Cayman Islands: Regulation of Mutual Funds in the Cayman Islands

Last Updated: 12 May 1999
The regulation of mutual funds which are established under Cayman Islands Law, or which are administered or managed in the Cayman Islands is largely governed by the provisions of the Mutual Funds Law ("the Law") which was originally enacted in 1993 and was last revised in 1996. The Law defines a mutual fund as:

1. a company, unit trust or partnership;

2. which issues shares, trust units or partnership interests respectively;

3. that carry an entitlement to participate in the profits or gains of the company, unit trust or partnership and are redeemable or re-purchasable at the option of the investor before the commencement of winding up or dissolution of the company, unit trust or partnership;

4. with the purpose or effect of pooling investor funds with the aim of spreading investment risks and enabling investors to receive profits or gains from investments.

The definition specifically excludes any person who is licensed under the Banks and Trust Companies Law or the Insurance Law or who is registered under the Building Societies Law or the Friendly Societies Law.

The scheme of the Law is to apply an appropriate level of regulation to each mutual fund, depending on its circumstances. In descending order of degrees of regulation, funds may be either licensed under sub-section 3(1)(a) ("Licensed Funds"), administered under sub-section 3(1)(b) ("Administered Funds"), registered under sub-section 3(3) ("Registered Funds") or exempted under sub-section 3(4) of the Law ("Exempted Funds").

Licensed Funds

The Law provides that, unless it is an Administered, Registered or Exempted Fund, a mutual fund shall not carry on or attempt to carry on business in or from the Cayman Islands unless it has a Mutual Fund Licence and has either a registered office in the Cayman Islands or, in the case of a unit trust, has as its trustee a trust company licensed under the Banks and Trust Companies Law. The grant of a Mutual Fund Licence is within the discretion of the Managing Director of the Monetary Authority, who may require such information as he may deem necessary to satisfy himself that the promotor of the applicant fund is of sound reputation, that its administration will be undertaken by persons who are of sound reputation and have sufficient expertise, and that its business and any offer of equity interests in it will be carried out in a proper way. An application for a Mutual Fund Licence may be made in the prescribed form (Form MF3) and must be accompanied by:

1. a copy of the current offering document or latest draft;

2. a copy of the most recent annual audited accounts;

3. where applicable, a certified copy of the Certificate of Incorporation or Registration issued by the Registrar of Companies;

4. completed personal questionnaires, references and police clearance certificates for all directors of a corporate mutual fund, or all directors of a corporate trustee of a unit trust mutual fund?, or all directors of any corporate general partner of a limited partnership mutual fund;

5. a letter of consent from an approved auditor accepting an appointment as auditor, including a statement that, if the auditor becomes aware of or has reason to believe that the fund is or is likely to become insolvent, is carrying on or attempting to carry on business or is winding up its business in a manner prejudicial to its investors or creditors, or is carrying on or attempting to carry on business without keeping sufficient accounting records to allow for a proper audit of its accounts, then the auditor will immediately notify the Monetary Authority pursuant to Section 39 of the Law;

6. a letter of consent from the administrator of the fund; and

7. the application fee of CI $700.00 (US $854.00). (The annual licence fee is also CI $700.00).

A Mutual Fund Licence may be granted on terms that it will take effect upon the incorporation of a corporate mutual fund [or, in the case of a foreign company, upon its registration as a foreign fund under Part IX of the Companies Law (1998 Revision)], or on the establishment of any unit trust. A Mutual Fund Licence may also be granted subject to such conditions as the Monetary Authority may consider appropriate, and the Monetary Authority may, upon application, waive, vary or revoke any such condition.

Administered Funds

For a mutual fund wishing to carry on business in or from the Cayman Islands, one alternative to obtaining a Mutual Fund Licence is to have a licensed mutual fund administrator provide its principal office in the Cayman Islands. In accepting an engagement to provide the principal office of a Licensed, Administered or Registered fund (a fund of any such category, a "Regulated Fund"), a licensed mutual fund administrator is required to satisfy itself, and make a declaration to the Monetary Authority, that each promotor of the Regulated Fund is of sound reputation, the administration of the fund will be undertaken by persons who are of sound reputation and have sufficient expertise, and the fund's business and any offer of equity interests in it will be carried out in a proper way. This declaration and other prescribed details in respect of the Regulated Fund must be filed with the Monetary Authority (on Form MF2) as soon as the administrator starts to provide its principal office. In addition, the licensed mutual fund administrator must submit:

1. the fund's current offering document or the latest draft;

2. a letter of consent from an approved auditor containing the Section 39 statement;

3. a summary of the services to be provided by the administrator;

4. where applicable, a certified copy of the Certificate of Incorporation or Registration issued by the Registrar of Companies; and

5. the first annual Administered Fund's fee of CI $700.00.

Administered Funds are therefore to be contrasted with Licensed Funds in that the licensed mutual fund administrator has a duty to conduct suitable inquiries to satisfy itself of the probity of the promotors, administration and business of the Administered Fund, whereas in the case of a Licensed Fund this responsibility is vested directly in the Monetary Authority. To this extent the regulatory regime is characterised by the principle of self-regulation, although, as described below, the Monetary Authority retains comprehensive powers to intervene where appropriate. The principle of self-regulation is further expressed in the duty of the licensed mutual fund administrator to notify the Monetary Authority immediately if it should become aware, or have reason to believe that a Regulated Fund for which it provides a principal office (or a promotor, trustee, general partner or director of such a Regulated Fund) is or is likely to become insolvent, or is carrying on business unlawfully or in any manner that is or is likely to be prejudicial to its investors or creditors.

There is every reason to believe the legislature's apparent faith in the ability of the mutual fund administration industry in the Cayman Islands to assist in the regulation of mutual funds is well founded. It is reported that there are now some ( ) mutual fund administrators holding unrestricted licences under the Law, and these include most, if not all, of the leading fund administrators world-wide, such as ABN Amro Trust Company, Bankers Trust, Barclays Private Bank and Trust, Brown Bothers Harriman, CITCO Fund Services, Coutts & Company, Deutsche Morgan Grenfell, Goldman Sachs and MeesPierson. Most of these administrators are members of the Cayman Fund Administrators Association which has developed its own code of conduct for the regulation of the conduct of its members. The depth and strength of the fund administration industry follows on from the enormous success of Cayman's banking industry - the Cayman Islands is the world's fifth largest banking centre (after London, New York, Tokyo and Hong Kong) with nearly 600 bank and trust licencees including 45 of the world's top 50 banks with dollar deposits in excess of US $500 billion.

Registered Funds.

As a further alternative to obtaining a Mutual Fund Licence or appointing a licensed mutual fund administrator to provide its principal office in the Cayman Islands, the Law provides that a mutual fund may carry on or attempt to carry on business in or from the Cayman Islands if the minimum equity interest purchasable by a prospective investor in that mutual fund is CI $40,000 (approximately US $50,000) or its equivalent in any other currency, or if its equity interests are listed on a stock exchange (including an over-the-counter market) specified by the Monetary Authority. For this purpose the Cayman Islands Stock Exchange was approved by the Monetary Authority on [ ]. Such a fund may apply for a Certificate of Registration from the Monetary Authority by filing the prescribed details (on Form MF1) in respect of its current offering document or the latest draft, which should be accompanied by:

1. a letter of consent from an approved auditor containing the Section 39 statement;

2. a letter of consent from its administrator;

3. where applicable, a certified copy of the Certificate of its Incorporation or Registration issued by the Registrar of Companies; and

4. the first annual Registered Fund's fee of CI $700.

The lighter regulatory touch which is applied to Registered Funds is premised on the assumption that investors who are in a position to invest the minimum subscription amount of US $50,000 are likely to be a sophisticated investor who can assess (or afford professional advice on) the risks associated with an investment in the fund, or alternatively that listed funds will be subject to effective regulation by the relevant stock exchange.

Exempted Funds.

The Law permits one category of funds to carry on or attempt to carry on business in or from the Cayman Islands without any filing whatsoever with the Monetary Authority. This exempt status is available only to those funds in which the equity interests are held by not more than 15 investors, the majority of whom are capable of appointing or removing the trustees of a unit trust mutual fund, the general partners of a limited partnership mutual fund or the directors of a corporate mutual fund, as the case may be. In order to meet this requirement the power to appoint and remove directors etc. must be vested in a majority in number of the investors, rather than a majority in terms of the value of equity interests. Funds which are structured so that the investors are issued with a class of shares which carry participation rights but which do not carry voting rights will not qualify as Exempted Funds. Despite the exempt status of such funds under the Law, all law firms, banks, trust companies, fund administrators and other service providers in the Cayman Islands have a responsibility under the Proceeds of Criminal Conduct Law 1996 ("the PCCL") to make suitable inquiries before providing services to any client in order to avoid their services being used in connection with the proceeds of criminal conduct and the PCCL contains provisions for such service providers to report suspicious activity to the relevant authority.

Continuing Obligations.

Under the Law, the requirement that Licensed Funds and Administered Funds should have their current offering documents filed with the Monetary Authority, and that Registered Funds should have prescribed details in respect of their current offering documents filed with the Monetary Authority is not satisfied unless:

a. each such offering document describes the equity interests in all material respects, and contains such other information as is necessary to enable a prospective investor to make an informed decision as to whether or not to subscribe for or purchase the equity interest; and

b. if there is a continuing offering of equity interests and any promotor, director, trustee, or general partner of the fund is aware of any change that materially affects any information in the offering document (or the prescribed details) filed with the Monetary Authority and the fund has not filed an offering document (or amended prescribed details) incorporating that change within twenty-one days.

The Monetary Authority requires an annual report to be filed (on Form RF1) by 31st March of each year, indicating any changes which may have occurred to information previously filed.

Every Regulated Fund is required to file accounts audited by an approved auditor within six months of the end of each financial year, and every Regulated Fund must pay its annual fee of CI $700 to the Monetary Authority on or before 15th January in each year.

Regulatory Powers.

The Monetary Authority may at any time instruct a Regulated Fund to have its accounts audited and submitted to the Monetary Authority. The Monetary Authority may also request such information or explanation in respect of any Regulated Fund as it may reasonably require to enable it to carry out its duties under the law. If requested to do so, each promotor, director, trustee or general partner of a Regulated Fund is required to give the Monetary Authority access to or provide at any reasonable time all records relating to the fund, and the Monetary Authority may copy or take an extract of any record he is given access to.

If it is satisfied that a Regulated Fund is or is likely to become insolvent or is carrying on or attempting to carry on business or is voluntarily winding up its business in any manner that is prejudicial to its investors or creditors, the Monetary Authority may, inter alia;

a. revoke or impose conditions on any Mutual Fund Licence;

b. require the substitution of any promotor, director, trustee or general partner of a fund;

c. appoint a person at the expense of the fund to advise the fund on the proper conduct of its affairs or to assume control of and administer its affairs (including the power to terminate its business); and

d. require the fund to reorganise its affairs, or apply to the court for its compulsory liquidation,

The Monetary Authority also has power to apply to the Grand Court of the Cayman Islands for such orders as he thinks fit to preserve the assets of the investors of any fund which may be carrying on or attempting to carry on business in or from the Cayman Islands without being either Licensed, Administered, Registered or Exempted; including an order for the winding up of any such fund. The Monetary Authority may also apply for a warrant to search any premises where it reasonably believes that an offence has been, is being or is about to be committed, or where records to which it ought to have been given access are to be found; and may take from such premises the original or copies of any record which may indicate that an offence has been committed.

The Monetary Authority is prohibited from disclosing any information relating to the affairs of any fund except where disclosure is required for effective regulation of the fund or when required by law or the Courts of the Cayman Islands.

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 from a local lawyer or accountant.

This article also appears in the 'International Offshore and Financial Centres Handbook 1999/2000'. For further information about this highly informative guide to offshore centres, or to order your copy, please phone +44 (0) 207 820 7733 or send an email to iofch@mondaq.com

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.

 
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”

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
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 you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (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 www.mondaq.com

    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 Mondaq.com’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.

    Disclaimer

    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.

    Registration

    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.

    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 unsubscribe@mondaq.com 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.

    Cookies

    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.

    Links

    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.

    Mail-A-Friend

    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.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    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 webmaster@mondaq.com.

    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 EditorialAdvisor@mondaq.com.

    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 enquiries@mondaq.com.

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

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