The Cayman Islands is changing the way it regulates funds. Two new measures – the Mutual Funds Law 2020 and the Private Funds Law 2020 – have been approved by the Legislative Assembly.

The changes are in response to pressure from the EU and Caribbean Financial Action Task Force on the Caymans to improve transparency; and demand from private equity investors for fully independent asset verification, valuation and audits.

During an Assembly debate, Minister for Financial Services, Tara Rivers, said the approach "modernises funds regulation in the Cayman Islands by providing additional surety and transparency for investors and managers of Cayman Islands investment funds while upgrading our position in line with best practices around anti-money laundering and other key regulatory standards."

The new laws require smaller funds – those with 15 or fewer investors – to file annual accounts with the Cayman Islands Monetary Authority (CIMA). "This focus on smaller funds brings equality to the governance of funds on the Islands," says Paul Gorman, Solutions Architect, TMF Group Fund Services. "Previously, many funds with fewer than 15 investors enjoyed lower costs while keeping things simple. These laws put everyone on an equal footing."

The laws also address EU recommendations for investment fund oversight set out in a report in May 2019 from the EU Code of Conduct Group (Business Taxation).

All regulated mutual funds must now meet annual obligations to CIMA to pay a registration fee, comply with return requirements, retain accessible records and have audits issued or undertaken by a CIMA-approved local auditor in accordance with international audit standards.

Obligations for private funds are similar. There are also requirements relating to the valuation of and safekeeping of fund assets, cash monitoring and identification of securities. There must be adequate internal procedures for the valuation of fund assets in pursuit of greater clarity for investors. Smaller funds have six months to register.

CIMA gets new powers. The Acts authorise CIMA to enforce special measures against a private fund it believes is carrying out business in a fraudulent or detrimental manner. This should improve the policing of funds – and enhance the Cayman Islands' reputation internationally.

Gorman explains: "Understanding the fine print of the changes is vital for clients, accountants and third-party vendors. Fund managers should experience no disruption from these laws if correctly advised by specialist compliance experts.

"Fund managers want to focus on doing what they do best. TMF Group ensures clients' compliance needs are taken care of, so they can concentrate on their core business, without distractions."

About TMF Group

TMF Group is one of the world's leading providers of structuring and administrative services to the funds industry. Our large, dedicated funds team, located in all significant financial centres, facilitates global and cross-border investment operations through a network of more than 120 offices worldwide. We work with a wide range of established players in private equity, real estate, securitisation and private debt. Our teams tailor their services to the requirements of the industry and the jurisdictions concerned, helping clients with the structuring, formation and administration of investment funds and their underlying investment structures.

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