Legal Update on the Cayman Islands Mutual Funds (Amendment) Law, 2020
Purpose and effect
The purpose of this legal update is to inform you of the introduction of the Cayman Islands Mutual Funds (Amendment) Law, 2020.
(https://www.cima.ky/upimages/commonfiles/MutualFundsAmendmentLaw2020_1581524462.PDF, the MF Amendment Law). The MF Amendment Law has been introduced by the Cayman Islands government in response to EU and other international recommendations and is in line with legislation having a similar effect being introduced by other jurisdictions.
The effect of the introduction of the MF Amendment Law is to remove the exemption from registration with the Cayman Islands Monetary Authority (CIMA) previously available to so called section 4(4) mutual funds (the Exemption). The Exemption provided that for so long as a mutual fund had 15 or less investors, the majority in number of whom could appoint or remove the mutual fund’s operator (its directors, general partner(s) or trustees) that mutual fund was exempt from the need to register with CIMA.
The Exemption was widely used by start-up managers setting up their first mutual fund for initial investment by friends and family to establish a track record before opening up to further investors and assuming the regulatory burden and cost of CIMA registration. The applicability of the Exemption to master funds was removed in a prior amendment to the regulatory regime for mutual funds in the Cayman Islands.
The Exemption is replaced with a new registration regime for mutual funds (not being master funds) that have 15 or less investors, the majority in number of whom can appoint or remove the mutual fund’s operator (its directors, general partner(s) or trustees)(the New Registration Regime).
Registration requirements and transitional provisions
Those mutual funds in existence prior to 7 February 2020 taking advantage of the Exemption have until 7 August 2020 to comply with the MF Amendment Law and register under the New Registration Regime.
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[1] A mutual fund means a company, unit trust or partnership that issues equity interests, the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors in the mutual fund to receive profits or gains from the acquisition, holding, management or disposal of investments but does not include a person licensed under the Banks and Trust Companies Law (2020 Revision) or the Insurance Law, 2010 [Law 32 of 2010], or a person registered under the Building Societies Law (2020 Revision) or the Friendly Societies Law (1998 Revision). Mutual funds encompass open ended funds by virtue of the definition of ‘equity interests’.
Registration requirements and transitional provisions
Those mutual funds in existence prior to 7 February 2020 taking advantage of the Exemption have until 7 August 2020 to comply with the MF Amendment Law and register under the New Registration Regime.
To comply with the MF Amendment Law, mutual funds previously taking advantage of the Exemption and mutual funds established after 7 February 2020 seeking to register under the New Registration Regime must (unless exempt from doing so by CIMA):
(a) file with CIMA a certified copy of an extract of the constitutional documents specifying that a majority of the investors in number are capable of appointing or removing the operator of the mutual fund;
(b) file with CIMA such other information that may be required in the prescribed form;
(c) register with CIMA in the prescribed manner; and
(d) pay the prescribed annual registration fee.
Note there is no requirement for a prescribed minimum initial investment amount per investor. There is however a requirement for a minimum of 2 natural persons acting as, or for, the operator. A copy of the mutual fund’s marketing materials, summary of terms or offering document will need to be filed with CIMA as part of the registration process.
Ongoing requirements
A mutual fund registered under the New Registration Regime is required to have an annual audit undertaken by an approved auditor and complying with the prescribed auditing standards.
On registration under the New Registration Regime, an administrative fee of US$366 is payable along with a registration fee of US$4,268.
The registration fee is an annual fee and is payable on or before 15 January in each subsequent year following the mutual fund’s registration; provided that any mutual fund taking advantage of the Exemption prior to 7 February 2020 and registering under the New Registration Regime on or before 7 August 2020 is exempt from paying the initial registration fee of US$4,268.
How can Forbes Hare assist you?
We can advise you on registration under the New Registration Regime and take you through the registration process, including the amendment of any required documentation. In addition, we can advise on the ongoing obligations under the New Registration Regime.
Our Investment Funds Team is comprised of senior experienced practitioners who have been in the industry for many years and who deliver pragmatic solutions to suit our clients’ needs in a cost effective manner. For further information on the MF Amendment Law and how it might impact you, please contact your regular Forbes Hare contact or a member of our Investment Funds Team listed below.
This legal guide is intended to be for the general information of the clients and professional contacts of Forbes Hare. It is not intended to be comprehensive and should not be relied on as a substitute for independent legal advice in any circumstances.
Key contacts
Catherine Ross
Partner and Head of Investment Funds
Singapore
T: +65 6823 1540 catherine.ross@forbeshare.com
Jose Santos
Partner and Head of Corporate
BVI and Cayman Islands
T: +1 284 542 1899 jose.santos@forbeshare.com
Patrick Colegrave
Partner Investment Funds and Corporate
London
T: +44 (0) 27 7014 3220 patrick.colegrave@forbeshare.com