Cayman Islands: FAR Out! – E-Reporting Now Reality For Cayman´s Hedge Funds Industry

Last Updated: 21 June 2007
Article by Mark Lewis

Most Read Contributor in Cayman Islands, September 2018

Originally published in Cayman Financial Review

On 29 March 2007 the Cayman Islands Monetary Authority ("CIMA") confirmed full operation of Cayman's new electronic reporting system for the submission of annual returns for hedge funds licensed, registered and administered in the Cayman Islands heralding the start of a new modern and digital era of hedge fund regulation in the Cayman Islands.

Following several months of successful testing by CIMA's own e-reporting team, third party contractors and industry stakeholders in Cayman, CIMA has now released the electronic Fund Annual Return (FAR) on its website and has opened the internet portal through which local Cayman based auditors will submit both a hedge funds annual audited financial statements and the FAR to CIMA.

All hedge funds licensed, registered or administered in the Cayman Islands that have a financial year-end date after 27 December 2006 must now file a FAR and audited financial statements within 6 months of the hedge fund's financial year end.

CIMA and its e-reporting team are to be congratulated on a job really well done. The entire process of conception, design, testing and implementation of the new e-reporting system has been completed on schedule ready for all 2007 audit filings, which is perhaps just as well as 2006 proved to be another record year for hedge fund registrations in the Cayman Islands.

Total active hedge funds registered in Cayman passed the 8,000 mark in September 2006 and CIMA reported a 31 December 2006 year-end closing total of 8,134 active funds, an increase of 15% over 2005 and a 123% growth over the past 5 year period.

The growth trend is not letting up in 2007 with CIMA reporting that new hedge funds continue to register at a rate of 30 to 35 per week in the first 3 months of the year. 508 new hedge funds were registered in the first quarter of 2007 (compared with 457 in the corresponding quarter of 2006), and, taking into account terminations, an additional 388 net new hedge funds were registered with CIMA in the first quarter of 2007 bringing the quarter-end closing total of active hedge funds to 8,522.

At this stage CIMA estimate that calendar year 2007 will be substantially similar to 2006, producing a net increase of between 1,000 and 1,200 new hedge funds.

Although many funds registered with CIMA in the second half of 2006 will have elected a first financial year-end date of 31 December 2007, and will therefore not file audited financial returns until as late as June 2008, the vast majority of Cayman's hedge funds registered under the Mutual Funds Law will now all file for the first time under the new e-reporting system between now and the end of June 2007.

CIMA and the local audit firms confirm that the first filings for hedge funds have now been made successfully under the new e-reporting system. By the third week of April 2007 Cayman based auditors had filed annual audited financial statements and FAR's for the first 21 hedge funds required to report electronically under the new regime.

Historically, CIMA has received and managed manually the audited accounts of the hedge funds that it regulates – an overwhelming, labour intensive and inefficient process. E-Reporting will make the entire filing, review and supervision process more efficient, and it will provide scalability and save time and resources by avoiding increased staffing numbers and costs.

The industry will benefit from e-reporting with CIMA committed to passing on cost savings produced by e-reporting by holding annual registration fees at current levels for as long as possible.

It is perhaps too early to say exactly how preparation and handling of the FAR's will be handled by both the operators of the registered hedge funds (directors in the case of a corporate hedge fund, general partners for exempted limited partnership and trustee's for unit trusts) and their service providers. Impact on the hedge funds themselves and operators is expected to be negligible.

Although operators may delegate completion of FAR's to service providers (in practice, likely to be the funds attorneys, registered office or administrator), the operator remains legally responsible for the accurate completion, and on time filing, of the FAR with CIMA and, importantly, the hedge funds audited financial statements for a reporting period cannot be filed by the auditor without of the FAR.

For independence reasons, auditors will not take part in the process of completion of FAR's, although they are likely to be provide the underlying financial data for completion of the FAR. Auditors will receive the FAR in electronic form from the operator of the hedge fund (or the hedge funds service provider) in the electronic form (e.g. e-mail, on cd-rom) specified by the audit firm and, in practice, audit firms are likely to also require a manually signed copy of the FAR to verify approval and signature by the hedge fund operator.

The involvement by auditors in the submission of FAR's as part of the electronic filing process had initially raised potential independence issues for auditors under US Securities and Exchange Commission (SEC) independence rules, but lobbying by CIMA resulted in the SEC confirming in November 2006 that the submission of FAR's by auditors under the new e-reporting initiative will not violate SEC auditor independence rules.

For those filing FAR's for the first time in 2007 the FAR itself, and Guidance Notes and Directions To Completing the Fund Annual Return, which were prepared by CIMA with the input and assistance of local stakeholders, can be obtained from CIMA's website at – www.cimoney.com.ky/ereporting.

The interest of international regulators and local service providers in the e-reporting process was always more significant than industry savings and security for audit filings, and attention will now turn to how, and when, CIMA will interpret and report data obtained from the more than 8,500 hedge funds now covered by e-reporting.

It will certainly provide more accurate aggregation and dissemination of industry statistics. We know that, but what of the detail? Certainly aggregate numbers for the value of assets under management by Cayman Island hedge funds globally and by geographical region, trends in net asset value performance for Cayman hedge funds as a whole (but perhaps also by country, geographical region and even city), average subscriptions, redemptions into Cayman hedge funds in each reporting period, percentage allocation of assets by investment managers to key hedge fund investment strategies, application/success of particular investment strategies in various geographical regions, the use by hedge funds of stock exchange listing services and the choice of stock exchange, minimum investment restrictions, the percentage of hedge funds suspending redemptions or valuations, summary of management and performance fees (by country, geographical region and even city . There will no doubt be many more.

CIMA and Cayman service providers have made much of the benefits of Cayman's new e-reporting system, and it really is an advanced step in the direction of effective regulation of the growing number of regulated hedge funds in Cayman. Cayman is already the clear jurisdiction of choice for the institutional hedge fund market and the successful introduction of e-reporting and the meaningful flow of industry relevant information will continue to set Cayman apart and will certainly continue to enhance Cayman's well-deserved reputation.

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 Mondaq.com.

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

Authors
 
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 Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions