Authored by Kristen Hughes
To enhance best practices and strengthen investor confidence, the Cayman Islands enacted new and revised legislation, which has a direct impact on entities domiciled in the Cayman Islands. These legal amendments also result in the Cayman Islands being fully compliant with international regulations, specifically meeting criteria specified by the Council of the European Union. The revisions to the existing Mutual Funds Law (MFL) and a new Private Funds Law (PFL) (collectively, the Laws) were enacted on Feb. 7, 2020. The Laws subject all private open and closed-ended funds formed in the Cayman Islands to register with the Cayman Islands Monetary Authority (CIMA.)
The MFL removes the previous exemption under Section 4(4) from registration for funds that have 15 or less investors. Due to this amendment, entities with greater than one, but less than 15 investors are no longer exempt from the MFL and are required to register with CIMA in order to comply.
The PFL establishes a framework to monitor closed-end funds (i.e., private funds) which are beyond the scope of the MFL and it requires private funds to register with CIMA. The PFL defines private funds as a company, unit, trust or partnership in which:
A private fund is deemed to carry on or attempt to carry on business in or from the Cayman Islands if it is:
Each fund structure should be individually analyzed to determine whether it falls under the PFL.
In addition to registering with CIMA and being subject to review and oversight by CIMA on an ongoing basis, all regulated funds (both open and closed-end funds) are also required to:
The PFL also seeks proper recordkeeping and transparency. To achieve this, a registered private fund must also comply with certain ongoing obligations, including:
Entities will need to review their procedures relating to valuation, custody, cash monitoring and identification of securities to ensure compliance with the Laws. Where the above procedures are performed internally (and not by an independent third party), this must be disclosed to investors in addition to how conflicts of interest, if any, are identified and addressed.
Existing funds had six months from the commencement of the PFL and the MFL to register, which concluded on Aug. 7, 2020 (the transition period). After the transition period, a fund may not accept any capital contributions until it is registered with CIMA. For registration after the transition period, funds will need to pay the annual registration fee of $3,500 and an application fee of $300. All new funds must submit an application for registration within 21 days of its acceptance of capital commitments, and must be completed before accepting any capital contributions from investors.
CIMA has created a website with frequently asked questions. For more information on this topic or to learn how Baker Tilly’s Value Architects™ can assist with the requirement to obtain an audit from a CIMA registered audit firm, contact our team.