On February 7, 2020, the Cayman Islands Government passed into law both the Private Funds Law 2020 and the Mutual Funds (Amendment) Law 2020 (collectively “the Laws”). The purpose of these Laws is to enhance the regulatory framework over most Cayman Islands-based funds, strengthen investor confidence, and ensure that the Cayman Islands remains a pre-eminent jurisdiction for investment funds formations.
The most significant change resulting from the Mutual Funds (Amendment) Law 2020 is that it removes the exemption previously afforded under Section 4(4) of the Mutual Funds Law. Therefore, funds with 15 or fewer investors that previously relied on Section 4(4) must now register with the Cayman Islands Monetary Authority (CIMA). Registration for newly established mutual funds impacted by the Mutual Funds (Amendment) Law 2020 must be completed immediately. Existing mutual funds are given a six-month transition period and must register by August 7, 2020.
The Cayman Islands Private Funds Law 2020 requires private funds, such as closed-ended private equity funds, to register with CIMA and follow a similar set of standards previously imposed only on open-ended funds under the Mutual Funds Law. Registration for newly established private funds impacted by the Cayman Islands Private Funds Law 2020 must be submitted 21 days prior to accepting capital commitments and be completed prior to receiving capital contributions. Existing private funds are given a six-month transition period and must register by August 7, 2020.
Meeting Regulatory Obligations
Once the fund is registered in accordance with the Cayman Islands Private Funds Law 2020, the onus lies on fund management to ensure that their funds are in compliance with ongoing regulatory obligations. These obligations include:
- Completion of audits by an independent, CIMA-approved local auditor;
- Establishing consistent asset valuation procedures (to be conducted at least once, annually);
- Appointing a custodian to hold and maintain records of custodial fund assets and to execute title verification, for safekeeping purposes;
- Designating a dedicated point person to monitor cash flow, ensuring deposits into the funds’ cash accounts and confirming receipt of investor contributions;
- Submitting a tax return to CIMA at the close of each fiscal year;
- Filing an audited set of accounts with CIMA within six months of a fund’s fiscal year-end (starting a full year after the initial year of registration); and
- Informing CIMA, in writing, of any changes to the fund that impact the information previously submitted, within 21 days of the initial registration.
In accordance with the Cayman Islands Private Funds Law 2020, CIMA-registered funds must designate individuals to handle the functions of cash monitoring, safekeeping, title verification, and valuations, and have the ability to select and secure their service providers of choice. However, the providers they choose must be independent of the registered Cayman Islands fund’s manager or operator. As long as the individual delegated to conduct any of these functions is independent of the investment management function of the private fund, the manager, operator, or an affiliate of either is permitted to take on these roles, as long as the registered Cayman Islands fund is transparent in disclosing any conflicts of interest to their investors.
Timing for Audit Filings
Although, on a go-forward basis, an audit of CIMA-registered funds must be filed within six months of the fund’s year-end date, existing funds will not need to file until a full financial year has passed since their initial registration date. Those registering their existing funds by August 7, 2020 with a fiscal year-end of December 31, 2020 will, therefore, be required to submit Cayman filings (Fund Annual Return “FAR”) with CIMA following the fiscal year-end of December 31, 2021 with filings due no later than June 30, 2022.
Untracht Early is a CIMA-certified provider and is prepared to assist you with any questions regarding the Cayman Islands Private Funds Law 2020 and the Mutual Funds (Amendment) Law 2020, or any related needs you may have. If you require assistance in determining whether or not you need to register your private funds with CIMA or have questions regarding these new regulatory obligations, contact your Untracht Early advisor for further guidance.