After a period of industry consultation, the Cayman Islands Government issued the Private Funds Bill 2020 and the Mutual Funds (Amendment) Bill. The goal of these Bills is to bring closed-ended and private funds within the scope of regulation and to modernise the regulation of both open-ended and closed-ended funds. Currently they are beyond the scope of the Mutual Funds Law (2019 Revision). Additionally, the aim is to align Cayman Islands’ funds regulatory regime with best international market practice as well as to ensure compliance with enhanced anti-money laundering standards.
What is a Private Fund?
The Private Funds Bill defines a “private fund” as a company, unit trust or partnership whose principal business is the offering and issuing of its investment interests, the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors to receive profits or gains from such entity’s acquisition, holding, management or disposal or investments, where –
- the holders of investment interests do not have day-to-day control over the acquisition, holding, management or disposal of investments; and
- the investments are managed as a whole by or on behalf of the operator of the private fund, directly or indirectly, for reward based on the assets, profits or gains of the company, unit trust or partnership
but does not include –
- a person licensed under the Banks and Trust Companies Law (2018 Revision) or the Insurance Law 2010;
- a person registered under the Building Societies Law (2014 Revision) or the Friendly Societies Law (1998 Revision); or
- any non-fund arrangements.
The Private Funds Bill 2020
The Private Funds Bill provides for the registration and regulation of most closed-ended funds formed in the Cayman Islands. It sets out the supervisory and enforcement powers of the Cayman Islands Monetary Authority (CIMA) in relation to such funds. It is important to note that The Private Funds Bill does not impact open-ended funds which have already been registered with CIMA under the Mutual Funds Law.
The Mutual Funds (Amendment) Bill 2020
The key proposed change of the Mutual Funds Bill is to bring within the scope of regulation funds with 15 or fewer investors who have the ability to appoint or remove the operator of the fund; these funds are often referred to in the Cayman Islands as “exempted funds” or “section 4(4) funds”.
Unless an exemption is granted by CIMA, upon the enactment of the Mutual Funds Bill, such funds will be required to:
with CIMA in the prescribed form
- pay an annual registration fee
- submit annual audited accounts audited by a Cayman Islands based auditor and annual returns
- inform CIMA of material changes to the information submitted as part of its registration application
- retain appropriate accessible records
Funds with mutual fund administrators providing their principal office will also be required to comply with all registration and ongoing requirements. Further guidance is expected to be provided as to the scope of the Mutual Funds Bill, including as to circumstances in which exemptions may be available.
Date: 13 Feb 2020
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