Government proposes authorisation process for all funds

Minister of Financial Services Tara Rivers

Two draft bills that are being circulated for consultation in the financial services industry would require non-mutual funds to be authorised by the Cayman Islands Monetary Authority.

The Draft Investment Funds (Private Funds) Bill, 2019 and the Mutual Funds (Amendment) (No. 2) Bill, 2019 seek for the first time to bring any Cayman investment fund – except mutual funds and EUconnected funds regulated under the Mutual Funds Law – under the scope of CIMA authorisation.

In a cover letter accompanying the draft bills, the Ministry of Financial Services said the proposals “will modernise funds regulation in the Cayman Islands in line with international standards and best practices, enabling the Ministry to ensure compliance with anti-money laundering principles and other key regulatory standards”.

If enacted, investment funds would have to provide CIMA with basic information about the fund as part of the authorisation process.

The regulator will specify what information is needed but it is likely to include the type of legal structure, for example limited partnership or private limited company; the type of fund, such as hedge fund, private equity, real estate or feeder fund; and the categories of assets the
funds will invest in.

The legal changes may include some form of risk-based categorisation and monitoring of
funds by CIMA.

Non-fund arrangements, such as joint ventures or securitisation special purpose vehicles, will not fall under the scope of the changes.

To help the regulator supervise investment funds, the draft bills propose that funds must submit an annual filing to the regulator.

Funds that regularly trade in securities would have to record their International Securities Identification Numbers and make them available to CIMA on request.

In addition, the bills provide the regulator with a wide range of enforcement powers and a sanctions regime.

The draft legislation requires funds to have annual audited accounts in line with international accounting standards, as well as appropriate and consistent valuation procedures.

The new regime imposes a general requirement for investment funds to appoint a custodian for certain assets, with exemptions for funds where this might not be appropriate, for  example private equity funds.

Authorised funds will also have to appoint an administrator or third party to monitor and record the fund’s cash flows.

Speaking at the CFA Society’s Cayman Investment Forum on 17 Oct., Minister of Financial Services Tara Rivers said, “Government is currently working on new legislation and amendments to existing legislation that will modernise the funds regulation in the Cayman
Islands in line with evolving international standards and best practices to ensure compliance
with the anti-money laundering principles and obligations that we have as a jurisdiction, as well as other industry standards.”

She stressed the bills currently out for local consultation were only in draft form. “Later this month the ministry will further refine the draft bills based on feedback received,” she said.

Government has asked for industry feedback by 24 Oct.

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