Preparations underway for substantial modifications in Cayman Islands' funds regulatory framework
The Private Funds Bill 2020 and Mutual Funds (Amendment) Bill, 2020: Enhancing Cayman Islands Investment Fund Regulation
In the Cayman Islands, two significant pieces of legislation - the Private Funds Bill 2020 and the Mutual Funds (Amendment) Bill, 2020 - are set to transform the registration, regulation, and overall framework governing investment funds. These bills aim to maintain compliance with international standards and respond to evolving market practices.
The Private Funds Bill 2020 focuses on improving registration requirements and regulatory oversight for private investment funds. It introduces enhanced transparency and stricter regulatory compliance measures to meet global anti-money laundering and investor protection standards. The bill defines the scope of private funds that must register and submit periodic returns, while providing exemptions for certain qualifying funds.
On the other hand, the Mutual Funds (Amendment) Bill, 2020 updates the Mutual Funds Law by refining registration obligations and regulatory duties for mutual funds. It may streamline fund registration processes and strengthen supervisory powers of the Cayman Islands Monetary Authority (CIMA) over mutual funds.
Together, these bills increase the regulatory rigor for both private and mutual funds registered in the Cayman Islands, strengthening CIMA’s ability to monitor and regulate investment funds while offering clarity on compliance expectations.
The new regulations will likely lead to more funds being brought under formal registration and supervision, enhancing the Cayman Islands’ reputation as a well-regulated fund domicile.
Key changes for private funds include the requirement to have at least two natural persons acting as, or for, the operator (board of directors or general practitioner) of the private fund. Additionally, the accounts of s4(4) Funds must be prepared and audited in accordance with International Financial Reporting Standards or US, Japanese, or Swiss GAAP or GAAP of a non-high risk jurisdiction.
Funds which fall within the definition of a private fund will be registered with and regulated by CIMA under the new regulations. s4(4) Funds will also be required to have their accounts audited annually by an auditor approved by CIMA.
The operators of s4(4) Funds will be required to register under the Directors Registration and Licensing Law (Revised). The bill seeks to ensure transparency and proper documentation of a private fund's core operations and processes, aligning with most private funds' current procedures regarding audit, valuation, custody, cash monitoring, and securities identification requirements.
The Cayman Government has launched a response to EU and international recommendations, planning to introduce bespoke, sector-specific new requirements for the registration of unregulated investment funds. These measures aim to provide clearer frameworks for registration and regulatory compliance in a digital environment, preparing the Cayman regulatory landscape for emerging trends, including tokenised investment funds and digital asset integration.
It is crucial for firms and lawyers in the Cayman Islands to closely monitor any changes to the proposals as the bills approach final passage. As the new regime comes into effect, understanding the regulatory requirements and taking necessary action for future compliance will be essential for clients to prepare for the changes.
This article does not necessarily reflect the views of AlphaWeek or The Sortino Group. Joanne Huckle, Partner at Ogier in the Cayman Islands, provides further insights into the implications of these bills for the investment funds industry in the Cayman Islands.
[1] AlphaWeek. (2021). Hedge Funds Guest Articles. [online] Available at: https://www.alphaweek.com/hedge-funds/guest-articles [Accessed 7 Mar. 2023].
[2] Government of the Cayman Islands. (2020). Private Funds Bill, 2020. [online] Available at: https://www.gov.ky/portal/pls/portal/docs/1/1745835.pdf [Accessed 7 Mar. 2023].
[3] Government of the Cayman Islands. (2020). Mutual Funds (Amendment) Bill, 2020. [online] Available at: https://www.gov.ky/portal/pls/portal/docs/1/1745836.pdf [Accessed 7 Mar. 2023].
The Private Funds Bill 2020 and the Mutual Funds (Amendment) Bill, 2020 will bolster the regulatory landscape of business finance in the Cayman Islands. These bills will bring private and mutual funds under increased regulation, with the former necessitating at least two natural persons acting as operators and the latter requiring annual audits for s4(4) Funds.
