Government Proposes Changes to Cayman Islands Funds Regime

As the demonstrated leader in the global investment funds industry, the Cayman Islands is making legislative changes to enhance the oversight of open-ended and closed-ended funds.

The changes being put forward by the Cayman Islands Government seek to modernise regulation for open-ended funds, i.e. mutual funds, and close-ended funds, i.e. private funds, in the Cayman Islands. The changes would provide additional surety and transparency for investors and managers of Cayman Islands investment funds, while better aligning with best market practices, enhanced anti-money laundering and other key regulatory standards.

The Private Funds Bill, 2020 (the “Private Funds Bill”) and the Mutual Funds (Amendment) Bill, 2020 (the “Mutual Funds Bill”, together the “Bills”) reflect and seek to adopt similarly sensible and commercially responsive regulation that has been the mainstay of the Cayman Islands open-ended funds regime, and seek to maintain the Cayman Islands’ position as the preeminent jurisdiction for investment funds.

The Bills were drafted in consultation with a working group comprising Cayman-based funds professionals, including accounting, audit, administration, governance and legal firms and associations to provide operational and industry perspectives. The Cayman Islands Monetary Authority (CIMA) was also consulted by the Ministry of Financial Services as part of the process.

Summary of the Bills

The Mutual Funds Bill would require those funds not previously covered under the existing Mutual Funds Law, specifically those funds with 15 or fewer investors capable of appointing or removing the operators, to register with CIMA and be subject to regulation.

Under the Private Funds Bill, private funds would also need to register with CIMA and be subject to regulation. Specifically, the Bill would require private funds to have appropriate and consistent internal procedures for the proper valuation of their assets. In keeping with what exists currently for mutual funds under the Mutual Funds Law, the Private Funds Bill would also require that a private fund be audited annually by a CIMA-approved auditor in accordance with international audit standards and have proper custodial and cash monitoring processes.

The publication of the Bills signifies the Government’s intention to update the investment funds framework while staying mindful of industry realities. The goal is to ensure that the Cayman Islands continue to effectively compete at a high level, allowing for innovation and market development, based on a regulatory framework that effectively supervises the industry and strengthens investor confidence in Cayman Islands fund vehicles.