The Cayman Islands Monetary Authority ("CIMA") has published new Rules (the "Marketing Rules") regarding the contents of offering documents of mutual funds regulated under the Mutual Funds Law (2020 Revision) ("Regulated Mutual Funds") and the contents of marketing materials prepared by private funds registered under the Private Funds Law, 2020 ("Registered Private Funds").
Regulated Mutual Funds
In the context of Regulated Mutual Funds, the relevant Marketing Rules will apply to any document or series of documents on the basis of which equity interests in the mutual fund are offered for sale or persons are invited to subscribe for or purchase equity interests in the mutual fund (an "Offering Document"), but will not apply to any other notice, circular, advertisement, letter or other communication used in connection with the offer for sale of any equity interest in the mutual fund or the invitation to any person to subscribe for or purchase any equity interest in the mutual fund if, before the offer or invitation is taken up or accepted, the prospective investor is given the opportunity to consider an Offering Document which complies with the relevant Marketing Rules.
Only those Regulated Mutual Funds with a new or ongoing offering made pursuant to an Offering Document will be required to comply with the relevant Marketing Rules.
Importantly, the relevant Marketing Rules will apply to Offering Documents prepared for all mutual funds registered (or registering) under the Mutual Funds Law, including, without limitation, those registered (or registering) under section 4(4)(a) of the Mutual Funds Law – that is limited investor funds who are restricted to having no more than 15 investors, a majority in number of whom are capable of appointing or removing the operator of the mutual fund ("Limited Investor Funds"). Such funds became registrable with CIMA with effect from 7 February 20201.
Notably, Limited Investor Funds are not strictly obliged to prepare an Offering Document under the Mutual Funds Law and, accordingly, the Marketing Rules will only apply to Limited Investor Funds to the extent that an Offering Document is prepared.
The Marketing Rules, as applied to Regulated Mutual Funds, do not represent a fundamental shift to the typical contents of Offering Documents; amendments required to Offering Documents in order to bring them into compliance will generally be minor. However, the Marketing Rules contain a requirement to include a mandatory statement regarding CIMA in an exact form specified by CIMA (the "Authority Statement"). This is a new requirement and does mean that every new Offering Document and every update to an Offering Document will require at least some adjustment to reflect the Marketing Rules.
Registered Private Funds
The relevant Marketing Rules will apply to any Registered Private Fund that intends to prepare any documents on the basis of which investors are solicited to purchase investment interests in a private fund, including but not limited to offering documents ("Marketing Materials"). It is important to note that the language of the relevant Marketing Rules recognises that not all Registered Private Funds will prepare Marketing Materials and that many Registered Private Funds will not prepare updated Marketing Materials where there is no ongoing offering.
Only those Registered Private Funds with a new or ongoing offering made pursuant to Marketing Materials will be required to comply with the relevant Marketing Rules.
As with Regulated Mutual Funds, the Marketing Rules do not represent a dramatic shift in the typical contents of Marketing Materials, but the requirement to include the Authority Statement does also apply to Registered Private Funds and, accordingly all new or updated Marketing Materials prepared in respect of a Registered Private Fund will require at least some adjustment to reflect the Marketing Rules.
Rules on the Segregation of Assets
CIMA has also published Rules on the segregation of assets for both Regulated Mutual Funds and Registered Private Funds (the "Segregation Rules"). The overriding requirements of the Segregation Rules, in both instances is that a fund regulated by CIMA must ensure that none of its service providers (the "Service Providers") use any of the financial assets and liabilities of the fund (including investor funds and investments) to finance their own or any other operations in any way.
The Segregation Rules are broadly similar for both Regulated Mutual Funds and Registered Private Funds and clarify that none of the following shall, in itself, constitute the financing of the Services Provider's own operations:
- Remitting to the relevant investors redemption, withdrawal or
distribution proceeds being paid on behalf of the fund;
- Paying fees, charges and expenses that are payable by an
investor in connection with the purchase, conversion, holding,
transfer or redemption of equity or investment interests of the
fund;
- Acquiring or disposing of assets for investment purposes in
accordance with the fund's constitutive documents and offering
document / marketing materials; or
- Paying fees, charges, expenses and taxes that are properly payable by the fund and as disclosed in and in accordance with the fund's constitutive documents or the offering document / marketing materials or as otherwise disclosed to investors.
In each case, the operators of a regulated fund must establish, implement and maintain (or oversee the establishment, implementation and maintenance of) strategies, policies, controls and procedures to ensure compliance with the Segregation Rules consistent with the fund's offering document / marketing material and appropriate for the size, complexity and nature of the fund's activities and investors.
Enforcement
CIMA is granted enforcement powers in respect of both the Marketing Rules and the Segregation Rules under applicable legislation and is expected to have the ability to impose administrative penalties for non-compliance.
Further Assistance
If you would like further information, please contact your usual Maples Group contact or any of the contacts listed below.
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.
