Lubbock Fine, 14 May 2020
Two new bills have come into force in the Cayman Islands, named the Private Funds Bill 2020 and the Mutual Funds (Amendment) Bill 2020. Both will increase the regulatory oversight of closed-ended and open-ended funds, beyond the scope of the existing legislation.
Except for regulated mutual funds, regulated EU-connected funds, non-fund arrangements and some overseas private funds (which solicit the Cayman Islands public for investment) all other existing investment funds must register with the Cayman Islands Monetary Authority (CIMA) by 7 August 2020. An annual registration fee will be payable and investors must comply with certain regulatory obligations, such as annual returns and audits. Accessible records will need to be retained and some ongoing obligations will need to be complied with in relation to fund asset valuations, safe-keeping of assets, monitoring of cash and the identification of securities. Any private funds that are not registered with CIMA will not be able to carry on business in the Islands until they register. They may still solicit investment but registration applications to CIMA must be made within 21 days of accepting capital commitments from investors.
The bill offers some flexibility as it permits private funds to choose which service provider they prefer to use in order to comply with the regulatory requirements, as long as the service provider is completely independent from the fund operator or in the case of the provider being an affiliate, they have declared any conflicts of interest.
CIMA will be administering the legislation and have said they will be taking a risk-based approach. They will be able to impose fines or enforce special measures should the fund not be in compliance with legislation. In extreme cases this may involve appointing advisors to take over fund management or even de-registration of the fund.
This amendment seeks to broaden the scope of the existing bill by encompassing funds made previously exempt by virtue of the investor criteria exemptions in Section 4 (4) (a). In a similar way to private funds, all regulated mutual funds must now register with CIMA. Again, there will be an annual registration fee, funds will need to comply with regulatory obligations such as annual returns, accessible records must be maintained and annual audits must be performed or issued by a Cayman Islands registered auditor approved by CIMA. There has been no indication whether or not audits of previous fiscal years will need to be undertaken.
There is a grace period of 6 months, allowing entities to register and provide the necessary information to CIMA. Furthermore the Fund Annual Return will not be required until 6 months following the first full fiscal year after registration. Therefore, if a fund’s year end is 31 December 2021 the first filing will only be required by 30 June 2022.
The Cayman Islands Government Ministry of Financial Services and Home Affairs hopes that these two bills will increase investor confidence and ensure that the Island remains the pre-eminent location for investment funds in the world.
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