Changes to beneficial ownership
The Companies Law and the Limited Liability Companies Law of the Cayman Islands (Regime) requires certain Cayman Islands corporate entities (each a company)to maintain a beneficial ownership register (Register) at their relevant registered office, the information of which will be stored in encrypted form on a secure, stand-alone search platform established by the Minister of Financial Services of the Cayman Islands, as the competent authority (Competent Authority).
The purpose of the Regime, explains Piers Alexander, Partner at Conyers Dill & Pearman, is to make beneficial ownership information normally held by corporate service providers, “readily accessible to the Competent Authority in response to proper requests from specified law enforcement agencies (currently limited to those in the Cayman Islands and the United Kingdom). The search platform is not publicly accessible and may only be searched by or on behalf of the Competent Authority.”
Unless subject to an exemption, each company must take reasonable steps to identify any individual beneficial owner of the company and all relevant legal entities.
“Not all beneficial owners or relevant legal entities will be entered on the Register; only registrable persons. Registrable persons fall into two categories: (a) an individual beneficial owner who holds, directly or indirectly, more than 25 per cent of the shares or the voting rights in the company; or has the right, directly or indirectly, to appoint or remove the majority of the directors of the company; or has the legal right to exercise, or actually exercises, significant direct or indirect influence or control over the company through the ownership structure (other than solely as a director, professional adviser or professional manager) and (b) a relevant legal entity, which, in relation to the company, is incorporated, formed or registered under the laws of the Cayman Islands and would be a beneficial owner of the company if it were an individual,” explains Alexander.
The available exemptions to the Regime include any legal entity, or its subsidiary, which is either listed on the Cayman Islands Stock Exchange or an approved stock exchange; or registered or licensed under a Cayman Islands regulatory law (such as the Mutual Funds Law, the Securities Investment Business Law (SIBL) or the Banks and Trust Companies Law); or managed, arranged,
administered, operated or promoted by an approved person as a special purpose vehicle, private equity fund, collective investment scheme or investment fund (Fund).
An approved person is a person, or its subsidiary, that is regulated, registered or licensed either under a regulatory law or in another recognised jurisdiction under the Anti-Money Laundering Regulations (including China, Hong Kong, Singapore, the United Kingdom and the United States) (Recognised Jurisdiction); or listed on the Cayman Islands stock exchange or an approved stock exchange under the Companies Law.
On 27th November 2017, the Cayman Islands Government published, but has not yet enacted, an amendment to the Regime (Amendment), which introduced further clarification on the exemptions. For example, a legal entity which is managed, arranged, administered, operated or promoted by an approved person as a Fund will now include where that Fund is a Cayman Islands exempted limited partnership.
“This will ensure that a company which acts as the general partner of a Cayman Islands exempted limited partnership which, for example, has appointed a manager licensed by the Securities and Futures Commission of Hong Kong (i.e. an approved person), will be exempt,” says Alexander.
“However, the Amendment also now removes from the definition of regulatory laws a company registered as an Excluded Person under the SIBL and such a company will therefore be in-scope for the purposes of the Regime, unless it falls within another exemption (e.g. is the subsidiary of an applicable listed, regulated or licensed company). This also means that any Fund which is not regulated in the Cayman Islands or a recognised jurisdiction, will be in-scope, even if it has appointed an Excluded Person as manager.”
China’s Belt and Road initiative
The Chinese government is engineering a policy shift away from an economy fuelled by corporate debt and government stimulus, towards more sustained, quality, consumer driven economic growth. This rebalancing also reflects the social and purchasing shift of a new generation of consumers whose priorities are not those of their parents or grandparents. As a group less likely to have credit history with which they can access traditional finance, these consumers have turned to the nonbank lending of fintech providers. This, says Alexander, has led to an increasing affinity with fintech products and services, away from cash or card-based transactions.
In tandem, the Chinese government has implemented measures encouraging investment in sectors it sees as necessary for development in order to effect its planned economic shift, including healthcare, insurance, education, social services, utilities and entertainment.
“These sectors are the fastest growing aspects of the Chinese economy and chime with the view that the middle class in China will be a key economic driver,” states Alexander.
Another factor in driving outward economic growth will be the Belt and Road initiative, intended by the Chinese government to improve the infrastructure of overland and maritime routes between East and West in order to facilitate the flow of capital, goods and services.
“The Belt and Road reflects the ancient Silk Road, which transformed international trade and cultural exchange along a number of intercontinental trade routes,” says Alexander. “The ‘Belt’ is the land route from China across Central Asia into Europe and the ‘Road’ is the maritime route out of China encompassing South-East Asia, the Indian Sub-Continent, East Africa, the Middle East and into the Mediterranean.”
Through the Belt and Road initiative, China will access over 65 countries representing more than 60 per cent of the world’s population and around 30 per cent of global GDP. Not only will China gain new markets but it will also be in a position to secure key commodities, minerals and energy resources.
A core aim is to make it easier for businesses operating in and out of China to reach the middle classes along the Belt and Road. The view being that, if infrastructure development leads to urbanisation in developing countries along the routes, the domestic economies will also develop. If domestic demand drives activity across the region, the economic landscape for China and other countries along the Belt and Road will move away from debt-fuelled investments and reliance on exports. This will also release over-capacity pressure should China’s traditional markets not be able to continue to absorb its available exports.
“Offshore financial centres (OFCs), such as the British Virgin Islands and the Cayman Islands, have been an integral part of the development and financing of Asian infrastructure projects and crossborder deals for over 30 years. With the flexibility afforded by the available structures for debt and equity financing, whether as investment funds, capital market offerings or bond issues, OFCs are ideally positioned to continue that relationship for the Belt and Road,” concludes Alexander.