On 8 January 2020, the Cayman Islands Government published a draft Mutual Funds (Amendment) Bill, 2020 (the "Bill"), which provides for the registration of previously exempted mutual funds with the Cayman Islands Monetary Authority ("CIMA") as well as certain other amendments to the Mutual Funds Law (2019 Revision) (the "Law").
The Bill, reflecting the Cayman Islands' commitment as a co-operative jurisdiction, is responsive to EU and other international recommendations and covers similar ground to existing or proposed legislation in a number of other jurisdictions.
Registration and Local Audit Requirement for Section 4(4) Funds
Mutual funds that were previously exempted from registration
under Section 4(4) of the Law on the basis of having 15 or fewer
investors, a majority of whom could appoint or remove the operator
of the fund ("Section 4(4) funds"), will now be required
to register with CIMA and become subject to certain regulatory
This requirement will apply to all standalone funds, feeder funds and master funds that are structured as Section 4(4) funds.
In addition to registration, a Section 4(4) fund will need to pay an annual fee to CIMA and file a certified copy of an extract of its constitutional documents with CIMA showing that a majority in number of its investors are capable of appointing or removing the operator of the fund. A Section 4(4) fund will not, however, be required to file an offering document (or any amendments) with CIMA.
Local Audit Requirement
The Bill provides that the same annual audit and annual return requirements that currently apply to regulated mutual funds under the Law ("regulated mutual funds") will apply to Section 4(4) funds. As such, each Section 4(4) fund will need to have its accounts audited annually by a Cayman Islands-based auditor and to file such audited accounts with CIMA within six months of the end of each financial year, together with an annual return in CIMA's prescribed form.
Timing for Registration
The Bill provides that existing Section 4(4) funds will have six
months from the date on which the Bill is passed into law to
register with CIMA and to comply with the new requirements.
An existing Section 4(4) fund that registers with CIMA in 2020 will not need to file its audited accounts in respect of any prior financial year, but will be required to appoint a Cayman Islands-based auditor to conduct the audit of its accounts for all financial years ending after the date of its registration with CIMA.
The Bill extends many of CIMA's enforcement powers in respect of regulated funds to cover Section 4(4) funds following their registration.
Benefits of Registration
On registration of a Section 4(4) fund, CIMA will issue a certificate of registration, which may assist in (i) providing a broader distribution channel for those funds and / or investors that are required to demonstrate registration or supervision by a regulator; and (ii) evidencing a fund's regulated status to counterparties in connection with anti-money laundering compliance checks.
Accounting Principles and Auditing Principles for all Mutual Funds
The Bill provides that the accounts of all regulated mutual
funds and Section 4(4) funds must be prepared in accordance with
International Financial Reporting Standards or the generally
accepted accounting principles of the United States of America,
Japan or Switzerland or any non-high risk jurisdiction.
In addition, the Bill provides that the accounts of all regulated mutual funds and Section 4(4) funds must be audited in accordance with the International Standards on Auditing or the generally accepted auditing standards of the United States of America, Japan, Switzerland or any non-high risk jurisdiction.
For such purposes, a non-high risk jurisdiction means any jurisdiction that is not on the list of high risk jurisdictions issued by the Financial Action Task Force.
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.