Cayman Islands: The Cayman Islands Approach to the Regulation of Mutual Funds

Last Updated: 27 July 2007

Mutual Funds Law (1996 Revision)

The motivation behind the introduction of the Mutual Funds legislation in 1993 was to follow through the recommendations of the Gallagher Report which stated that the Cayman Islands were in the forefront of the regulation of their financial industry and the operation of mutual funds was an area that had not been subject to regulation by any suitable authority. Accordingly, in recognition of the need to ensure the measured supervision of mutual funds, it was appropriate to introduce legislation to provide a framework for the regulation of all mutual funds, unless specifically exempt, and mutual fund administrators. In July 1993 The Mutual Funds Law (1996 Revision) ("the Law") regulating mutual funds and mutual fund administrators came into force.

The Law strikes a balance between the acceptability of the major names in the industry, who are regulated by registration, and the obligations imposed upon the mutual fund administrators who provide services to the mutual funds which are managed in the Cayman Islands. The major part of the legislation is taken up with the supervision and enforcement provisions, which are to be the responsibility of the Inspector of Banks ("the Inspector").

Definition Of Mutual Fund

A mutual fund is defined as a company, unit trust or partnership that pools the funds of investors who acquire equity interests in the mutual fund for the purpose of spreading the investment risk with a view to profit or gain arising from the acquisition, holding, management or disposal of investments. All the mutual funds are regulated by, or exempt from, the provisions of the law and, if regulated, will hold a licence issued by, or be registered with the Inspector. There are transitional provisions to enable existing mutual funds and mutual fund administrators to comply with the Law.

Licensed Mutual Funds
Unless it qualifies for exemption from the law or meets the requirements for registration only (see below) or a licensed mutual fund administrator is providing its principal office in the Islands, a Mutual Fund Licence must be obtained if a mutual fund is to carry on or attempt to carry on business from the Cayman Islands. A fund requiring to be licensed must also have its registered office in the Islands or, if it is a unit trust, a trustee licensed under the Banks and Trust Companies Law, 1989 and, unless the Inspector has granted an exemption, a current offering document must be filed containing a description of the equity interests to be acquired and such other information as would enable a prospective investor to make an informed decision whether or not to subscribe for or purchase the equity interests.

Registered Mutual Funds

If a mutual fund does not wish to apply for a licence and it has the following characteristics it need only register with the Inspector:-

The minimum equity interest is at least CI$40,000; or

The equity interests are listed on a stock exchange, including an over-the-counter market, specified by the Inspector by a notice in the Gazette.

The regulated mutual fund must file a synopsis of the mutual fund's offering document, register, and pay the prescribed annual registration fee to the Inspector.

Exempt Mutual Fund

It is not necessary for a mutual fund to apply for a licence or comply with the provisions applicable to a registered mutual fund before it can carry on or attempt to carry on its business, if it has fifteen or fewer investors, the majority of whom are able to appoint or remove the operator of the fund.

Even if a mutual fund satisfies the provisions providing for registered or exempt status, it may nevertheless still apply for a licence. The overall effect is that all mutual funds will be regulated apart from those covered by the exemption.

Application Procedures

An application for a Mutual Fund Licence must be made to the Inspector. The information to be contained in the application must be sufficient for the Inspector to be satisfied that all the requirements for a licence or for being treated as a registered mutual fund, or for treatment as an exempt mutual fund, have been supplied. A copy or draft of the offering document together with a synopsis must accompany the application. The Inspector cannot issue a Mutual Fund Licence unless satisfied that:-

-each promoter is of sound reputation; and

-the administration of the mutual fund will be undertaken by a person who has sufficient expertise and is also of sound reputation; and

-the business of the mutual fund and the offering of equity interests will be carried out in a proper manner.

The Mutual Fund Licence may be issued even though the relevant entity has not yet been formed and the Inspector may grant the licence to be effective from the date the relevant entity is incorporated or a trust established. The Inspector has wide discretions and may issue the licence subject to conditions which may then be varied or revoked from time to time.

In order to provide suitable financial information in respect of a regulated mutual fund, the accounts must be audited on an annual basis. The Inspector may extend the period within which they should be submitted.

The Mutual Fund Licence and registered mutual fund fee must be paid by 15th January in every year. If the fee remains unpaid then an additional fee equal to the licence or registration fee will be payable for each month that it is unpaid, although the Inspector has discretion to waive the additional fee.

If a mutual fund has a name which is identical with or resembles an existing name or is likely to suggest patronage or a special status, the Inspector may direct that the name be changed.

Mutual Fund Administration

The mutual fund administrators have a particular responsibility imposed upon them by the law, especially to ensure the promoters are of good standing and ability. If a mutual fund administrator receives his licence, then he has the obligation to know his client and thus ensure the effective "self-regulation" of the industry within the framework of the law; the potential maximum fine of CI$100,000.00 (US$120,000.00) in pertinent circumstances is acknowledgement of the pivotal role of the mutual fund administrators. In reality there is the delegation by the Inspector under the law through the licensing system. The over-regulation that thus exists in other jurisdictions has been avoided.

A Mutual Fund Administrators Licence is required if the following matters are dealt with:-

- the management or administration of the mutual fund, which includes the control of all or substantially all the assets; or

- the provision of the principal office in the Cayman Islands; or

- the provision of an operator;

A restricted Mutual Fund Administrators licence will mention the specific funds to be administered.

The Inspector must give written approval of any director, similar senior officer or a general partner, as the circumstances warrant, although exemption from this requirement may be granted. A company that is a Mutual Fund Administrator must have at least two (2) directors.

No Mutual Fund Administrators Licence is required if all that is being provided is a principal office for a registered mutual fund, and a registered office where corporate secretarial and related services are provided or the maintenance of any register of equity interests or the filing and payment of fees in respect of a company, Partnership or Limited Partnership or Trustee.

The application for the Mutual Fund Administrators Licence must be made to the Clerk of the Executive Council and it will not be granted unless conditions, similar to those that apply to the application for a Mutual Fund Licence are satisfied. There is a net worth requirement of CI$400,000.00 (US$480,000.00) for a Mutual Fund Administrators Licence. Although such a requirement must be considered by the Executive Council, and the Executive Council may waive compliance with the CI$400,000.00 net worth requirement if they are otherwise satisfied as to the financial viability of the mutual fund administrator, the Inspector, for reasonable cause, or if the net worth is less than the amount prescribed, may ask for guarantees or other financial support or direct the mutual fund administrator to increase its net worth to an amount the Inspector considers appropriate. The mutual fund administrator would normally be expected to have a place which will be its principal office in the Cayman Islands and two individuals, who may act jointly or separately, or a body corporate resident or incorporated in the Cayman Islands, as its agent or representative, unless the Executive Council has waived a need for compliance with the provisions. A restricted mutual fund administrator must have a registered office in the Cayman Islands.

If there are any changes to the principal office or the individuals or corporate entity acting for the mutual fund then the Inspector must be advised of the changes. The Executive Council may impose any conditions that it considers appropriate.

If any of the information is supplied in circumstances that the applicant knows, or reasonably knows, that it is false or misleading at the time and subsequently, then the conditions upon which the licence was issued are not satisfied and significant fines may be imposed. The most severe aspects which must be brought to the attention of the Inspector are if the mutual fund is:-

- or is likely to become, unable to meet its obligations as they fall due;

- carrying on business otherwise than in accordance with the normal tenets of the mutual funds law or any other Laws of the Cayman Islands;

- carrying on business in a manner that is or likely to be prejudicial to investors or creditors of the mutual fund.

The notification to the Inspector must be in writing and set out the reasons for the Administrators knowledge or belief.

In order to ensure suitable control of the mutual fund administrators the Inspector must be advised, so approval can be obtained, of any issue, transfer, disposal or dealing in the shares of the mutual fund administrator, unless the Inspector has waived a need to comply with the relevant provisions. Further, as an important element of the supervision, the mutual fund administrator must have annual audited accounts and submit them to the Inspector no later than six months after the end of the financial year. The Inspector may grant an extension but in view of the overall thrust of the legislation it is likely that such a power will be exercised sparingly and only in extenuating circumstances.

Supervision and Enforcement - Powers and Duties of the Inspector

The cornerstone of this mutual fund law is the protection of the unsuspecting and unsophisticated investor. The reasons for this approach do not have to be explained because of all the developments of an adverse nature that have been experienced in the area of mutual funds over the past few years. It does not mean that through regulation there will never be a problem, but the objective is to ensure the regulated environment provides a suitable framework of protection at an acceptable cost to the mutual funds and the Mutual Fund Administrators.

The first requirement enables the Inspector to instruct a regulated mutual fund and a mutual fund administrator to have its accounts audited within a specified time. It is this supervisory power, together with the obligations imposed upon auditors, that provides the level of control over the mutual funds and the mutual fund administrator that should protect investors. The auditor, quite independently of the Inspector, must notify the Inspector in writing if the mutual fund is unable to meet its obligations as they fall due, is not carrying on business in accordance with the mutual fund law or any other law, or is carrying on business in a manner prejudicial to the investors. A comparable responsibility is imposed upon the auditor in relation to a mutual fund administrator. The responsibility of the auditor is particularly pertinent if he has resigned or his audit activities have been terminated.

It is in the area of enforcement that there is the clear indication that the Cayman Islands is serious concerning the protection of investors. The level of fines that are imposed for infringements of the mutual fund legislation are more realistic and provide a structure and level that should assist in deterring those who undertake obligations to investors either as promoters or operators, as well as mutual fund administrators, yet do not reach the level of professionalism, despite meeting the initial requirements of the mutual funds law, that is demanded by the law. The responsibility imposed upon the Inspector, as well as all who are involved in the mutual fund industry in the context of the Cayman Islands, is to know those with whom one is dealing so that there will be no need for the Inspector to invoke any of the powers available.

The Inspector can have access to information and all the records relating to a mutual fund. The Inspector has in support, where there are reasonable grounds to suspect an offence under the mutual fund law has been committed in certain premises or where access has not been accorded, power to apply to a magistrate for a search warrant. The Inspector can apply to the Grand Court to preserve the assets of the mutual fund if the mutual fund is in breach of any of the provisions forming the basis of the issue of its license.

Sanctions and Fines

The Inspector has extensive powers to alter the conditions under which a licensee can operate, enquire into the reasons for non- compliance with any direction and call for information from the promoter or operator. The Inspector may revoke a licence, impose conditions, require the substitution of the promoter or operator, appoint a person to advise on the proper conduct of the affairs of a mutual fund and appoint a person to assume control of the affairs of a mutual fund. The Inspector may take further action which will require application to the Grand Court to protect the interests of the investors or creditors of the mutual fund. There is an obligation on the Inspector to inform the investors if it is practicable to do so. There is also an overriding power with the Inspector to revoke a Mutual Fund Licence if the holder of the licence has ceased to carry on the business as a mutual fund or is being wound-up or has been dissolved. If the Inspector is hindered in any way in the exercise of his powers a fine not exceeding CI$200,000.00 (US$280,000.00) may be imposed.

If a mutual fund is in breach of the conditions of its licence then a fine not exceeding CI$100,000.00 (US$120,000.00) may be imposed. If a mutual fund that is not licensed, registered or exempt represents that it is carrying on or attempting to carry on business in or from the Cayman Islands then it may be fined a sum not exceeding CI$100,000.00 (US$120,000.00). If false or misleading information is provided to the Executive Council the fine may not exceed CI$100,000.00 (US$120,000.00). If the mutual fund administrator is not authorized to carry on business as such then a fine not exceeding CI$100,000.00 (US$120,000.00) may be imposed. If a mutual fund administrator knows or has reason to believe that the mutual fund is unlikely to meet its obligations as they fall due, is carrying on business contrary to the law or in a manner that is prejudicial to the interests of the investors or creditors, the fine is CI$200,000.00 (US$240,000.00).

If an operator of a mutual fund or the mutual fund administrator does not provide audited accounts within the time specified then the fine is CI$10,000.00 plus CI$500.00 per diem during the period of the failure to comply. Failure to comply with requirements of the Inspector can lead to a fine not exceeding CI$100,000.00 (US$120,000.00). The fine that can be imposed upon auditors for not disclosing material information to the Inspector is not to exceed CI$20,000.00 (US$24,000.00); such a sum is also applicable to matters concerning audited accounts, the appointment of directors, issue or transfer of shares, and failure to increase capital or provide a guarantee. If a name has to be changed on the direction of the Inspector and it is not complied with, then the fine may not exceed CI$2,000.00 plus CI$100.00 per diem for the period there was failure to comply with the direction.


The confidentiality of the affairs of those using the Cayman Islands has been well respected over the years. In the mutual fund context it has resulted in very little information being available on the extent to which the Cayman Islands has been used for the establishment of mutual funds and the administration of funds in the Cayman Islands. It is known that the Cayman Islands has been used extensively, but the identity of many of the funds is unknown to the authorities. The mutual fund law, whilst continuing to maintain the non-disclosable nature of the information contained in the application for a licence, the affairs of the mutual fund and that of the mutual fund administrators, does enable the Inspector to collate statistical information, which will be invaluable for the future quantification of the size of the industry and the assistance of the Inspector in the exercise of responsibilities within the mutual fund law. In particular, the information may be used by the Inspector for the effective regulation of a mutual fund, when lawfully allowed or required to be disclosed by a court or under the provision of any other law. Further, as long as the identity of the investors is not disclosed, general information of a statistical nature relating to a mutual fund or a mutual fund administrator may be advised to a mutual fund regulatory authority outside the Cayman Islands. If the Inspector abuses his position and discloses information in a manner outside the law, he can be subject to a fine not exceeding CI$50,000.00 (US$60,975.00).


The appeal possibilities cover any situation where a person is aggrieved by any action taken by the Inspector. An appeal must be filed within sixty (60) days of the written notification of the Inspector's action. The written notice of the appeal must be submitted to the Clerk of the Council setting out the grounds. The result of an appeal may be to uphold the Inspector's action or direct the Inspector to take no action or some other action.

Transitional Provisions

It is crucial on the introduction of new legislation to ensure that the existing business which will now become regulated is not disrupted. It is therefore provided that mutual funds which were in existence at the time of the commencement of the licensing provisions have six months from then to continue to carry on their business without having to become immediately a regulated mutual fund complying with the law. In addition, if a person was carrying on the business that would make him a mutual fund administrator, or an exemption was held under the Companies Management Law, 1984, then a Mutual Fund Administrators Licence does not have to be obtained for six months after the commencement of the law.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.