Two recent regulatory changes — Private Funds Law 2020 and Mutual Funds (Amendment) Law 2020 — will require previously exempt Cayman Islands funds to now register with the Cayman Islands Monetary Authority (CIMA). While the changes will require affected funds to expend more time, cost and resources to comply, we recommend funds come into compliance as soon as possible.
Private Funds Law 2020: Which Entities are Considered Private Funds?
The private funds law defines a private fund as a company, unit trust or partnership whose principal business is to offer and issue investments for the purpose (or ultimate effect) of pooling investor funds to diversify risks so investors can realize profits or gains from the entity’s acquisition, holding, management or disposal of investments, where:
- The investors do not have day-to-day control over the entity’s investment activities;
- Its investment interests are not redeemable at the option of the investor; and
- The investments are managed as a whole by, or on behalf of, the fund operator (directly or indirectly) for reward based on the entity’s assets, profits or gains.
This definition of private funds will generally include all closed-ended funds that are set up as Cayman Islands partnerships, companies and unit trusts.
The definition does not include:
- A person licensed under the Banks and Trust Companies Law (2020 Revision) or the Insurance Law 2010;
- A person registered under the Building Societies Law (2020 Revision) or the Friendly Societies Law (1998 Revision); or
- Any non-fund arrangements such as special purpose vehicles, join ventures, holding vehicles, single family offices, employee incentive schemes, etc.
Mutual Funds (Amendment) Law 2020: Who Needs to Register?
Open-ended funds now required to register with the CIMA include:
- Funds formed in the Cayman Islands that have 15 or fewer investors who have the ability to appoint or remove the operator of the fund; these funds were previously referred to as “exempted funds” or “section 4(4) funds”
Certain overseas private funds that solicit the Cayman Islands public for investments under the Mutual Fund Law will continue to be exempt from the requirement to register.
What Are the Audit Requirements for CIMA Registered Funds?
Funds under the Private Funds Law 2020 and the Mutual Funds (Amendment) Law 2020 are required to have their accounts audited annually by an auditor approved by CIMA. These funds are also required to submit their audited accounts, along with the Fund Annual Return, to CIMA within six months of the end of each financial year. Upon registration during the current year, these funds are required to submit an audit for their 2020 financial year within six months of the financial year-end, or within an extension period as allowed by the CIMA.
When Do Existing and New Funds Need to Register with CIMA?
Existing funds have six months from the date of the commencement of the Private Funds Law 2020 and the Mutual Funds (Amendment) Law 2020 (February 7, 2020), also known as the transition period, to register. After the transition period, a fund may not accept capital contributions from investors until it is registered by CIMA. There will be no annual registration fee assessed for funds registering during the transition period, which ends on August 7, 2020; however, a $300 application fee is due. Funds registering after the transition period will pay the annual registration fee of $3,500 and the $300 application fee.
All new funds that launch within the transition period mentioned above are subject to the same timing. A fund that launches after August 7, 2020, must submit an application for registration to CIMA within 21 days of its acceptance of capital commitments and be registered before accepting capital contributions from investors.
Contact your attorney and/or Cayman council on your potential need to register. If you need to register, begin talking with your auditors now to ensure they are a CIMA registered audit firm, or to help you find one that is so you can be ready and your fund can remain compliant.
Contact Keith Stafford at email@example.com or a member of your service team to discuss this topic further.
Thank you to Sam Young of Young & Young CPA, Ltd. for his contributions to this blog.
Like what you read? Sign up to receive our latest tax, accounting and business blogs and podcasts.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.