Here are some common compliance questions that arise for Mutual or Private Funds in the Cayman Islands following the Cayman Islands Monetary Authority's (CIMA) issuing of rules on corporate governance and internal controls (Rules) applicable to all its regulated entities. The Rules, which apply to both hedge funds and private equity funds registered with CIMA, have been effective since October 2023.
Is it necessary for a registered Mutual or Private Fund to adopt policies and procedures to implement the Rules?
It is not necessary to adopt formal policies and procedures. The Rules are flexible in their application, whilst they do require written policies these may be set out in the fund's constitutional or offering documents, board resolutions, service provider agreements, instructions to service providers or as formal policies and procedures.
Is a registered Mutual Fund or Private Fund still required to comply with CIMA's statement of guidance on Corporate Governance for Mutual and Private Funds and how does this guidance interact with the Rules?
Yes, both these regulatory measures have a proportionality element and both allow for flexibility in their implementation. The Rules are intended to apply to a wide range of regulated entities and necessarily require more adaptation for registered funds whereas the Statement of Guidance has been written exclusively for registered funds and will have more direct relevant and consequently more restrictive application.
How should the governing body of a registered Mutual or Private fund undertake self-assessments of their performance?
We commonly see self-assessments made by way of a questionnaire completed by each director of the fund, general partner or trustee and with such questionnaires being provided to the registered fund an each other director. Once completed any issues arising from the questionnaire should be discussed at the next following board meeting and steps put in place to address them as thought appropriate.
Is there a prescribed minimum annual time commitment expected of non-executive directors of a registered Mutual or Private Fund, its general partner or trustee?
No, confirmations of time commitments are not prescribed and can be made annually in general terms.
Is it necessary for directors of a registered Mutual or Private Fund, its general partner or trustee to declare their conflicts of interest annually?
Is it not necessary to repeat previously declared conflicts of interest annually, only to confirm annually that all conflicts of interest have been declared. If there is any doubt whether all conflicts have been declared an annual declaration listing all conflicts should be made.
How should CIMA's rule on internal controls be implemented by a registered Mutual Fund or Private Fund which has no senior management and no staff?
The rule on internal control includes requirements to evaluate any internal control systems adopted by the fund's service providers. A fund should ensure that each of its service providers includes in their regular reporting to the fund details of their internal control systems, any failures of those systems and any actions being taken to rectify or improve those systems.
Our funds and regulatory support
Our funds and regulatory team have seen an increased demand from clients for advice and assistance on ensuring that their regulatory policies and procedures are aligned with CIMA's expectations as contained in the Rules. We regularly conduct gap analyses against these CIMA requirements and advise of any deficiencies and how best to address them.
Our board support services, if not already adopted by our Cayman fund clients, can provide an essential tool to ensure that they are appropriately addressing the Rules and that they are kept up to date with all regulatory developments in the Cayman Islands.
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.