In October 2015, the Cayman Islands Monetary Authority
(CIMA) announced its policy with respect to audits
of stub periods in the context of mutual funds. Following a public
consultation, CIMA has now gazetted a revised regulatory policy
setting out the conditions where it may exempt a regulated mutual
fund from audit requirements (Regulatory Policy).
While the Regulatory Policy retains the pre-existing grounds for
application for waiver, it expands the grounds on which
applications may be based. For those funds seeking to avoid
an audit for the stub period 1 January 2016 to 30 June 2016, fast
action is required in order to make use of the changed policy
before 30 June 2016.
In considering whether to exempt a fund from the annual audit
requirement, CIMA must be satisfied that the exemption will not
contravene any terms of the fund's articles or other
constitutive documents and its offering document, or prejudice the
fund's investors and creditors. In addition to the documents to
be provided pursuant to the Regulatory Policy, an operator of the
fund must provide written confirmation of the absence of such
contravention as well as the prescribed application fee.
When a fund is seeking an audit waiver in conjunction with an
application for de-registration, the Regulatory Policy must be read
with the Rule on Cancellation of Licence or Certificate of
Registration of Regulated Mutual Funds and the Regulatory Procedure
on Cancellation of Licences and Certificates of Registration issued
pursuant to the Mutual Funds Law in order to determine the
documents and fee to be submitted.
In determining whether an exemption should be granted, CIMA will
assess each request on a case by case basis, and may consider an
exemption in the following circumstances:
i. a fund has not launched1 but does not wish to be
ii. a fund has not launched and is being liquidated or wishes to
iii. a fund has launched but has been unsuccessful in raising
sufficient capital for sustainability;
iv. a fund is unable to obtain audited accounts due to events
such as bankruptcy proceedings, legal or regulatory enforcement
v. a fund has been placed in compulsory (involuntary)
liquidation and CIMA is satisfied with the appointment of the
liquidator and the scope of the liquidator's review;
vi. a fund is being voluntarily liquidated and a third party
liquidator (i.e. not the operators or currently engaged service
providers (excluding an Auditor of the fund)) has been appointed
under terms that require a review of the period since the last
financial year end for which an audit has been filed;
vii. a fund is transferring to another jurisdiction within six
months of its last financial year end for which an audit has been
filed, or is due to be filed;
viii. a fund is dissolving by way of a merger within six months
of its financial year end for which an audit has been filed, or is
due to be filed;
ix. all investors in a fund have agreed to forego the audit for a part of a financial year (of not more than six months) and no more than ten investors existed
at any time during that stub period.
CIMA may also in other exceptional circumstances and with
absolute supervisory discretion grant an exemption from the audit
requirement, upon the submission of information as requested by it
and necessary to support the request.
Where all investors in a fund have agreed to forego the audit
for a part of a financial year (of not more than six months), the
applicant is required to submit:
(i) an affidavit from an operator of the fund confirming that no
more than ten investors existed at any time during the stub period
and that each remaining investor has resolved to waive the audit
for that stub period; and
(ii) a resolution signed by each investor confirming its
agreement to a waiver of the audit. Submitted resolutions must
explicitly outline the acknowledgement and acceptance of all
inherent risks involved in not conducting a financial audit for the
given stub period.
In any case where an affidavit is submitted, CIMA will satisfy
itself as to whether its contents are sufficient and whether the
affidavit may be accepted in lieu of audited accounts as required
under the Mutual Funds Law. CIMA may require additional evidence to
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.
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