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Funds they are a changin’

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Funds they are a changin’

Posted by: Paul
Category: Hedge funds

Two amendments as to how funds are regulated in the Cayman Islands came into effect on the 7th February 2020. First are amendments to the existing Mutual Funds Law (MFL), and secondly the introduction of a new Private Funds Law (PFL).

Mutual Funds – Section 4(4) Funds, open-ended mutual funds whose equity interests are held by not more than 15 investors, a majority of whom could appoint or remove the operator of the fund will now be required to register with the Cayman Islands Monetary Authority (‘CIMA’).

Registration will include filing with CIMA constitutional documents and the payment of a registration fee.

Section 4(4) Funds are also now be required to have their accounts audited annually by a CIMA-approved Cayman auditor.

The MFL provides for a six month transitional period for existing Section 4(4) Funds from 7th February 2020 to register with CIMA and comply with the new requirements, ie by 7th August 2020.

Section 4(4) Funds created following commencement of the MFL are expected to be registered with CIMA and comply with the MFL requirements from launch.

Private Funds – The new PFL brings closed ended funds within the scope of a regulatory regime in Cayman for the first time.

Commencing from 7th February 2020, private funds have until 7th August 2020 to register with CIMA and comply with the Law (the ‘Transition Period’). Once the Transition Period has passed, a new private fund must (i) submit its registration application to CIMA within 21 days after its acceptance of capital commitments from investors and; (ii) be registered by CIMA before it accepts capital contributions.

Various obligation will be imposed on private funds;

  • Valuations: consistent, appropriate valuation procedures, carried out at least annually,
  • Safekeeping of fund assets: appoint a custodian to hold assets and verify title to them,
  • Cash monitoring: monitoring cash flows, checking cash accounts and receipt of investor payments,
  • Identification of Securities: maintain a record of the identification codes of traded securities.

In addition, there are new CIMA reporting requirements, such as paying an annual fee to CIMA by 15 January of each year (the exact amount to be confirmed), filing an annual return in respect of each financial year, inform CIMA of changes, and lastly prepare annual accounts and file with CIMA audited accounts within six months of the fund’s year end. The audit will need to be undertaken by a Cayman Islands auditor approved by CIMA.

Whilst this provides enough food for thought, be aware that additional regulations and guidance is expected imminently.

 

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