The Cayman Islands Government has published two laws for Fund Managers, imposing registration and other requirements on different fund types.
Background
Cayman Islands’ mutual funds which are currently exempted from registration with the Cayman Islands Monetary Authority (“CIMA”) under Section 4(4) of the Mutual Funds Law (2020 Revision) on the basis that (i) the shares or interests are held by not more than fifteen investors, (ii) a majority of whom are capable of appointing or removing the operator of the fund (“Section 4(4) Funds”) are now required under the Mutual Funds (Amendment) Law, 2020 (the “Law”) which came into force on 7th February 2020, to register with CIMA and fall within CIMA’s regulatory purview.
The Cayman Islands Government published two laws which are of relevance to fund managers:
- the Mutual Funds (Amendment) Law, 2020 (the MF(A) Law) requires previously exempt mutual funds to register with the Cayman Islands Monetary Authority (CIMA); and
- the Private Funds Law, 2020 (the PF Law) requires certain closed-ended fund vehicles (private funds) to register with CIMA.
The two Laws are intended to reflect the Cayman Islands’ commitment to be seen as a co-operative jurisdiction.
What funds are affected?
The Mutual Funds Law (2020 Revision) provided funds (known as Section 4(4) Funds) which had 15 or fewer investors, a majority of whom could appoint or remove the fund’s operator, with an exemption from the general requirement to register with CIMA.
What do the Laws change?
a)Mutual Funds Amendment Law
The Mutual Funds Law (2020 Revision) provided funds (known as Section 4(4) Funds) which had 15 or fewer investors, a majority of whom could appoint or remove the fund’s operator, with an exemption from the general requirement to register with CIMA.
Registration Requirements
In connection with its registration with CIMA, each Section 4(4) Fund will be required to do the following.
- File a certified copy of an extract of its constitutional documents with CIMA showing that a majority in number of its investors are capable of appointing or removing the operator of the Fund. (The fund will not, though, need to file offering documents.)
- have its accounts audited annually by a Cayman Islands-based auditor
- File with CIMA such other information as may be required in a prescribed Form within six months of the fund’s FYE
- Pay an annual fee to CIMA.
- In common with all other CIMA regulated entities, each Section 4(4) Fund that is a company will be required to have at least two Directors appointed who will need to be registered with CIMA under the Directors Registration and Licensing Law.
Accounts of all regulated mutual funds and Section 4(4) Funds will have to be prepared and audited in accordance with International Financial Reporting Standards or generally accepted accounting principles of the US, Japan or Switzerland or other non-high risk jurisdiction.
- b) Private Funds Law
The PF Law requires various closed-ended funds (private funds) to register with CIMA.
Under the PF Law, a “private fund” is one whose principal business is:
“the offering and issuing of its investment interests, the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors to receive profits or gains from such entity’s acquisition, holding, management or disposal of investments, where –
- the holders of investment interests do not have day-to-day control over the acquisition, holding, management or disposal of the investments; and
- the investments are managed as a whole by or on behalf of the operator of the private fund, directly or indirectly, for reward based on the assets, profits or gains of the [fund].”
As a result, it seems likely that many parallel or feeder funds will need to register.
The definition, though, excludes “non-fund arrangements”, such as pension funds, holding vehicles and single family offices.
What are the effects of the changes?
- Transitional Period :The PF Law allows a six-month transitional period for existing private funds and any new private funds that receive capital contributions between now and 7 August 2020.
A private fund which is not registered can starts carrying on business after this date but should submit an application for registration with CIMA within 21 days of accepting capital commitments from investors and the fund must be registered before it can accept any capital contributions for the purposes of investment.
- Registration (as for Section 4(4) funds above): Each private fund is required to file prescribed particulars with CIMA. However, offering documents and other constitutional documents will not need to be filed.
- Registration Fee: There will be no registration fee for private funds that register on or before 7 August 2020 though annual fees will be payable from 1 January 2021.
- Accounts Audit : As with regulated mutual funds, a private fund which falls in scope of the PF Law will have to have its accounts audited annually by a Cayman Islands-based auditor and to file them with CIMA within six months of the fund’s financial year-end.
The PF Law also sets out a number of requirements on the valuation of assets, safekeeping of fund assets, cash monitoring and identification of securities. Asset valuation, safekeeping and cash monitoring must be conducted by an independent third party. However, these functions may be conducted instead by the fund’s manager or operator provided that there is independence from the portfolio management function and all conflicts of interest are identified, monitored and disclosed to investors.
Does a 4(4) Fund need to appoint AML Officers ?
A 4(4) fund should already have appointed an Anti- Money Laundering Compliance officer ,Money Laundering Reporting Officer and a Deputy Money Laundering Reporting Officer as required by Cayman Islands AML regulations.
Fund will thus require to file details of those officers with CIMA at the time of registration application is made.
How ASCENT can help ?
ASCENT is an Independent global fund administrator that can help to establish the link between the Fund operators/Manager and the legal counsel to carry on the registration process and further can discuss the next step with ASCENT representatives .Please contact us for more info at sales@ascentfunds.sg and visit us at www.ascentfundservices.com .
