Cayman’s Mutual Funds legislation is set for an overhaul to ensure that the Cayman Islands retains its edge as the leading domicile for funds.
The regulator of Cayman’s financial services industry, the Cayman Islands Monetary Authority has established a working group, which includes private sector representatives to conduct a thorough overview of how the industry is regulated.
This group, which is comprised of the Cayman Islands Fund Administrator’s Association, the Cayman Islands Society of Professional Accountants, the Cayman Islands Law Society, the Cayman Islands Bar Association and Head of Policy and Development of the Cayman Islands Monetary Authority, made its report to Government in August 2004.
Within the report there are 25 recommendations for changes in legislation, none of which, according to Gary Linford, Head of the Investments & Securities Division at CIMA, are particularly onerous.
‘Although this is only my opinion and not one that is representative of the CIMA Board, I believe that there are no fundamental changes to the existing law that are required,’ he said at Campbells’ recent Cayman Fund Focus conference. ‘It is more a matter of clarifying terminology.’
John Wolf, Partner at Campbells said at the conference, ‘Revamping the Mutual Funds Law (which came into effect in 1993) must be viewed as a priority for the Cayman Islands. With international entities such as IOSCO (International Organisation of Securities Commissions) now looking closely at hedge funds in particular, it must be a priority for the distinction between public and private funds to be spelled out clearly in our legislation. This distinction was also recommended in the KPMG Review of Financial Regulation in the Caribbean Overseas Territories and Bermuda, issued in 2001, to avoid the need to bring all fund types in line the IOSCO principles because of the nature of the investors in the non-public funds. It is important that those outside the Cayman Islands understand precisely the types of funds that are predominately established in Cayman.’
The rationale for having a clear distinction is to ensure there is an appropriate level of regulation to deal with the risk involved in the different types of funds, and the need to provide appropriate protection for the very different types of investors who invest in public funds (generally open to anyone to invest with little or no minimum investment levels) vs. private funds (generally open to sophisticated investors and not widely marketed), according to the Mutual Funds Working Group report,.
The experts say that as most of Cayman’s funds are privately owned, IOSCO’s principles that require a more prescriptive regulatory regime for public funds should not have a detrimental impact on funds under administration in Cayman.
‘Most of the investment funds in the Cayman Islands are privately owned funds for institutional investors and high net worth individuals who are sophisticated investors and do not need a prescriptive regime. One proposal from the Mutual Funds Working Group report is to increase the minimum subscription for investors in Cayman professional funds to US$100,000, an obvious move to ensure that it is only sophisticated investors who are prepared to invest in the types of private funds predominately established in Cayman,’ Wolf said.
‘The Cayman Islands has been extremely successful in developing its investment fund business but it must ensure that its legislation categorizes clearly the type of funds established in Cayman to ensure that this jurisdiction is able to maintain its preeminent position.’
The Mutual Fund’s Working Group’s report was completed in May 2004 and CIMA’s Board approved its release to Cabinet in August 2004. Hurricane Ivan and a general election in 2005 delayed Government’s focus on this issue.
As it has been a considerable time since the report’s release, conference delegates involved in this issue were urged to lobby Government to ensure that the passing of the changes to the law are made a priority. As of November, the working group report and recommendations were before Cabinet, awaiting review and approval.
‘We are actively reviewing the working group’s recommendations and have already committed to approving the change which has the most commercial impact, that of removing the requirement for foreign funds to register with the CIMA,’ said Debbie Drummond, deputy financial secretary with the government’s Portfolio of Financial Services.
‘We have a meeting scheduled with the private sector for the end of this month to review the recommendations. We have to ensure that the correct balance is found when contemplating changes to the current law because we do not want to respond to one issue and thereby create a new one. We also are cognizant of the fact that some time has passed since the working group’s recommendations were made and we want to therefore ensure that the recommendations are still consistent with market developments.
‘The private sector should be aware that Government is actively re-engaging the working group on this issue.’
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