The Private Funds Law 2020 required closed-end private funds established in the Cayman Islands to be registered with the Cayman Islands Monetary Authority (CIMA) by August 2020. To register with CIMA, fund owners must submit an application and the fund’s legal documents. With the registration process completed, many businesses are moving on to planning for compliance with the valuation, custody, cash monitoring, and applicable audit requirements.
Separately, a 2020 amendment to the Cayman Islands Mutual Funds Law required registration of open-ended mutual funds. Previously, these funds were exempt from registration if they had 15 or fewer investors, a majority of whom could appoint or remove the operator of the fund. While this article will focus on the impact of registration on closed-end private funds, it’s important to note the similarities in the compliance requirements between these and open-ended mutual funds.
Registered private funds must have a financial statement audit from a CIMA-approved auditor, and these documents must be submitted to CIMA. The financial statements may follow either International Financial Reporting Standards or the generally accepted accounting principles of the United States, Japan, Switzerland, or other non-high-risk jurisdictions. Audits must comply with International Standards on Auditing or generally accepted auditing standards of the United States, Japan, Switzerland, or other non-high-risk jurisdictions.
If a Cayman entity and a non-Cayman entity have a master-feeder or other side-by-side investment structure, financial reporting of the two may have been combined in the past. To meet the new CIMA audit requirement, fund owners may submit combined or consolidated audited financial statements on both Cayman and non-Cayman entities, or on the Cayman entity alone.
In addition to these requirements, registered private funds are subject to regulation by CIMA, which has authority to take various actions against funds violating the Private Funds Law or other regulations. This could include replacement of the general partner or manager.
For many years, Plante Moran has served businesses that have investment funds in the Cayman Islands. Where advantageous, we leverage our Praxity global alliance of independent firms, which includes more than 51,000 professionals and serves clients in over 110 countries. We're here to help navigate the various options for structuring financial reporting and audit engagements or to share perspective on the costs and benefits of operating a fund in the Cayman Islands. Consultation with legal counsel may also be necessary to determine whether your investment funds comply with the new law.
