The Cayman Islands has made changes to its Mutual Funds Law which came into law on 7 February 2020.
These changes, implemented by the Mutual Funds (Amendment) Law, 2020 ('MFL') have been adopted in response to EU and other international recommendations and further demonstrates the Cayman Islands' reputation as a co-operative jurisdiction.
The requirements set out in the MFL will be implemented by way of additional regulations and guidance, which are expected imminently.
What funds are affected by these changes?
The MFL will affect open-ended funds which would previously have been exempt from CIMA registration and regulation under Section 4(4) of the Mutual Funds Law (2020 Revision) ('Section 4(4) Funds'). Section 4(4) Funds are those open-ended mutual funds whose equity interests are held by not more than 15 investors, a majority of whom could appoint or remove the operator of the fund.
Master funds, feeder funds and standalone funds structured as Section 4(4) Funds will be affected by the MFL.
What is the impact of these changes?
Section 4(4) Funds will now be required to register with CIMA. Registration will include:
- filing with CIMA a certified copy of their constitutional documents specifying that a majority of investors in number are capable of appointing or removing an operator of the fund
- payment to CIMA of a prescribed annual registration fee
We expect that registration applications may be submitted online via the existing CIMA registration portal for mutual funds.
Section 4(4) Funds will not be required to have a prescribed minimum initial investment amount or file an offering document (or any amendments to such document) with CIMA.
Section 4(4) Funds will also now be required to have their accounts audited annually by a CIMA-approved auditor.
The fund's accounts will need to be prepared and audited in accordance with International Financial Reporting Standards or generally accepted accounting principles of the United States of America, Japan, Switzerland or any non-high risk jurisdiction. A non-high risk jurisdiction is any jurisdictions which is not on the list of high risk jurisdictions issued by the Financial Action Task Force.
The audited accounts must then be filed with CIMA within six months of the end of each financial year, together with a prescribed form of annual return.
Pursuant to the MFL, Section 4(4) Funds will be required to have at least two natural persons acting as, or for, the operators of the fund. Such persons will also be required to register under the Directors Registration and Licensing Law (Revised).
The MFL provides for a six month transitional period for existing Section 4(4) Funds from the commencement date of 7 February 2020 to register with CIMA and comply with the new requirements under the MFL. This means that they will need to register by 7 August 2020.
Section 4(4) Funds created following commencement of the MFL are expected to be registered with CIMA and comply with the MFL requirements from launch.
Accordingly, clients with existing Section 4(4) Funds and those who are establishing, or thinking of establishing, new Section 4(4) Funds, should speak to us as soon as possible so that we can ensure registration and compliance well before 7 August 2020.
We expect that CIMA will imminently publish guidance and rules which will set the parameters as to how, exactly, the Law will be implemented. CIMA currently have the following draft rules in connection with the Law out for consultation with the private sector and industry stakeholders:
- Rule on the calculation of Asset Values
- Rule on Segregation of Assets
- Rule on Offering Documents
If implemented, these Rules will affect the content of each fund's offering documentation and will apply to all funds licensed or registered with CIMA under Section 4 of the Mutual Funds Law (as amended).
CIMA have requested feedback on the above Rules by 5 March 2020. We expect the finalised rules to be published shortly thereafter. We will keep you informed of any updates in respect of the Law's implementation.
Supervision and Enforcement
The MFL provides CIMA with additional supervisory and enforcement powers in respect of Section 4(4) Funds, bringing such types of funds in line with the existing Cayman Islands regime applicable to other forms of open-ended funds under the MFL.
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.