Inside Money-Finance Making Your Money Work!

Cayman’s mutual fund industry is proof of Darwin’s theory
that evolution takes place over long periods. Admittedly it
is taking years rather than millennia, however, the process
of modernizing the legislation governing Cayman’s mutual
fund industry appears to be a complex process.

Rapid growth in Cayman’s hedge fund industry is the backdrop
against which the current review of the regulatory regime is
taking place. The number of funds registered or licensed
with the Cayman Islands Monetary Authority (CIMA) has been
growing at a scarcely believable pace.

CIMA established a working group of representatives from the
Cayman Islands Fund Administrators Association, the Cayman
Islands Society of Professional Accountants, the Cayman
Islands Law Society and the Cayman Islands Bar Association
to evaluate the recommendations of CIMA’s own Policy and
Research Division which has examined the regulation of the
mutual funds industry.

The working group’s aim is to further improve the regulation
of the funds industry, with a view to striking a balance
between the demands of a competitive offshore financial
centre and the international standards requested of a
sophisticated offshore financial centre by a number of
international bodies.

It is likely that four, rather than two, categories of funds
will be established. The likely categories are a standard
retail Public Fund offered to the public (no minimum
subscription); Managed Private Fund with a licensed Cayman
fund administrator providing the registered office (minimum
subscription of US$10,000); Recognised Fund with equity
interests listed on a prescribed stock exchange or
licensed/registered in a prescribed jurisdiction and
Professional Fund offered only to professional investors,
with a high minimum subscription.

The name of Cayman’s “Mutual Funds Law” has caused
confusion, so the working group proposes to name the amended
Mutual Funds Law the “Investment Funds Law”. Those who had
trouble reconciling a hedge fund as being a mutual fund
should be able to accept a hedge fund is an investment fund.

A further proposal of the working group, whilst not intended
to save market participants money is likely to have that
result, namely the proposal to provide broader powers to
CIMA to waive the requirements for an audit for licensed or
registered funds. Instances where a fund was not launched or
where a fund is wound up with only a few investors are
examples of where such a waiver may prove desirable.

The above is just a flavour of the changes which can be
expected, it is not a complete list of all the likely
implemented reforms. Timing of the implementation is
difficult to predict, however the review process has been
going on for years and it may conclude soon, although the
new laws and regulations will need to be drafted and
approved giving time to prepare for the new regulatory
regime.

Previously Cayman’s regulators have been able to achieve the
delicate equilibrium, striking the right balance between
regulation and the needs of the funds industry and they are
intent on improving further an offshore jurisdiction already
in high demand. Their hope is that the Cayman Islands will
continue to be the natural selection of fund professionals.

Cayman’s mutual fund industry is proof of Darwin’s theory
that evolution takes place over long periods. Admittedly it
is taking years rather than millennia, however, the process
of modernizing the legislation governing Cayman’s mutual
fund industry appears to be a complex process. The name of
Cayman’s “Mutual Funds Law” has caused confusion, so the
working group proposes to name the amended Mutual Funds Law
the “Investment Funds Law”. Those who had trouble
reconciling a hedge fund as being a mutual fund should be
able to accept a hedge fund is an investment fund.

Posted under Finance