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.