The Cayman Islands have a business friendly regulatory regime
for the regulation of managers or advisers to investment funds.
The Securities Investment Business Law ("SIBL")
regulates entities incorporated or operating in the Cayman Islands
and it provides for four types of licenses. However, almost all
managers to investment funds formed in the Cayman Islands are
exempt from obtaining a license and are known as an
SIBL Excluded Person
In order to obtain the exemption from obtaining a license under
the SIBL the manager must be providing management or advice to
'sophisticated persons', a 'high net worth person'
(including investment funds) or a company, partnership or trust
where the owners/investors are all sophisticated persons or high
A 'sophisticated persons'
someone regulated by CIMA (or foreign regulator); or
listed on a stock exchange; or
a person who can recognize the risks of the investments they
are making which are at least US$100,000 per transaction.
A 'high net worth person' is an
individual with assets of at least US$1 million or any type of
entity with at least US$5 million of net assets.
Therefore, managers to almost all investment funds regulated by
The Cayman Islands Monetary Authority ("CIMA") would be
an 'excluded person' under SIBL as it is based on the net
worth of the parties being advised and almost all CIMA registered
funds meet this requirement.
Even though the majority of Cayman managers are exempt from the
SIBL and they do appear on the CIMA website as "Securities
– Excluded Persons".
Initial and Ongoing Requirements
Initially, all that is required is the filing of an
Excluded Persons Form with CIMA signed by a director and payment of
the Excluded Person fee of US$4,269 (US$6,100 from 2013).
Thereafter in January of each year the Excluded Persons Form
confirming that only sophisticated persons (the investment fund)
are advised by the Manager together with the fee of US$4,269 must
be filed with CIMA.
Money Laundering Reporting Officer
There is a requirement to identify a person responsible to
ensure the adherence to the anti-money laundering obligations of
the manager. This person is listed on the Form as the 'Money
Laundering Reporting Officer' in Form filed with CIMA
(initially and annually) often the directors do not take on this
role if they are not based in the Cayman Islands as they must be
aware of the current Cayman Islands reporting requirements. In such
cases it is useful to have at least one director located in the
Cayman Islands to act as the Money Laundering Reporting Officer
although this person need not be a director and they can act in
such capacity on a stand-alone basis.
Directors and Shareholders
There are no specific requirements for the directors or
shareholders of the Investment Manager. They can be located
anywhere in the world and no professional designations or
experience is required.
Interaction with Sub-Adviser
Investment Manager would normally delegate some of its duties to
an advisor in another jurisdiction if it does not have personnel
located in the Cayman Islands. However, it is usually important for
the Cayman Islands manager to be left with some real activities
which can range from simply having responsibility for payment of
audit fees and arranging the audit process to actually making the
investment management decisions, invoicing and operating bank
accounts. The scope of services to be determined is normally based
on onshore advisors recommendations.
In summary the Cayman Islands are an ideal jurisdiction for the
formation of an Investment Manager to an investment fund as the
regulatory regime is straightforward and flexible under the SIBL
* * * * * * * * * * *
ABOUT THE AUTHOR: Victor Murray is an independent accredited
director at MG Management Ltd. who is resident in the Cayman
Islands and he is an Executive Committee member of the Cayman
Islands Directors Association. He is admitted as a Lawyer in New
York and as a solicitor in Scotland. He has considerable offshore
fund experience as in-house counsel for Citco and thereafter as a
director or many hedge funds.
The Financial Action Task Force (FATF), the international
standard setting body for anti-money laundering and
counter-financing of terrorism, has taken a welcome step forward
into the risk based approach being adopted by banks to prevent
money laundering and terrorist financing.
The European Securities and Markets Authority has issued a consultation paper seeking feedback from asset management industry members on its draft advice to the European Commission regarding depositary requirements under the forthcoming UCITS V directive.
In a recent (August 2014) decision, the DIFC Court has ruled against financial institutions in a USD 200 million investment mis-selling claim.
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”