A new framework for Cayman’s regulatory regime for investment funds

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As the drive to act on EU and international recommendations continues to gather pace, the Cayman Islands Government began the New Year with their much-anticipated move to introduce new requirements for the registration of unregulated investment funds.

The publication of the draft Private Funds Bill, 2020 (the Bill) and a draft amendment to the Mutual Funds Law (2019 Revision) (MFL Amendment) on 8 January provides the framework to ensure that the Cayman Islands regulatory regime continues to be aligned with international standards and expectations and ensures that the Cayman Islands remain a gold standard jurisdiction for both private equity and hedge funds.

Both the proposed bill and the amendment represent a significant move for many of our clients and, as such, the Ogier team have kept in step with developments and maintained a close dialogue with Cayman Finance who have been working with the authorities on the drafting the new legislation to ensure that it properly balances the desire to strengthen investor confidence in Cayman Islands investment fund vehicles whilst ensuring that the Cayman Islands remains the preeminent jurisdiction for investment funds formation by maintaining a commercial regulatory model.

On 30 January, the new bill and the amendment will be put before the Legislative Assembly for any final amendments, before they are passed into law. We anticipate that there will be a transition period for existing structures and that further detail on the registration process and fees will be confirmed at that stage.

The Bill applies to any Cayman Islands closed-ended fund. Funds which fall within the definition of a private fund will be registered with and regulated by the Cayman Islands Monetary Authority (CIMA) under the new regulations.

The Bill seeks to ensure that there is transparency and proper documentation detailing a private fund’s core operations and processes and seeks to achieve this though requirements which align with most private funds’ current procedures regarding:

  • audit
  • valuation
  • custody
  • cash monitoring, and
  • securities identification requirements.

The MFL Amendment will affect open-ended funds carrying on business in or from the Cayman Islands that were previously exempt from CIMA regulation under section 4(4) of the Mutual Funds Law (s4(4) Funds). Section 4(4) of the Mutual Funds Law currently provides a registration exemption to mutual funds whose equity interests are held by not more than fifteen investors, a majority of whom are capable of appointing or removing the operator of the fund.

Over the next few weeks, the Ogier Funds team will continue to closely monitor any changes to the proposals and will be assisting clients in preparation for the new regime.

For more information read our full advisory briefing: New Registration Requirements for Unregulated Investment Funds

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