As of August 31, 1996 there were a total of one thousand, two hundred and thirty-nine mutual funds registered in the Cayman Islands and one hundred and fourteen mutual fund administrators. The regulation of mutual funds and mutual fund administrators in the Cayman Islands is governed by the Mutual Funds Law. The general approach is similar to that of other regulatory legislation in the Cayman Islands. To keep governmental involvement to a minimum, regulatory duties are given to mutual fund administrators and auditors.
MUTUAL FUNDS
Mutual funds may be established as open or closed end companies, unit trusts or limited partnerships. Open ended mutual funds make use of redeemable shares. Unit trusts are established under a trust deed giving unit holders an undivided interest in the trust property.
Open ended companies, trusts or partnerships established to operate as investment or mutual funds with more than fifteen investors are regulated under the Law. All must prepare and file an offering document and any amendments and register with the Monetary Authority and file annual audited accounts. In addition, such entities must either be specifically licensed as a mutual fund or appoint a licensed mutual fund administrator to provide its principal office, unless there is a minimum investment per investor of CI$40,000, or its equity interests are quoted on a recognised stock exchange or market. To be specifically licensed, a mutual fund must demonstrate that its promoters and managers are of sound repute, that its managers have the necessary experience and its business will be properly run.
The principal requirements for an application for a mutual fund license are:
- Current offering or private placement document or the latest draft
- The latest audited financial statements for an existing fund
- Certified copy of Certificate of Incorporation or evidence of registration if any.
An offering document must properly describe the securities being offered and supply such other information as is necessary to enable an investor to make an informed decision whether or not to invest. As a general rule, the offering document must include the following:
- Name of the fund.
- A description of the equity interests being offered to include:
- maximum and minimum aggregate amount of offering (for each class if it is a multi-class fund);
- A description of (for each class if a multi-class fund) investment objectives, investment restrictions and risk factors of the fund;
- Minimum investment per investor;
- Actual or expected size of shareholder base (for each class if a multi-class fund);
- The frequency of valuation and shareholder issues and redemptions;
- Base currency of equity interests;
- Whether the shares or units are issued in bearer or registered form.
- Names and addresses, resumes and references for all directors, trustees or general partners together with evidence of no criminal convictions.
- Address of the registered office or principal office if provided by a licensed mutual fund administrator.
- The names and addresses of all services providers including distributor, custodian, promoter or sponsor, manager, administrator, investment or trading manager, investment or trading advisors, bankers, lawyers and any persons to whom such persons delegate powers.
- The name and address of auditors and the financial year end.
- The name of the stock exchange if the mutual fund is listed.
MUTUAL FUND ADMINISTRATORS
Mutual fund administrators licenses are granted by the Governor in Council and applications are reviewed in detail by the Monetary Authority. The procedure is broadly similar to the licensing of trust companies under the Banks and Trust Companies Law. Restricted licenses are available to those administering a small number of regulated mutual funds.
Those administering only one regulated mutual fund may be exempted from licensing and pay an initial and annual exemption fee of CI$200.00.
This information provides an introduction to aspects of establishing business in the Cayman Islands for the benefit of clients who may be considering using the Islands as an offshore domicile. It is not exhaustive and is merely intended to give a broad indication of possible courses of action.
Before taking action on any business or other decisions related to the Cayman Islands, specific and particular advice should be sought from domestic taxation, legal, accountancy and other relevant professional advisers.
The information provided reflects the laws and regulations existing at December 31, 1996, but later developments have been noted where possible.
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.
