In February 2020 the Private Funds Law, 2020, and the Mutual Funds (Amendment) Law, 2020 along with supplementary legislation, came into force in the Cayman Islands.
The new Private Funds Law resulted in significant changes to the supervision, regulation and registration requirements of private funds in the Cayman Islands. The Private Funds Law establishes a framework to monitor closed-ended funds (“private funds”), which are currently beyond the scope of the existing Mutual Funds Law.
The Law defines a private fund as a company, unit trust or partnership whose principal business is the offering and issuing of investment interests, the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors to receive profit or gains from such entity’s acquisition, holding, management or disposal of investments, where: (a) the holders of investment interests do not have day-to-day control over the acquisition, holding, management or disposal of the investments and (b) the investments are managed as a whole by or on behalf of the operator of the private fund, directly or indirectly, for reward based on the assets, profits or gains of the private fund.
Although currently single investor private funds are excluded from the new law it is expected that this exemption will be closed shortly to bring all private funds under the regulatory requirements of the law.
Existing private funds must register with the Cayman Islands Monetary Authority (“CIMA”) by 7 August, 2020.
The regulations provide certain transitional provisions for private funds that have commenced carrying on business at any time prior to 7 August, 2020, known as a “transitional private fund”. A private fund will be carrying on business if it has received capital contributions from investors for the purpose of investment.
CIMA has issued registration application requirements that involve providing details of the fund and its structure as well as its service providers. While there is a transitional period, all new and existing private funds will need to comply with the Private Funds Law by 7 August, 2020 and all managers and operators of private funds will be responsible for compliance.
The 2020 revision to the Mutual Funds Law removes the exemption from registration of mutual funds with fifteen or fewer investors where the majority of those investors are capable of appointing or removing the fund’s operator (Section 4(4) funds).
Previously exempted section 4(4) funds are now required to register with CIMA, pay the prescribed annual registration fee and provide evidence that the majority of the fund’s investors are capable of appointing and removing the fund’s operator.
All, new section 4(4) funds will need to comply immediately with the Mutual Funds Law via registration while existing section 4(4) funds will have a transitional period until 7 August, 2020 to comply, and once again all managers and operators of section 4(4) funds will be responsible for compliance.
PRIVATE FUNDS LAW AND MUTUAL FUNDS LAW
When will transitional private and 4(4) mutual funds be required to file audited accounts?
A transitional private fund and 4(4) mutual fund will be required to file audited accounts with CIMA within six months of the end of each financial year. This requirement will first apply with respect to the current financial year in which the transitional funds first register with CIMA.
The first audit period or a transitional fund is for the year or period ended December 31, 2020. Audited accounts that are filed with CIMA must be audited by an approved Cayman Islands based auditor.
What this means for RSM and its clients
RSM Client teams are reviewing their clients’ structures to identify and discuss with the client their requirements under either the new Private Fund Law or amended Mutual Funds Law.
The discussion with clients regarding the registration requirements and transitional provisions is facilitated by the team at RSM Cayman and RSM globally to further assist with any questions or clarifications that a client may have or need concerning the new and amended legislation, but the registration process should be lead by the client and their legal or corporate service advisors.
Further information can be found at:
Please contact anyone in the RSM Cayman team or your local RSM engagement team for discussion and further information.
RSM Cayman contacts
Alex Bodden Zach Sheridan Felix Caserial
+1 (345) 743-3011 +1 (345) 743-3024 +1 (345) 743-3025
+1 (345) 916-0522