A recent law change requires most private funds to register with the Cayman Islands Monetary Authority (CIMA) for the first time – and they must do so by 7 August 2020.
Following a six-month transition period, an important amendment to the Cayman Islands Private Funds Law came into effect on 7 July 2020. It changes the definition of a closed-ended or ‘private' fund and in doing so, increases the number and categories of funds that must register with the Cayman Islands Monetary Authority (CIMA). The registration deadline is 7 August 2020.
Key points of the amendment are as follows.
- Fund vehicles that offer or issue investment interest fall inside the definition of a Private Fund.
- Fund vehicles that have issued investment interests in the past and those that are issuing investment interests fall inside the definition.
- Investing in one asset or one type of asset, falls inside the definition.
- ‘Principal business element' no longer needs to be assessed, as it has been deleted from the definition.
- All fund entities in a multi-fund investment structure should register, regardless of where the manager fees are charged.
- Conflicts of interest are to be managed and monitored in relation to valuation, safekeeping of fund assets, cash monitoring and identification of securities (where applicable).
CIMA is expected to provide practical guidance on non-fund arrangements and group registrations.
What's the reason for the change?
By widening the scope of the Private Funds Law, the government is hoping to provide further clarity on the definition and capture additional in-scope entities, which also fulfils Cayman Islands' EU commitments. It's also aiming to eliminate any ambiguity in the law.
At the time of publishing this update, it's believed as many as 15,000 funds need to register with CIMA by the 7 August deadline.
CIMA is now allowing Fund registration form submissions by 7 August followed by the remaining registration documentation and fee payment by 31 October. This gives Private Funds more time to gather the information.
What does it mean for Private Funds?
Funds must determine whether they are in or out of scope of the Private Funds Law and take the required action. Alongside CIMA registration, funds that come under the law must file audited accounts and have appropriate internal procedures and processes in place.
What action should be taken?
Step one is to review whether the change in definition impacts your private fund. It's recommended that you conduct a classification and revise your current fund offering documentation. You should also review the following elements of your governance model to ensure full compliance:
- Do you have a fund administrator to ensure that you have implemented valuations, title verification and identification of securities and cash monitoring measures?
- If you have in-house arrangements in place, are potential conflicts of interest properly identified, managed, monitored and disclosed to the investors?
- Have you appointed an AMLCO, MLRO and DMLRO (required to disclose names for the CIMA registration)?
- Are your FATCA and CRS filings up to date and have the appropriate delegations been appointed?
- Has your registered office provider conducted the relevant filings on an annual basis eg. payment of fees, annual return, economic substance notification and beneficial ownership reporting?
CIMA has recently issued additional FAQ's in relation to the above here (under Private Funds Law 2020).
The new Rules for Contents of Marketing Materials and Segregation of Assets can be made available upon request.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.