Scope and applicability of the Act

The Act begins with a preliminary section that defines its scope and application. It specifies essential terminology, such as “private fund”, “operator”, and “investor”, ensuring that all parties involved understand their roles and responsibilities. By explicitly highlighting the applicability of the law to private funds operating in or from the Cayman Islands, the Act excludes regulated mutual funds and certain non-fund arrangements, such as pension funds and sovereign wealth funds, from its purview. Provisions also clarify that private funds must comply with the Act once they commence business or accept capital contributions.

Mandatory registration process

The second part outlines the mandatory registration process for private funds. All private funds must submit a registration application to the Cayman Islands Monetary Authority (CIMA) within 21 days of accepting investor commitments, alongside the requisite details and non-refundable application fee. The Authority holds the discretionary power to register a fund, impose conditions, or refuse registration if necessary. Falsely claiming to operate as a private fund carries significant penalties under this section, underscoring the stringent regulatory stance.

Operational conditions for private funds

Operational conditions for private funds are comprehensively addressed in Part 3. Private funds must ensure annual audits of their accounts, conducted by approved auditors, and adhere to internationally recognised accounting and auditing standards. Funds are obligated to prepare annual returns, maintain accessible records, and implement robust asset valuation procedures. The valuation process is critical, requiring independence from portfolio management to prevent conflicts of interest. Similarly, safekeeping of assets, cash monitoring, and the identification of traded securities are mandated, with provisions for third-party oversight or manager independence to enhance transparency and safeguard investors’ interests. CIMA retains the authority to intervene should these key operational standards not be met.

Supervision and enforcement by CIMA

Supervision and enforcement fall under the fourth part, which empowers CIMA to oversee compliance rigorously. CIMA may request specific information, conduct investigations for potential breaches, or take enforcement action against unregistered entities. Such actions can include audits, reporting requirements, or applying to the Grand Court for asset protection orders. The Authority’s enforcement capabilities serve as a robust mechanism to ensure that fund operators remain compliant and accountable.

Duties and powers of CIMA

Part 5 elaborates on the duties and powers granted to CIMA. The Authority oversees the registration process, monitors private fund operations, and ensures adherence to anti-money laundering regulations. If breaches occur, CIMA can impose conditions, replace fund operators, appoint advisors, or assume control of fund operations. It may also seek court intervention to enforce necessary actions, including fund reorganisations or liquidations. This section emphasises the Authority’s pivotal role as both a regulator and a protector of investor interests.

Miscellaneous provisions and flexibility

The Act concludes with miscellaneous provisions under Part 6, addressing appeals, auditors’ obligations, and exemptions. Aggrieved parties may appeal certain CIMA decisions, such as registration cancellations, to the Grand Court. Auditors are required to report any significant financial or operational irregularities observed during their audits to CIMA. Furthermore, private funds are exempt from the Trade and Business Licensing Act, facilitating their operational efficiency. The Act also authorises the Cabinet to amend its provisions through regulations or transitional arrangements, underscoring its dynamic and adaptable nature.

Conclusion: A robust regulatory framework

The Private Funds Act (2025 Revision) reflects a structured and robust approach to regulating private funds in the Cayman Islands. By combining detailed operational requirements with stringent supervision and enforcement powers, it creates a solid foundation for fostering investor confidence, ensuring regulatory compliance, and maintaining the Cayman Islands’ global standing as a trusted financial hub.

Further reading

• Cayman Islands Private Funds Act (2025 Revision)