ONGOING OBLIGATIONS FOR FUNDS
REGISTERED UNDER SECTION 4(3) OF
THE MUTUAL FUNDS LAW
ONGOING OBLIGATIONS FOR FUNDS REGISTERED UNDER SECTION
4(3) OF THE MUTUAL FUNDS LAW
Once a fund is registered with the Cayman Islands Monetary Authority (“CIMA”)
it will need to comply with various ongoing obligations under the Mutual Funds
Law. The list is not long but it is important for a regulated fund to comply with
its obligations in order to keep the fund in good standing with CIMA and avoid
possible breaches and penalties.
1
Tell CIMA about changes to the Offering Document and certain
specific fund changes
Regulated funds are required to notify CIMA of any change that materially
affects the information in the fund's offering document or the relevant CIMA
form which sets out certain prescribed information (the “MF1 Form”) and file an
amended offering document and the MF1 Form including the changes within 21
days. As there is no definition of what is "material" in the Mutual Funds Law
(2015 Revision), all changes to the offering document, other than very minor
corrections, are typically filed with CIMA. These would include (for example):
• changes to any of the offering terms
• change of the fund's registered office or principal office
• any change of director (for a company) or general partner (for a
limited partnership) or trustee (for a unit trust)
• a change of auditor or other service provider
• a change of name
These changes would also typically involve filing an amended offering document
and the MF1 Form with CIMA.
Pursuant to recent regulatory changes, a regulated fund must also apply to
cancel its registration with CIMA within 21 days of ceasing to carry on business
as a regulated fund.
2
Pay Annual CIMA Fee
The annual fee is payable by 15 January each calendar year and penalties
accrue if the fee is not paid by the deadline. The annual fee is equal to the
registration fee, currently US$4,268 for a section 4(3) fund that is not a master
fund; US$3,048 for a master fund. For funds which are structured as segregated
portfolio companies, an additional fee of US$305 is payable per segregated
portfolio.
3
File audited annual financial statements and FAR
Regulated funds must file audited financial statements with CIMA each year within
6 months of the fund's financial year end. The audit must also be signed-off by a
Cayman Islands based auditor on CIMA's approved list, which includes the
Cayman branches of international accountancy firms and Cayman audit firms.
Regulated funds must also submit a fund annual return (“FAR”) to CIMA with their
annual accounts. This is in an approved form and contains general, operating and
financial information on the fund. The fund's Cayman auditor generally files the
FAR electronically, together with the fee of US$365.
4
Operate in accordance with CIMA Statement of Guidance
CIMA expects regulated funds to be managed and operated in accordance with
the statement of guidance that it issued in December 2013 (the “SOG”). The
SOG sets out certain minimum expectations for the sound and prudent
governance of regulated funds, including effective supervision of service
providers, identifying, disclosing and managing conflicts of interest and risks,
holding regular board meetings and keeping full written records of those
meetings. The SOG provides that a minimum of two board meetings (or
equivalent if the fund is not established as a company) should be held each year.
However, with ever-improving standards of governance across the industry, and
growing expectations of investors, we are seeing a move towards quarterly board
meetings or more frequently as required.
5
Make FATCA / CRS Filings
Although the Cayman Islands are not directly subject to the US Foreign Account
Tax Compliance Act (“FATCA”), legislation has been introduced to implement
FATCA requirements for 'financial institutions' to identify and report certain US
accounts. Failing to comply with FATCA related reporting obligations can also
potentially result in a 30% withholding tax applying to the fund.
Cayman has also recently introduced legislation to implement the OECD's
Common Reporting Standard (“CRS”), which now applies to Cayman funds as of
1 January 2016 and requires them to report information on the holders of
reportable accounts who are tax resident in reportable jurisdictions. Legislation is
also in force implementing a similar tax sharing agreement between the Cayman
Islands and the United Kingdom (referred to as “UK FATCA”). This requires
funds to identify and report certain UK accounts, although without the withholding
tax regime for noncompliance that applies under FATCA. This is expected to be
phased out in 2017, now that CRS is in force.
6
Other Obligations
Cayman Islands regulated funds will also have other ongoing obligations
including annual filings with, and fees to be paid to, the registrar in the Cayman
Islands, which depend on whether the fund is set up as a company, limited
partnership or trust. Directors of CIMA registered corporate funds (as well as
directors of certain managers registered as “excluded persons” under the
Securities Investment Business Law) must also renew their registration / license
with CIMA each year under the Directors Registration and Licensing Law. If the
fund's investment manager is registered as an "excluded person" under the
Securities Investment Business Law, it will also have to make an annual filing
and pay an annual fee to CIMA to maintain its registration.
Whilst the regulation and ongoing obligations of a Cayman Islands fund are
generally proportionate and comprehensible, they do come from several sources
and relate to various aspects of a fund’s existence (as noted above). It is
important, therefore, that a fund’s manager/promoter is well-versed in what is
required from a Cayman Islands law perspective in terms of the formation and
continuing operations of a regulated fund and guidance should be sought from
Cayman Islands counsel if there are any questions or concerns over regulatory
compliance and good governance practices.
GUIDANCE NOTE
This publication is for general guidance and is not intended to
be a substitute for specific legal advice. Specialist advice should
be sought about specific circumstances. If you would like
further information please contact:
Chris Humphries
Managing Director
Tel: (345) 814-7911
[email protected]
Aaron Walker
Senior Associate
Tel: (345) 814-7930
[email protected]
Simon Yard
Associate
Tel: (345) 814-7931
[email protected]
James Smith
Associate
Tel: (345) 814-7932
[email protected]
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