on St John.
 An “approved person” is a person (or subsidiary of a person) that is regulated, registered or licensed under a Cayman Islands regulatory law or regulated in an approved Schedule 3 jurisdiction or listed on the Cayman Islands Stock Exchange or another approved stock exchange.
The author of this post is no longer with Harneys. For more information on this topic, please reach out to the author listed above.