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CONTINUING OBLIGATIONS FOR CAYMAN ISLANDS REGULATED MUTUAL FUNDS
This guide briefly sets out the ongoing obligations of Cayman Islands open-ended mutual funds registered pursuant to the Mutual Funds Act (as amended) of the Cayman Islands (the MFA). In addition to the MFA, regulatory requirements for such funds are also set out in, among others, the Companies Act (as amended) of the Cayman Islands as well as the Directors Registration and Licensing Act (as amended) of the Cayman Islands (the DRLA).
ANNUAL LICENCE FEE
A mutual fund registered with the Cayman Islands Monetary Authority (CIMA) must pay an annual licence fee to CIMA. The annual fee is approximately US$4,270 for standalone and feeder funds and US$3,050 for master funds. The annual fee is due and payable on or prior to 15 January of each year, failing which, penalties of one twelfth the annual licence fee will be imposed by CIMA each month during which the annual licence fee and any penalties remain unpaid.
ANNUAL FEE PAYABLE TO THE REGISTRAR OF COMPANIES OF THE CAYMAN ISLANDS (THE REGISTRAR)
An exempted company registered as a regulated mutual fund is also required to pay an annual fee to the Registrar. Such annual fee is charged on a sliding scale based on the authorised share capital of a company, currently ranging from US$854 for a company with an authorised share capital of US$50,000 or less, to US$3,132 for a company with a share capital exceeding US$2,000,000. The annual fee payable to the Registrar is due in January of each year. Failure to pay the annual fee and to submit the annual return to the Registrar by 31 March of each year will result in penalties being imposed by the Registrar. It should be noted however that although the Registrar does not begin to impose penalties until 1 April that a company will not be in good standing until such filing and payment is made. Penalties are assessed as follows:
Annual fees are also payable to the Registrar of Exempted Limited Partnerships, Registrar of Limited Liability Companies and the Registrar of Trusts respectively, for exempted limited partnerships, limited liability companies and unit trusts registered as regulated mutual funds.
CHANGES TO OFFERING DOCUMENT FILED WITH CIMA
Any change that materially affects the information in the offering document filed with CIMA or the prescribed details of a master fund which does not have an offering document, must be filed with CIMA within twenty-one (21) days of such change. Master funds are not required to have an offering memorandum.
Material changes which should be filed with CIMA include, but are not limited to, the following:
(a) change in name of the entity (which is first effected with the relevant Registrar who would issue a Certificate of Change of Name). CIMA requires a copy of this certificate;
(b) resignation and appointment of directors (such changes must also be filed with the Registrar within thirty (30) days, failing which, the Registrar will impose penalties);
(c) change of auditors;
(d) change of administrator;
(e) change of investment manager;
(f) change of trustee (for a fund established as a unit trust);
(g) change of anti-money laundering officers;
(h) change in financial year end;
(i) change in registered office (which is also filed with the relevant Registrar) or change in principal office; and
(j) change in the offering terms.
AUDITED FINANCIAL STATEMENTS AND FUND ANNUAL RETURN
A regulated mutual fund is required to have its accounts audited annually by an auditor approved by CIMA and filed together with a Fund Annual Return within six (6) months of the fund's financial year end. Failure to file audited financial statements could result in fines being imposed by CIMA.
Extensions to submit audited financial statements are considered by CIMA on a monthly basis, up to a maximum of three (3) months after the original audit filing deadline. Audit extensions beyond the first month must be accompanied by a letter from the fund's auditors explaining the rationale for the delay. Filing fees are payable to CIMA with respect to such audit extensions.
CORPORATE GOVERNANCE
CIMA expects the oversight, direction and management of a regulated mutual fund to be conducted in a fit and proper manner. Accordingly, CIMA has issued a Statement of Guidance for Regulated Mutual Funds – Corporate Governance which sets out certain key principles on good governance. This Statement of Guidance is not an exhaustive guide and require the operators of regulated mutual funds, who are regarded as the directing will and mind of a fund, to inter alia:
- oversee the activities and affairs of the fund; monitor compliance with applicable legal and regulatory requirements; and to suitably identify, disclose, monitor and manage all conflicts of interest;
- meet at least twice a year in person or via telephone or video conference call or more frequently otherwise as necessary and ensure that a full, accurate and clear written record is kept of all meetings;
- exercise independent judgment, always act in the best interests of the fund taking into consideration the interests of the fund's investors as a whole, operate with due skill, care and diligence;
- provide suitable oversight of risk management of the fund and ensure the fund's risks are always appropriately managed and mitigated.
The governance framework of any mutual fund depends on its size, nature and complexity.
ANTI-MONEY LAUNDERING OBLIGATIONS
The anti-money laundering regime of the Cayman Islands includes, inter alia, the Proceeds of Crime Act (as amended), (the PCA) Proliferation Financing (Prohibition) Act (as amended), the Anti-Money Laundering Regulations (AMLRs), as well as the Guidance Notes on the Prevention and Detection of Money Laundering, Terrorist Financing and Proliferation Financing in the Cayman Islands issued by CIMA (together, the AML Regime). The AML Regime requires mutual funds to designate individuals to act as Anti-Money Laundering Compliance Officer (AMLCO), Money Laundering Reporting Officer (the MLRO) and Deputy Money Laundering Reporting Officer (the DMLRO) together the "AML Officers" and to ensure that the AML Officers are aware of their respective duties and responsibilities.
The AMLCO and MLRO (or DMLRO) may be the same individual, however, the same person cannot serve as both MLRO and DMLRO. The AML Officers must be at managerial level and must be fit and proper to assume the relevant roles.
The role of the AMLCO is to oversee (i) the effectiveness of the fund's AML systems; (ii) compliance with applicable AML legislation and guidance; and (iii) the day-to-day operation of the AML policies and procedures of the fund.
The MLRO and DMLRO act as the point of contact for all suspicious activity reports and are required to report any suspicious activities to the relevant authorities.
The AML Regime also requires all persons engaged in relevant financial business as defined in the PCA to, among other things, (i) adopt a risk-based approach to their anti-money laundering/counterterrorist financing framework; (ii) design and implement policies, controls and procedures to manage and mitigate money laundering and terrorist financing risks; (iii) comply with the identification and record-keeping requirements with respect to client due diligence procedures pursuant to the AMLRs; (iv) observe the list of countries, published by any competent authority, which are non-compliant, or do not sufficiently comply with the recommendations of the Financial Action Task Force; (v) implement suspicious activity reporting procedures; (vi) comply with targeted financial sanctions obligations; and (vii) implement procedures for the ongoing monitoring of business relationships or one-off transactions for the purposes of preventing, countering and reporting money laundering, terrorist financing and proliferation financing; as well as procedures allowing for the identification of assets subject to targeted financial sanctions applicable in the Islands.
Financial service providers who fail to comply with the AML Regime may be subject to administrative fines or to criminal prosecution.
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CONTINUING OBLIGATIONS FOR CAYMAN ISLANDS REGULATED MUTUAL FUNDS
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
