The Cayman Islands remains the premier global jurisdiction for hedge funds and the raft of regulatory changes and international treaties should protect that position in the future, argues Cindy Scotland, managing director of CIMA.
The Cayman Islands is well recognised as the premier global jurisdiction for hedge fund domiciliation. In 2013, Cayman funds were authorised at an average rate of 149 per month.
The number of new funds processed during the calendar year ending December 31, 2013 was 1,792, compared to 2,775 as at December 31, 2012; 1,038 at December 31, 2011; 1,083 at December 31, 2010; 1,158 at December 31, 2009; and 1,653 at December 31, 2008.
"Revisions to the Mutual Funds Law were made to provide for the registration of non-resident mutual fund administrators, and to widen the power to make regulations."
The total number of Cayman funds at December 31, 2013 was 11,379. This compares to 10,841 for the same period in 2012. The cumulative figure of 11,379 comprises 8,235 registered funds, 398 administered funds, 111 licensed funds and 2,635 master funds.
With the introduction of the master fund regulation, in 2012 there was a large increase in fund registrations (1,891 master funds registered), as expected. In 2013, however, master funds authorisations slowly declined, with a total of 883 being authorised. Although some 47 percent less than the 2012 figures, 2013 master fund registrations were still steady and impressive, averaging 74 per month.
Most of the final figures for December 2013 reflecting the growth rate of the funds industry in the main jurisdictions were not available at the time of writing. However, for the Bahamas the number was 750, an increase of 15 percent from the end of 2012. At November 30, 2013, Ireland reported a total of 1,205 funds, an increase of 4 percent from the end of 2012.
As of September 30, 2013, the British Virgin Islands (BVI), Jersey, and Bermuda reflected a decrease in total funds from the end of 2012. BVI reported a total of 2,253 funds, a decrease of 2.8 percent; Jersey reported a total of 1,348 funds, a decrease of 3 percent; and Bermuda reported a total of 709 funds, representing a decrease of 7 percent.
Cayman’s many advantages
Some key advantages which continue to attract investors to the Cayman Islands include political, social and economic stability; modern infrastructure, such as telecommunications and transportation; a sound legal system based on English common law, which is known and understood worldwide and is the basis of legal systems in many other jurisdictions; a range of interrelated professional services: legal, accounting, company management, and corporate services; and compliance with international standards.
Not least among these are the jurisdiction’s tax neutrality, which ensures that entities are not subject to additional layers of taxation in Cayman, and the existence of a clear and robust regulatory framework.
In this environment, as can be noted from the recent authorisation figures, fund promoters are getting seed capital to set up new Cayman funds, and service providers such as lawyers and auditors in the jurisdiction are being kept busy meeting their needs.
The government and the Cayman Islands Monetary Authority (CIMA) have been vigilant in monitoring international developments relating to the financial services industry and responding to these developments in order to maintain the jurisdiction’s pre-eminence as a domicile of choice for investors.
The introduction of the Alternative Investment Funds Management Directive (AIFMD) throughout Europe in July 2013 was seen as an area of concern for the funds industry, since approximately 23 percent of Cayman-regulated fund assets are managed by a European manager.
CIMA has now signed memoranda of understanding (MOUs) with 27 of its European counterparts in relation to the AIFMD, providing for mutual assistance regarding supervising managers of alternative investment funds who operate on a cross-border basis in both jurisdictions. These MOUs provide for the continued marketing of Cayman funds in Europe.
In addition, the introduction of the Foreign Account Tax Compliance Act (FATCA) by the US government will also have implications for the Cayman Islands. The Cayman Islands government and the US Treasury officially signed a non-reciprocal FATCA model 1 inter-governmental agreement (IGA) on November 29, 2013. This allows designated foreign financial institutions in a partner jurisdiction to satisfy their FATCA requirements by reporting specified information about US accounts to their government, which will then furnish that information to the US Internal Revenue Service.
The signing of the model 1 IGA with the US followed the signing of an equivalent agreement with the UK government on November 5, 2013. Enabling legislation has been drafted to be enacted by March 2014, with accompanying regulations and guidance implemented by the end of the fiscal year June 2014.
CIMA has been taking the necessary steps to ensure that the operation and regulation of the funds industry in the Cayman Islands are in keeping with international best practice.
CIMA began public consultations on corporate governance standards in the financial services industry in January 2013, with a view to enhancing the jurisdiction’s corporate governance framework. This was prompted by international developments recommending or requiring greater probity, transparency and accountability in the financial services industry.
As a result of this wider consultation, feedback from the hedge funds industry favoured bespoke guidance on corporate governance standards for the funds industry. A new Statement of Guidance for Mutual Funds became effective January 13, 2014.
The purpose of the statement of guidance is to provide the governing body of a regulated mutual fund and its operators with guidance on the minimum standards expected for the sound and prudent governance of the regulated mutual fund.
Other recent domestic developments relate to the legislation governing mutual funds.
The Mutual Funds Law (2012 Revision), became effective on January 10, 2013. The revision amended certain definitions within the law, and clarified requirements regarding the registration of master funds.
Revisions to the Mutual Funds Law (2013 Revision) and the Mutual Funds (Fees) Regulations were published in the Official Gazette on October 11, 2013. The revisions to the Mutual Funds Law were made to provide for the registration of non-resident mutual fund administrators, and to widen the power to make regulations.
Together, these steps undertaken by the Cayman Islands government and CIMA are intended to ensure the robust health of the country’s funds industry well into the future.
Cindy Scotland has served as the managing director of CIMA since June 2002. She oversees the implementation of policies to ensure the sound management of the Cayman Islands’ currency and the effective supervision of the more than 14,000 regulated entities operating in and from the Cayman Islands. She also has responsibility for the development and maintenance of strong working relationships between CIMA and other international regulatory bodies. She can be contacted at: email@example.com
Cindy Scotland, CIMA, Master Fund Regulation, Advantages, AIFMD, FATCA, Mutual Funds Law