The Cayman Islands government has passed the Private Funds Law, 2020 (Law) which requires closed-ended funds to now register with the Cayman Islands Monetary Authority (CIMA).
Our earlier client alert on this new regime can be found here.
In conjunction with the Law, the government has also passed regulations which clarify the scope of an “alternative investment vehicle” and a “restricted scope private fund”.
Which funds must now register with CIMA?
As described in detail in our earlier alert, all “private funds” must register with CIMA. Certain structures are not considered private funds and are therefore exempt from the requirement to register.
When does a private fund need to register?
All private funds that have commenced carrying on business must register with CIMA by 7 August 2020.
Private funds did not historically have to have auditors – do they now have to appoint them?
Yes, a private fund must now have its financial statements audited annually by an auditor approved by CIMA. The audited financial statements must then be filed with CIMA, together with a prescribed form annual return, within 6 months of the private fund’s financial year end.
It is most likely that for existing private funds the first audit period will be the first full financial period after registration of the private fund with CIMA, as a transitional mechanism.
What are the minimum operational requirements?
A private fund must have service providers in place to perform valuation, custody, cash monitoring and identification of securities functions, save for certain alternative investment vehicles (which have now been defined in regulations).
Do the directors/managers of a private fund structured as a company need to be registered with CIMA?
No, the directors of a private fund that is structured as a company, or the managers of a limited liability company that operates as a private fund, do not need to be registered with CIMA under the Director Registration and Licensing Law.
What documents are needed for the registration?
Registration will be made through CIMA’s online filing portal and will require certain basic information to be provided in a similar way to mutual funds.
Audit consent letters may be required at registration, however, there is no requirement for a private fund to have or file an offering document.
More details on the requirements will be published by CIMA in due course.
What are the CIMA filing and annual fees?
An annual registration fee will be payable to CIMA by 15 January of each year. At this stage the fee has not been determined by CIMA.
We expect that the annual fee for the 2020 calendar year will be waived.
Are there any penalties for failure to comply with the Law?
There are a number of fines that may be applied for various breaches of the Law of up to US$125,000.
If you operate a private fund, what must you do now?
As a first step, an operator of a private fund must look at their existing operations and service providers and make changes that may be required to meet the requirements relating to valuation, custody, cash monitoring and securities identification. Going forward the operator will need to ensure they have appointed an auditor approved by CIMA.
Once any structural or service provider changes have been dealt with, the private fund will then need to make its registration application through CIMA’s online filing portal before the 7 August 2020 deadline.
I operate a private fund, will my Harneys representative contact me?
Your usual Harneys representative for each private fund for which Harneys provides legal or fiduciary services, will be contacting fund operators and managers to discuss the next steps in the coming weeks.
In the meantime, if you would like to discuss the new requirements please contact your usual Harneys representative or visit www.harneys.com/Cayman.