Securities investment business in or from the Cayman Islands is regulated by the Securities Investment Business Law (Revised) (SIBL). SIBL sets out which securities investment business activities are regulated, and so need a license to do them, and also various exemptions from the licensing requirement.
So how does SIBL work?
SIBL applies to Cayman Islands incorporated or registered entities carrying on securities investment business anywhere in the world as well as entities with an established place of business in the Cayman Islands carrying on securities investment business there. "Securities" is widely defined and includes shares, partnership interests, trust units, debt instruments, warrants, options, futures and contracts for differences. Securities investment business includes dealing in securities as an agent, dealing in securities as principal in certain circumstances, making arrangements with a view to dealing in securities, discretionary management of securities of another person and advising investors or their agent on securities and the merits of dealing in the security.
Various exemptions from licensing are available under SIBL, the most commonly used ones being for:
- a person who is regulated for securities investment business by a recognised overseas regulated body;
- a company in a group of companies which is carrying on securities investment business solely for one or more companies within the group;
- a person carrying on securities investment business exclusively for one or more sophisticated person, high net worth person or a company / partnership / unit trust of which the investors are sophisticated persons or high net worth persons (as defined in SIBL).
The last of these exemptions is particularly useful for an investment manager / adviser of an open-ended fund which is registered with the Cayman Islands Monetary Authority (CIMA) under the Mutual Funds Law (Revised), as a sophisticated person under SIBL includes a person regulated by CIMA, ie the fund itself. Sophisticated person also includes persons who are knowledgeable and experienced in financial and business matters and who participate in a transaction with a value of at least US$100,000 per transaction. High net worth persons are individuals whose net worth is at least US$1 million or any person who has total assets of not less than US$5 million. As the exemption includes entities whose investors are sophisticated persons or high net worth persons, it is also available to managers and advisors of funds which are not regulated by CIMA (including non-Cayman funds) but whose eligible investors fit within the sophisticated person / high net worth definitions.
Setting up a manager / adviser in the Cayman Islands using one of the exemptions above under SIBL typically involves incorporating a Cayman Islands exempted company, completing a declaration and filing it with CIMA to confirm which exemption applies and paying the annual fee to CIMA, currently US$6,097. The manager / adviser must also have anti-money laundering policies or procedures in place or have delegated that function to a suitably qualified third party. Directors of an exempted manager under SIBL must also be registered or licensed with CIMA under the Directors Registration and Licensing Law 2014, see our earlier post for more details. The exemption has to be renewed annually by 31 January each year by completing the declaration again and paying the fee to CIMA.
Although my BVI colleagues are quick to point to the BVI's recently introduced approved manager mechanism as an alternative, the Cayman Islands exempted manager regime remains a popular and well established way for Cayman investment managers and advisers to provide their services to funds and sophisticated or high net worth investors without going through a full licensing application. I suspect we're going to have to agree to differ with the BVI on this one.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.