Cayman Islands to require “4(4)” funds to register with CIMA and obtain local audits

The Cayman Islands government has published a Mutual Funds (Amendment) Bill, 2020 (the Bill) which will require previously exempt mutual funds to register with the Cayman Islands Monetary Authority (CIMA) as well as some other changes to the Mutual Funds Law (the Law).

Which funds will now be required to register with CIMA?

Certain mutual funds were previously exempted from regulation under section 4(4) of the Law (4(4) funds) on the basis that they had 15 or fewer investors, a majority of whom could appoint or remove the operator of the fund. This exemption was often referred to colloquially as the "15 investor exemption".

What will a 4(4) fund need to do?

Once the Bill is passed and in force, there will be a six month transition period within which existing 4(4) funds will need to make any changes to their operation, service providers or structure that may be required (for example appointing second directors or appointing local Cayman Islands auditors) and register with CIMA.

The registration will be different from a "standard" registered mutual fund and as part of the registration application, the 4(4) fund must include a copy of its constitutional documents to show that the majority of investors in number can appoint or remove the operator.

As such, we anticipate that a 4(4) fund will not have a prescribed minimum initial investment amount or any requirement to have or file an offering document.

A 4(4) fund that is a company will be required to have at least two directors and these persons will be required to register on the CIMA Director Gateway in accordance with the Directors Registration and Licensing Law.

Will there be an audit requirement for a 4(4) fund?

A 4(4) fund must have its accounts audited annually by a local Cayman-based audit firm and file those and an annual return with CIMA.

Why aren’t the exact requirements known?

As with most legislation of this type, much of the detail will be included in regulations, guidance or rules passed by the government or published by CIMA and we will publish details of these requirements when they are available.

Harneys Investment Funds and Regulatory team

Harneys Investment Funds and Regulatory team is well versed in all aspects of the formation, operation and regulation of Cayman Islands mutual funds, so please contact your usual Harneys representative if you would like to discuss the new requirements proposed in the Bill. If you have any other questions, visit harneys.com/Cayman.