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Modernization of the Mutual Fund Law in the Cayman Islands

The Cayman Islands mutual fund industry is proof of Darwin’s theory that evolution takes place over long periods of time. It is true that it is taking years rather than millennia, however the process of modernizing the legislation governing the Cayman Islands mutual fund industry appears to be a complex process.

The rapid growth of the Cayman Islands hedge fund industry is the backdrop against which the current review of the regulatory regime is taking place. The number of funds registered or authorized with the Cayman Islands Monetary Authority (CIMA) has been growing at an unbelievable rate.

CIMA established a working group of representatives from the Cayman Islands Association of Fund Managers, the Cayman Islands Society of Professional Accountants, the Cayman Islands Law Society, and the Cayman Islands Bar Association to evaluate the recommendations. of the Policy and Research Division of the CIMA, which has examined the regulations. of the mutual fund industry.

The objective of the working group is to continue to improve regulation of the fund industry, with a view to achieving a balance between the demands of a competitive offshore financial center and the international standards demanded of a sophisticated offshore financial center by a number of international bodies.

Four categories of funds are likely to be established, instead of two. Probable categories are a standard retail Public Fund offered to the public (no minimum subscription); Private fund managed with a licensed Cayman Islands fund manager provided by registered office (minimum subscription of US $ 10,000); Recognized Fund with equity interests listed on a prescribed stock exchange or licensed / registered in a prescribed jurisdiction and Professional Fund offered only to professional investors, with a high minimum subscription.

The name of the “Mutual Funds Law” of the Cayman Islands has caused confusion, so the working group proposes to name the Law of Mutual Funds as amended “Law of Mutual Funds”. Those who had trouble reconciling a hedge fund with a mutual fund should be able to accept that a hedge fund is a mutual fund.

An additional proposal from the working group, while not intended to save market participants money, is likely to have such an outcome, namely the proposal to grant broader powers to CIMA to waive the audit requirements for registered or registered funds. license. Cases where a fund was not launched or where a fund is liquidated with only a few investors are examples of cases where such an exemption may be desirable.

The above is only a sample of the changes that can be expected, it is not a complete list of all the reforms probably implemented. The timing of implementation is difficult to predict, however the review process has been underway for years and could be concluded soon, although new laws and regulations will need to be written and approved to allow time to prepare for the new regulatory regime.

Previously, Cayman Islands regulators have been able to strike the delicate balance, striking the right balance between regulation and the needs of the fund industry, and they intend to further enhance an offshore jurisdiction that is already in high demand. His hope is that the Cayman Islands will continue to be the natural selection of fund professionals.