Cayman Private Fund Regime

The Cayman Islands recently introduced new legislation, the Private Funds Law, 2020 (the “Law”) that is now in force having commenced on 7th February 2020.

This signifies a step forward by the Cayman Islands to promote itself as a well-established jurisdiction in the private fund administration sector. The contents of the Law are similar to requirements in other major fund jurisdictions such as Luxembourg and Ireland.

What is a Private Fund?

The Law defines a private fund as:

“A company, unit trust or partnership whose principal business is the offering and issuing of its 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 profits 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 company, unit trust or partnership, but does not include:

  1. A person licensed under the Banks and Trust Companies Law (2018 Revision) or the Insurance Law 2010;
  2. A person registered under the Building Societies Law (2014 Revision) or the Friendly Societies Law (1998 Revision); or
  3. Any non-fund arrangements”.

What are the registration requirements?

  • A new private fund must submit an application to CIMA, providing all required information for the fund and payment of the application fee within 21 days after accepting capital commitments from investors for the purposes of investments;
  • The private fund shall not accept capital contributions from investors in respect of investments until it is registered with CIMA;
  • Subject to the above requirements, the private fund is permitted to engage in oral or written communications and enter into any agreements with high net worth persons or sophisticated persons who may have an interest in subscribing for or purchasing investment interests in the private fund, prior to the filing of the application with CIMA;
  • Registration will be made through CIMA’s online filing portal, requiring certain basic information to be provided in a similar way to mutual funds; and
  • If the private fund is required to have an auditor, then an auditor’s consent letter will be required as will be other information or disclosures regarding valuation, custody and cash monitoring arrangements.

Transition period for Registration:

All Cayman domiciled entities, meeting the definition of private funds, who are doing business (have called investor capital) on or after 7th February 2020 have a transition period until 7th August 2020 to Register with CIMA and comply with all new requirements in accordance with the Law.

Please note that once the transition period ends:

  1. An application for registration must be submitted by a private fund to the Cayman Islands Monetary Authority within 21 days of accepting capital commitments from investors; and
  2. A private fund must be registered prior to receiving capital contributions.

Exceptions

A private fund that is not incorporated or established in the Cayman Islands, that makes an invitation to the public in the Cayman Islands to subscribe for its investment interests, is not required to register under the Law, if:

  • the invitation is offered by or through a person who is a holder of a licence under the Securities Investments Business Law (2019 Revision) for a regulated activity specified by the Authority for the purposes of this subsection; and
  1. those interests are listed on a stock exchange (including an over the-counter market) specified by the Authority by notice in the Gazette; or
  2. the private fund is regulated by a recognised overseas regulatory authority, approved by the Authority for the purposes of this subsection.

There are also a list of “non-fund arrangements” which will fall outside of the private fund definition and therefore will not require registration. These include securitisation special purpose vehicles, joint ventures, proprietary vehicles, holding vehicles, preferred equity financing vehicles, sovereign wealth funds and single family offices. In addition, as the definition refers to “pooling of investor funds”, closed-ended funds with single investors will not fall within the definition of a private fund.

Ongoing requirements

Once registered, private funds will be subject to the below ongoing requirements:

Audit

  • The Fund will need its financial statements audited by a Cayman Islands-based auditor annually, and subsequently must be filed with CIMA within 6 months of the financial year end along with an annual return. Both of these will be filed by the fund’s auditor with CIMA.

Valuation

  • Valuations of fund assets must be conducted on an appropriate and consistent basis and must be done at least annually.

Custody

  • The private fund must appoint a custodian to:
  1. hold assets which are capable of physical delivery or capable of registration in a custodial account except where that is neither practical nor proportionate given the nature of the private fund and the type of asset held; and
  2. verify title to, and maintain records of, assets.

Cash Monitoring

  • The Law requires a private fund to monitor cash flows, cash account receipts and payments to investors.

Identification of Securities

  • For those private funds that regularly trade securities or holds them on a consistent basis, the Law requires them to maintain records of the identification codes (e.g. ISIN or LEI) of the relevant securities.

Valuation, custody and cash monitoring is permitted to be done by an independent provider, administrator, or the manager or operator of the private fund subject to appropriate operational independence (e.g. the same people cannot do portfolio management and valuation) and disclosure of the potential conflicts of interest to investors.

Services we provide in Cayman

Our office in the Cayman Islands is regulated and licensed by the Cayman Islands Monetary Authority to provide the following services:

  • Registered Office / Agent;
  • Company formations and liquidations;
  • Directorships for Companies and Funds;
  • Compliance services including MLRO, DMLRO and AMLCO;
  • Economic Substance solutions;
  • Company Secretarial services;
  • Bookkeeping, quarterly reporting and preparation of annual financial statements;
  • Cash management of client bank accounts;
  • Tax transparency reporting including FATCA and CRS;
  • Nominee Shareholders; and
  • Data Protection compliance services.

Your Team

We are led by a team of qualified Accountants, Lawyers, as well as Corporate, Investment and Tax specialists. Our high level of technical expertise enables us to proactively deliver solutions whilst managing and mitigating risks and ultimately creating long-term value for our clients.

For further information or if you wish to discuss any of these changes and the services we can provide, please do not hesitate to contact a member of our team: