In this episode, we discuss Consultation on the Beneficial Ownership Transparency and Securities Investment Business (Amendment) Bills, 2025 and regulatory enforcement.

SPEAKERS:

Chris Capewell, Partner | +1 345 814 5666 | chris.capewell@maples.com | View bio

Anthony Mourginos, Partner | +1 345 814 5155 | anthony.mourginos@maples.com

| View bio

Ellen O'Brien, Associate | +1 345 814 5534 | ellen.o'brien@maples.com | View bio

RESOURCES:

Visit our Regulatory Round-Up Blog for the latest developments and insights in the regulatory landscape

RELATED SERVICES:

Maples Group Regulatory and Financial Services Advisory

With a depth of experience across all regulated sectors, the Maples Group Regulatory and Financial Services team is positioned to address client needs and sensitivities. We have the largest dedicated Cayman Islands Regulatory and Financial Services team in the offshore market.

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Website: https://maples.com/podcasts/15-15

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Hello everyone,

and welcome to this month's latest edition

2

of the 1515 podcast.

3

I'm Chris Capewell and I'm the global head

of the regulatory team here at Maples.

4

Today on the podcast, I'm delighted

to be joined by Anothony Mourginos, who's

5

a partner in our team, and Ellen O'Brien,

who's a senior associate in our team.

6

We're hoping

we can keep this at, 15 minutes.

7

So we'll see how we go.

8

As always,

do check the contents of this podcast

9

on Apple Podcasts,

Spotify, and Google Podcasts.

10

Anthony and Ellen, before I get into it,

11

I did want to do a shameless plug

just for the regulatory blog.

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But we've all worked

very, very hard to get up and running.

13

So if you do just go to Google

and type in Maples

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Regulatory blog, you'll see that on there.

15

And the idea behind

16

that is to provide you, the listeners

and clients with an up to date,

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almost sort of every day, every other day,

the latest and greatest rake news,

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not just from Cayman, but from BVI,

Luxembourg, Ireland and Jersey.

19

So do take a look at that.

20

And then the other shameless plug for us

is congrats to Donny,

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Ellen and the team on recently

winning the award in the US

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for Hedgeweek,

for Global Regulatory Team of the year.

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So well done guys.

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So in that context, Danny, I did have,

I was pre preparing this and

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I had some points I want to talk about

on the beneficial ownership consultation.

26

and I'll hand over to you

27

so that you can that track us

through beneficial ownership transparency.

28

Amendment

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Thanks, Chris.

30

Yeah.

31

So we have had yet

another round of consultation.

32

On the beneficial ownership regime.

33

Consultation drafts of the,

amending bills to the act and

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the regulation, were published on the,

I think, the 17th of September.

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And those are really quick turnaround.

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I think, you know, a week or so to review

these and provide comments from industry,

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which which we did together with other

industry players.

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We haven't yet

had a final version of the amending

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regulations or the, the bill

which would amend the regulations.

40

But we have had a final version of the,

Beneficial Ownership

41

Transparency Amendment Bill,

42

which is the piece of legislation

which amends the, the, the act.

43

A lot of the changes

in the consultation draft were,

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fairly

let's, let's call them administrative.

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There were a few things

coming out of the act where there were

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little, bugs

which needed to be tidied up.

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So I don't propose

to go through all of that.

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What what I think would be useful

is just to pull out 3 or 4 of the changes

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that, are, I think either interesting

or all will be will be relevant

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for, you know, our listeners,

potentially on a regular basis.

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So one of the changes

and this is kind of half, half

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in the kind of administrative, half

in the relatively interesting point.

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Section 12 of the act is, is amended,

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to put it beyond doubt, what information?

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Data points are required to be submitted

in particular circumstance.

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And that circumstance is where your legal

person, your Cayman entity, is claiming

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the alternative route on the basis

of being a subsidiary of a listed person.

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Previously, the law was a little confusing

that it didn't actually say

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that you had to list

the name of your listed parent.

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By way of reminder to our listeners,

the listed alternative route to compliance

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is the only alternative route

to compliance where

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you can be a subsidiary of another entity

which meets the criteria.

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But the law didn't actually say that you

had to name, what that subsidiary was.

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Now, I say it's kind of interesting,

but I and administrative

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because I think the, technical guidance

or the portal that,

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you know, CSPs are actually using

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to upload data did actually force you

to name the listed parent.

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So there was a mismatch between the law

and practically what people had to do.

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So an interesting update,

but also practically

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an administrative, change that

that is, is certainly very welcome.

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The other interesting,

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change comes to section 19 of the Act.

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Section

19 deals with restriction notices.

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And those provisions have been generally

tidied up and clarified.

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Now listeners will recall that

a restriction notice

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under the Beneficial Ownership

Transparency Act is the tool

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that's available under the BOTA regime,

which is effectively designed

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to assist the legal person

to assist the Cayman entity

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in kind of forcing compliance

of its beneficial owners

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in certain circumstances where you don't

have the information, the legal person

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hasn't reported the data

that it needs to on its beneficial owners.

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The CSP has this tool available to them.

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It's effectively a a notice which places

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certain pretty hefty restrictions

on the relevant interest.

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That needs to be reported.

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Can't transfer.

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You can't you know by seller

all these other types of restrictions,

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that the CSP places on that interest.

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The section previously cross

referred to incorrect provisions

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and it was,

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to be honest, generally confused,

which made it quite difficult

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for corporate service

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providers to actually determine

whether or not a restriction notice.

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Ought to be issued.

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So thankfully, this amended bill does,

correct the mistakes.

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And it does actually delineate between

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when restriction notice should be issued

and in what circumstances.

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So sorry.

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And also what a corporate service provider

should take into account when it is

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thinking about or issuing restriction of

so I think a welcome change.

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It does provide some clarity,

on the issue to notice provisions.

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So so I was I was happy to see those come

through nearly under the change.

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Oh sorry. Two two more.

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Section 22, introduced a new amendment,

which,

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I found it quite surprising that,

this this wasn't in there,

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but technically there was no provision

in the Act

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which specified

that the registrable person.

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So the beneficial owner, itself

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couldn't actually make a submission

to the registrar

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to seek its own information, his or her

own information that is on the register.

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So that provision has now been included.

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And then the only other one,

is two changes to section 26 and 29.

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And they basically relate

to the administrative fines, provision.

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So listeners will recall

that there is a list of certain breaches

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set out in the regulations

where it specifies that if a legal person

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or a CSP or a beneficial owner breaches

those particular provisions,

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the registrar has the ability

to issue a administrative fine.

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And that fine was set out in the law

as $5,000 penalty.

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The effect of the changes to section 26

and 29 basically make it clear.

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And I think this was always Maples

interpretation of this.

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But to make it clear

and put it beyond doubt that

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those administrative fines are not

legislative maximums, the registrar does

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not, in the event of a breach, the $5,000

penalty doesn't have to be imposed.

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The changes make clear that the registrar

should take into account

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mitigating or indeed aggravating factors

to determine,

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what level of administrative

fine ought to be imposed.

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So I think this was a very welcome change,

I think clarified the position.

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So I think we were pleased to see that

come through.

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I think those are the main things, on the

whole Donny, you saying good amendments.

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You're happy

with the amendments and step forward.

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Certainly a step forward.

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Some of the things that I,

that I raised there,

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I think have been bugbears

for us, for a little while.

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So it's good to see them cleaned up.

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And I have no doubt that we'll continue

to see consultations and amendments

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to this regime as it develops and as well

as, as it develops across the world,

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as everyone else has their own

beneficial ownership regimes.

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And as they develop and industry,

approaches change.

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Excellent.

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And do we have an effective date

for the bill or not?

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No, not yet actually.

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So it was gazetted, I think, on the,

the 9th or the 10th of October.

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But we yet to have it formally passed,

so not as of yet.

144

I haven't checked this morning.

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But I don't think we have an effective

date.

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Yeah. Okay.

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Okay.

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Whilst you are looking at the BOTA

consultation, which is no longer.

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It's now the bill.

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We were also looking at the SIBA

consultation.

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Do you want to just give the listeners

a few points from that consultation?

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Again noting to everyone

this is a consultation, it may change

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completely.

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It might not even come through into law.

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But we do think it's important,

just that you are aware

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at least of a few of the takeaway points

that might come through.

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Yeah, definitely.

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And this one

was probably more substantive

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than I think from when you compare it

to the beneficial ownership one.

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So SIBA, the Securities Investment

Business Act, we've had that

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consultation draft come out.

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It proposes pretty

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fundamental changes to, the approach,

both the regulator's approach

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and ongoing responsibilities

for SIBA registered persons.

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So listeners, recall that you have SIBA

registered persons and SIBA

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licensees and registered persons.

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I think the intention behind

that kind of regulatory regime,

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was a lighter touch, regulatory approach

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for Cayman entities

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performing,

you know, securities investment business.

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This consultation draft proposed

pretty fundamental changes

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to, capital requirements,

liquidity requirements.

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Reporting requirements, obligations

to maintain audited accounts, ongoing

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responsibilities and approval

applications that are required to make

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that be made with CIMA.

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On a whole, I think it's,

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the the intention behind the consultation

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draft

seemed to be a shift in a push of these.

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The register person

regime closer to the licensee regime.

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So some of the key amendments

that were proposed in the consultation

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draft, again, as Chris,

you said, you know, this is not law.

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This is a consultation draft.

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We haven't seen the final bill come out,

and I think we're expecting

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potentially

another round of consultation, hopefully.

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But,

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the there was a new provision proposed

where it effectively set out a,

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an ability for the for CIMA

to take a risk based approach

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or a proportional risk based approach,

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to licensing and registration

decisions and applications.

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I don't think we

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were quite clear on exactly the intention

behind that, because, it did seem like,

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the authorities CIMA does already have

that ability to take that approach.

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And I think actually putting it reference

to that

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in the law did kind of muddy it because

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it's no long

it would make it no longer exactly

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clear what is required

in the context of an application.

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Other key changes,

you know, CIMA are proposed or sorry,

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the government are proposing, CIMA

approval

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pre-approval is required in,

in, in a quite a few more circumstances.

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So changes in shareholding, changes

in directors,

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other changes to the kind of operating

functions of the SIBA registered person

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currently under the current law,

certain changes can be made,

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now and then a post notification scheme

to CIMA.

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This helps the

this helps these registered persons

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kind of flow continue

with their ongoing operations.

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And not have to kind of

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wait and pause for this kind of deal flow

or ongoing operational changes.

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So I think that would be

quite a fundamental shift.

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The other the other big one, I think, is

that the the consultation draft proposes,

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that SIB registered persons,

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can be required

to have auditors appointment

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and to provide audited

financial statements to the authority.

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This requirement has been,

you know, with the licensee

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regime since its inception,

but never with the register person.

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So if that were to come in,

that would be quite a fundamental shift.

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And quite a fundamental cost shift

for registered persons as well.

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You know, having audited accounts,

obviously isn’t free,

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and having the requirement

to ongoing report them to the authority,

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I think would be,

quite a change for register persons.

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There's another proposal and this would be

the last one that I mentioned

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that, is set out in, in the schedule,

which lists the, the type of activities

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which are SIB, which are securities,

excuse and investment business.

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It puts in a fairly broad, fairly

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vague, provision which

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allows cabinet to make provision

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and make new laws for SIB like activities.

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I think our feedback on that provision

is, is that it is unclear

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exactly what activity,

is trying to be focused on here.

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And I think our feedback

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and industry feedback, on that provision

is that if, you know,

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new activities are to be brought in scope

of, of securities investment business.

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And I think the idea is

that it's a, it's an evolving space,

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you know, the regime will change.

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That's fine.

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But I think we need to be crystal clear

on exactly what activity

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these provisions are trying

are trying to capture.

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Yeah. Perfect. Okay. Thanks, Tony.

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And again, as we as we both reiterate,

that is a consultation only.

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Industry, Maples

and other significant stakeholders

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have gone back with the feedback on that.

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So let's see where that one lands.

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And then, maybe next month

we'll have you on talking

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about the Securities Amendment Bill

rather than the consultation.

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Ellen, Donny has touched on some new laws

and the consultation.

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I did want to have you on this

because I know that you've got

246

significant experience on the CRS

and the economic substance penalties.

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We've talked about this.

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I think every other podcast

we talk about the trends in enforcement

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and effectiveness, particularly with the,

FATF review coming up.

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The focus really is on effectiveness

and enforcement.

251

Can you,

I think it'd be useful for everyone

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if you could just track us

through some of the basics, you know,

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how does this work for CRS or economic

substance from a client's perspective?

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What's the first step?

What's the second step?

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and what are you typically seeing

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the clients are missing?

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And is there room to push back?

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I think it's probably easy

if we talk around that,

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that some of the listeners,

that do have Cayman

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entities can get more of a flavor of what

they should be looking for

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and how they can engage with us or other

service providers or even in-house

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to ensure that this, you know,

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starts to stop because we are seeing

a significant amount of penalties

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within the jurisdiction,

most of which are just, you know,

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foot faults of easily being corrected

and that there's just a mismatch there.

266

So if you could just talk us through that,

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I think that would probably

be really beneficial for the listeners.

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Yeah, certainly Chris

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as you mentioned,

we have seen a recent uptick,

270

in enforcement activity

by the Tax Information Authority,

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in respect of both CRS and ES filings.

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And I think listeners, will be

particularly interested to hear that.

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Last week,the authority began issuing

breach notices for failing

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to submit CRS compliance forms

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So the deadline for relevant

financial institutions

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to submit the CRS

compliance form was the 15th of September.

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So just a few weeks ago really

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So the authority was really quick off

the mark in issuing the breach notices.

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This time round.

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So as you say,

I think it would be helpful to discuss

281

a little bit more about the breach notice itself

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what it says, what it is,

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what it proposes, the deadline to respond,

and so on.

284

So that's what

I'll kind of step through today.

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And then we'll talk a bit

more about the penalty notices.

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And what we're seeing in respect

of the IRS, filings as well.

287

So, in respect of the breach notices,

so where the authority has identified

288

that a financial institution

has committed an alleged offense,

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the authority will propose to impose

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a penalty on that financial institution

for the offense.

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It believes the relevant

financial institution to have committed.

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So a breach notice will always be issued

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before a primary penalty notice is issued.

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So listeners

that may have received a breach

295

notice will note

the language used on the breach

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notice indicates a proposed action

and a proposed penalty.

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And this is of significance

because it is there breach notice

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is not a final penalty notice.

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So we're still at the proposed stage.

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And this is a very important stage

as it gives

301

the affected party

time to engage with the authority.

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On with regard to the alleged offense.

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So the affected party

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has a minimum of 60 days

from the date of receiving the breach notice.

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To make written representations

to the authority

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about the proposed action,

the proposed amount, or both.

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And it's also

308

important for listeners to understand

that this is the only formal

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opportunity of engagement

an effective entity will essentially have.

310

With the authority.

311

So it's effectively their opportunity

to put forward their side of the story.

312

So to give their reasons to the,

authority, about why for example,

313

they have not submitted the relevant

314

filings, be that under the CRS regime

or the ES regime.

315

So it is a really important

316

opportunity,for the clients.

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And we always say that engagement

in this regard is key.

318

So the extent to which a breach notices

remedied is a factor that the authority

319

will, subsequently consider,

when deciding to,issue a penalty notice.

320

And then if so, the amount of the penalty

notice what that amount should be.

321

But it should be noted,

that remediation does not itself

322

preclude the issuing of a penalty notice.

323

So it's always very important to,

get the remediation

324

steps done,

and submitted in a timely manner.

325

But to note that taking those steps

in and of itself,

326

won't prevent

a subsequent penalty notice from issuing.

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So I suppose if we take this,

328

if we think about, a client

who has just received

329

a penalty notice, excuse a breach notice,

what should they do?

330

So the first steps are, of course,

to review the breach notice carefully.

331

So ensure that the notice is addressed

to the correct entity.

332

It has the correct entity's name and

the correct principal point of contact.

333

in a CRS context.

334

It's also important that the client takes

note of the relevant deadline dates.

335

So there will be an opportunity,

as I mentioned, to submit,

336

representations to the authority.

337

And on the breach notice itself, it will

set out, when the submissions are due.

338

And,a client will have a minimum of 60 days

339

to submit, written representations

to the authority,

340

from the date upon

which the breach notice is received.

341

So the, client should also consider the,

342

action and the remedial steps

as outlined in the notice.

343

As soon as possible.

344

So again, it goes to this, engagement

piece, to make the remedial filings

345

as soon as possible, engage

with the authority, and,

346

put your best foot forward

essentially.

347

And so, Ellen, would you say,

mindful we're probably going

348

to run out of time, as we always do,

but would you say that the breach notices

349

is equally as important

as the penalty notice itself? Yes.

350

And if not more important,

I think that's, you know,

351

you need to make make those filings and,

and to be in compliance

352

with your obligations

under, be it CRS or ES

353

So very, very important parts and

it also gives the client a good shot at,

354

waiving

or reducing the fine to a certain extent,

355

that we have seen in the past

where, clients engage,

356

early with the DITC, that theI DITC will take this into consideration,

357

when reviewing the written representations

to waive

358

or really reduce the penalty amounts.

359

So early engagement is definitely key.

360

Yeah, completely agree.

361

If we then turn to the, penalty notice.

362

So, assume

363

that you have received your breach notice,

you've submitted the relevant returns.

364

You've submitted the representations,

the DITC then

365

subsequently issues a penalty notice.

366

So under regulation 31 (1),

367

there are certain requirements

that will be,

368

that will be outlined

in the penalty notice.

369

So similar to the breach notice,

you should like the key things that,

370

you should to look out for is that

the address is the correct, entity name.

371

It will also importantly, outline

the amount of the penalty imposed.

372

The reason for the authority's decision

to impose a penalty,

373

and it also outlines

374

that the affected

party may appeal to the court

375

against any decision to impose,

the penalty amount

376

within 60 days of receipt

of the penalty notice.

377

So importantly, here,

once a penalty notice is received

378

that the time to formally engage with

the authority has now passed.

379

So really payment must be made

then by the specified deadline,

380

on the penalty notice.

381

And there are specific instructions

provided,

382

in the appendix to the penalty notice

and thereafter.

383

Then you must, email the DTC,

384

email the authority that the payment

has been made and provide evidence.

385

As I indicated, that there are,

386

there is a formal appeal process

to the Grand Court.

387

This,

of course, will be an expensive exercise

388

and of course, an effective entity

would need,

389

substantive grounds

to make such an appeal.

390

So one would need to demonstrate,

a valid ground for appeal,

391

which could include, identifying an error

of fact or law.

392

So, for example, that the entity, did

in fact meet its

393

relevant obligations

for that relevant reporting year.

394

Or something along the lines

that, the authorities failure

395

to properly consider and apply

the required statutory considerations when

396

deciding whether to impose a penalty,

and whether it's quantum.

397

So really that there needs to be

that substantive ground of appeal.

398

Otherwise the penalty,

399

ought to be made,

by the penalty deadline.

400

Yeah.

401

And, and we've seen quite

a lot of successful appeals,

402

and we've also seen, a large number

of successful pushbacks on breach notices

403

because there are legitimate reasons

why you may get the penalties waived

404

or disapplied, as the case may be,

but you really are up against it.

405

If you've been issued a breach notice

and you haven't replied,

406

and then sort of a few days just before,

you know, after

407

receipt of penalty notice, you

then sort of kick in to gear.

408

That's that's quite a difficult task

pushing our appeal to get that disapplied

409

Yes it is, it is for sure.

410

I also just wanted to quickly touch upon

some of the, s penalty notice.

411

The economic substance penalty notices

that we have seen recently.

412

So the authority has recently issued,

penalty notices,

413

where the authority

414

has determined that the affected entity

has failed to file its, its return

415

for the 2022 financial year, it within

12 months of the financial year end.

416

So in those circumstances,

the authority considers that

417

the affected entity has failed

the economic substance test

418

and has imposed the maximum penalty

permitted under the S act.

419

The penalty amounts

is approximately 10,000 CI dollars,

420

which equates to over 12,000 USD.

421

So it is a very punchy, penalty

that is imposed.

422

That effected entity

423

in those circumstances

they would have received a penalty notice

424

in around this time last year,

for failure to file the ES return,

425

and since no action was taken, in that time,

426

the authority has deemed that

the entity has failed

427

the ES test,

and has imposed that chunky penalty.

428

Seperately to that, we're also seeing penalty

notice being issued in relation

429

to missed ES reporting filings for the 2023

reporting period.

430

And those penalties imposed

are approximately,

431

two and a half thousand CI dollars.

432

So again, none of these penalties

are to be sniffed at.

433

They are quite punchy penalties.

434

So, it's very important that,

435

clients really understand

their obligations under the CRS

436

or the ES regime.

437

And I just lastly wants

to kind of touch upon

438

some of, how to avoid a potential,

439

any potential future

penalties going forward.

440

So the first thing,

441

it would be an idea to download

our regulatory calendar

442

on our new blog that Chris mentioned

at the top of the podcast.

443

This reg calendar, has the relevant

filing deadlines on there.

444

Then in terms of

445

if a, an entity has received a recent

breach notice for a failure

446

to submit the CRS compliance form,

if there is a third party service

447

provider engaged to file

your FATCA CRS reports,

448

ensure that the cross compliance form

filing

449

is included in the scope of services or,

you know, ensure

450

somebody from within your organization,

is making the relevant filings,

451

on time to avoid any future of penalties

being imposed.

452

Really importantly, to ensure

that your principal point of contact

453

has access to the DITC portal,

that they know their login details,

454

the DTC user guides is a really good,

455

resource on the, the DITC's website.

456

If anyone needs further information

that regards,

457

and ensure that the,

the principal point of contact

458

and the authorized persons details on

the portal, are current and correct

459

Yeah, I would completely echo that,

especially the last part

460

around the principal point of contact,

also ensuring that

461

he or she who is on

there is the right person.

462

Often you know, right at the beginning

463

of the infancy, most clients

would put the most senior person on there.

464

And then we are occasionally finding out

that the senior person maybe

465

doesn't have access to,

466

you know, all of the emails or

but they'll go through to

467

a spam folder or something.

468

So definitely check that.

469

Okay.

470

Thank you. Ellen.

471

Thanks, Donny.

472

One other thing,

just to mention, the further complicate,

473

we do have a CRS consultation

in the works as well.

474

So what we've been talking about on CRS

may change.

475

Again, this is another consultation.

476

So, I think overall, particularly

as we're coming to the close of the year,

477

do get in contact with your advisers,

Maples or whoever you work with,

478

just to ensure that you do not

miss any of these deadlines.

479

Most of the penalties

that we're seeing come through

480

could have been avoided for the most part,

if, people were aware of

481

of the relevant deadlines

on what was required.

482

So trying to front foot

that, is a good reason.

483

Obviously, we're always here

to help everyone out to the extent needed.

484

So Donny and Ellen, thank you. As always.

485

I think we are over time.

486

And if anybody does have

any further questions, reach out to us

487

or just have a look on our blog

and hopefully that will be of assistance.

488

So thank you for listening.

489

Thanks, Donny.

Thanks, Ellen. Great. Thank you.