In October 2015, the Cayman Islands Monetary Authority (CIMA) announced its policy with respect to audits of stub periods in the context of mutual funds. Following a public consultation, CIMA has now gazetted a revised regulatory policy setting out the conditions where it may exempt a regulated mutual fund from audit requirements (Regulatory Policy). While the Regulatory Policy retains the pre-existing grounds for application for waiver, it expands the grounds on which applications may be based. For those funds seeking to avoid an audit for the stub period 1 January 2016 to 30 June 2016, fast action is required in order to make use of the changed policy before 30 June 2016.
In considering whether to exempt a fund from the annual audit requirement, CIMA must be satisfied that the exemption will not contravene any terms of the fund's articles or other constitutive documents and its offering document, or prejudice the fund's investors and creditors. In addition to the documents to be provided pursuant to the Regulatory Policy, an operator of the fund must provide written confirmation of the absence of such contravention as well as the prescribed application fee.
When a fund is seeking an audit waiver in conjunction with an application for de-registration, the Regulatory Policy must be read with the Rule on Cancellation of Licence or Certificate of Registration of Regulated Mutual Funds and the Regulatory Procedure on Cancellation of Licences and Certificates of Registration issued pursuant to the Mutual Funds Law in order to determine the documents and fee to be submitted.
In determining whether an exemption should be granted, CIMA will assess each request on a case by case basis, and may consider an exemption in the following circumstances:
i. a fund has not launched1 but does not wish to be de-registered;
ii. a fund has not launched and is being liquidated or wishes to be de-registered;
iii. a fund has launched but has been unsuccessful in raising sufficient capital for sustainability;
iv. a fund is unable to obtain audited accounts due to events such as bankruptcy proceedings, legal or regulatory enforcement actions;
v. a fund has been placed in compulsory (involuntary) liquidation and CIMA is satisfied with the appointment of the liquidator and the scope of the liquidator's review;
vi. a fund is being voluntarily liquidated and a third party liquidator (i.e. not the operators or currently engaged service providers (excluding an Auditor of the fund)) has been appointed under terms that require a review of the period since the last financial year end for which an audit has been filed;
vii. a fund is transferring to another jurisdiction within six months of its last financial year end for which an audit has been filed, or is due to be filed;
viii. a fund is dissolving by way of a merger within six months of its financial year end for which an audit has been filed, or is due to be filed;
ix. all investors in a fund have agreed to forego the audit for a part of a financial year (of not more than six months) and no more than ten investors existed at any time during that stub period.
CIMA may also in other exceptional circumstances and with absolute supervisory discretion grant an exemption from the audit requirement, upon the submission of information as requested by it and necessary to support the request.
Where all investors in a fund have agreed to forego the audit for a part of a financial year (of not more than six months), the applicant is required to submit:
(i) an affidavit from an operator of the fund confirming that no more than ten investors existed at any time during the stub period and that each remaining investor has resolved to waive the audit for that stub period; and
(ii) a resolution signed by each investor confirming its agreement to a waiver of the audit. Submitted resolutions must explicitly outline the acknowledgement and acceptance of all inherent risks involved in not conducting a financial audit for the given stub period.
In any case where an affidavit is submitted, CIMA will satisfy itself as to whether its contents are sufficient and whether the affidavit may be accepted in lieu of audited accounts as required under the Mutual Funds Law. CIMA may require additional evidence to be provided.
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.