Once your fund is registered with the Cayman Islands Monetary Authority (CIMA) it will need to comply with various ongoing obligations under the Mutual Funds Law.
The list isn't long but it's important for regulated funds to comply to keep the fund in good standing with CIMA and avoid offences / penalties. Failing to comply with FATCA-related reporting obligations can also potentially result in a 30% withholding tax applying to the fund, which is clearly best avoided.
So, if your fund's registered under section 4(3) of the Mutual Funds Law ( see our earlier blog on the different kinds of funds), what are its ongoing obligations?
1. Tell CIMA about changes to the Offering Document and certain specific fund changes
Regulated funds are required to tell CIMA about any change that materially affects the information in the fund's offering document or the relevant CIMA form which sets out certain prescribed information and file an amended offering document / form including the changes within 21 days. As there is no definition of what's "material" in the law, all changes to the offering document, other than very minor typos, are typically filed with CIMA. These would include changes to any of the offering terms, change of the fund's registered office or principal office, any change of director or general partner (for a limited partnership) or trustee (for a unit trust), change of auditor or other service provider and change of name. These changes would also typically involve filing an amended offering document and form MF1 with CIMA. Under a recently issued rule, regulated funds must also apply to cancel their registration / licence from CIMA within 21 days of ceasing to carry on business as a regulated fund ( see our earlier blog for more details).
2. Pay Annual CIMA Fee
The annual fee is payable by 15 January each calendar year and penalties start to apply if it's not paid on time. The annual fee is the same as the registration fee, currently US$4,268 for a section 4(3) fund that is not a master fund, US$3,048 for a master fund. For funds which are structured as segregated portfolio companies, an additional fee of US$305 is payable per segregated portfolio.
3. File audited annual financial statements and annual e-filing
Regulated funds must file audited financial statements with CIMA each year within 6 months of the fund's financial year end. These must be audited and the audit signed off by a Cayman Islands based auditor on CIMA's approved list, which includes the Cayman branches of international accountancy firms and Cayman audit firms. Regulated funds must also submit a fund annual return to CIMA with their annual accounts. This is in an approved form and contains general, operating and financial information on the fund. The fund's Cayman auditor generally files this electronically, together with the fee of US$365.
4. Operate in accordance with CIMA Statement of Guidance
CIMA expects regulated funds to be managed and operated in accordance with the statement of guidance that it published in December 2013. The guidance sets out certain minimum governance principles including effective supervision of service providers, identifying, disclosing and managing conflicts of interest and risks, holding regular board meetings and keeping full written records of those meetings. We'll be looking at the CIMA guidance in more detail in another blog.
5. Make FATCA / CRS Filings
Although the Cayman Islands are not directly subject to the US Foreign Account Tax Compliance Act (FATCA), they have introduced legislation implementing FATCA requirements for 'financial institutions' to identify and report certain US accounts. Cayman has also recently introduced legislation to implement the OECD's Common Reporting Standard, which now applies to Cayman funds as of 1 January 2016 and requires them to report information on the holders of reportable accounts which are tax resident in reportable jurisdictions. Legislation is also in force implementing a similar tax sharing agreement between the Cayman Islands and the United Kingdom. This requires funds to identify and report certain UK accounts, although without the withholding tax regime for non-compliance that applies under FATCA. This is expected to be phased out however in 2017, now that CRS is in force. We'll be looking in more detail at what funds need to do about FATCA and CRS in another blog.
Cayman Islands regulated funds will also have other ongoing obligations including annual filings with and fees to be paid to the registrar in the Cayman Islands, which depend on whether the fund is set up as a company, limited partnership or trust. Directors of CIMA registered corporate funds must also renew their registration / license with CIMA each year under the Directors Registration and Licensing Law ( see our earlier blog for more details). If the fund's investment manager is registered as an "excluded person" under the Securities Investment Business Law, it will also have to make an annual filing and pay an annual fee to CIMA to maintain its registration. Please see our earlier blog for more details on the SIBL exempted manager regime.
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.