Dmytro Balkhovitin
The Cayman Islands Monetary Authority and the government of the Cayman Islands have continued to act prudently with appropriate legislation, internal reforms and technological enhancements to business processes to ensure the vitality of the funds sector, as Cindy Scotland, the authority’s managing director, reports.
Globally, there was a reported net increase of 134 hedge fund launches in 2015. The funds sector in the Cayman Islands recorded only a slight decrease, and remains healthy.
At the end of December 2015, 10,940 mutual funds were registered in the jurisdiction, well ahead of other domiciles. This figure is just short of the 11,010 recorded at the end of 2014. An analysis of fund types reveals that these consisted of 7,654 registered funds, 2,805 master funds, 380 administered funds and 101 licensed funds. There were 108 mutual fund administrators managing these funds.
Under the Securities and Investment Business Law (SIBL), there were 38 licensees, and 2,485 excluded persons at the end of the period under review. This represents a marginal increase from the 2,314 of the comparable period in 2014.
In spite of its consistent leading positon over the past several years, the Cayman Islands has not become complacent with regard to the funds sector. Rather, the Cayman Islands Monetary Authority (CIMA) and the government of the Cayman Islands have continued to act prudently to ensure that this vital aspect of our financial services industry remains viable. Among the measures taken in this regard are the enactment of appropriate legislation, internal reforms and technological enhancements to business processes.
Updating domestic legislation
Directors Registration and Licensing Law
The Directors Registration and Licensing Law (DRLL) 2014, which came into force on June 4, 2014, gives CIMA certain authorisation and supervisory responsibilities in respect of natural and corporate directors of mutual funds, as well as certain entities that are registered under the SIBL. A total of 24,307 applications have been processed since implementation of the DRLL, which includes applications for renewals for the 2015 calendar year.
Mutual Funds Law and SIBL
In September 2015, amendments were made to the Mutual Funds Law and the SIBL—key legislation regulating Cayman Islands funds and asset managers. While these amendments were passed in the Legislative Assembly, they have not yet been assented to, pending finalisation of the supporting regulations. The objective of the legislation is to allow Cayman-domiciled investment funds and managers to be able to market fund units in the EU using the passport regime of the Alternative Investment Fund Managers Directive (AIFMD).
"The objective of these measures is to ensure that the Cayman Islands has a successful assessment that results in the extension of the passporting option to its funds and fund managers."
After assessing countries’ regulatory regimes, the levels of supervisory cooperation, protection for investors, competition and the monitoring of systemic risk, the European Securities and Markets Authority (ESMA) is to advise the European Commission on whether the passport should be extended to non-EU managers that manage and/or market non-EU funds in the EU. The commission will consider whether the passport will be made available to the alternative investment managers from outside the EU on a voluntary opt-in basis.
The Cayman Islands is currently undergoing such an assessment, having been included in the second round of countries being assessed by ESMA. CIMA has been holding ongoing discussions with ESMA to ensure that all stakeholders fully understand the expectations to enable the extension of the passport to the jurisdiction, and to also keep ESMA apprised of our progress in updating the relevant laws and regulations. The government has also made a commitment to maintaining this dialogue, with efforts being undertaken at the political level. The objective of these measures is to ensure that the Cayman Islands has a successful assessment that results in the extension of the passporting option to its funds and fund managers.
Cayman funds that do not intend to raise capital in the European Economic Area (EEA), or are not managed by managers located within the EEA, will not be subject to these specific regulatory requirements.
Enhancing internal processes
AIFMD
CIMA has signed Memoranda of Understanding with 27 EEA member state regulators which require that the authority exchanges information with respect to covered funds. As a result of these agreements, certain EU countries are now requesting that CIMA submit an additional attestation regarding its ability to regulate covered funds, including closed-ended funds, and to confirm its ability to provide information, pursuant to these agreements, when required.
Internal systems and processes—such as notification forms, and formalisation of the process for issuing attestation letters—are also being updated to accommodate this new AIFMD regime.
REEFS
On January 5, 2015, entities regulated by CIMA were introduced to a new online system aimed at enhancing the ease of doing business with CIMA, as well as to increase internal efficiency. The new system—the Regulatory Enhanced Electronic Forms Submission (REEFS)—is an automated method for submissions of mandatory financial returns, change requests and new licence applications.
It is being implemented in phases. The new process was initially extended to insurance and fiduciary registrants and licensees. Funds, securities investment business entities and banking entities were next.
One year on, REEFS is performing well. Currently, change request forms for existing insurance and fiduciary licensees are available online, as well as the Fund Annual Return (FAR) for funds. A new version of the FAR form has now been published.
Directors can also register and make change requests online, as well as pay their fees electronically.
Looking to the future
Recently introduced legislation and amendments to existing legislation are expected to provide new opportunities for Cayman’s funds sector.
Amendments to the SIBL included a new licensing category for entities that provide depositary services to EU funds. The AIFMD allows non-EU funds to have a depository in their country of domicile, which potentially provides an opportunity in the Cayman Islands to develop a new industry in the financial services sector.
The Limited Liability Companies (LLCs) Bill, 2015 was published in the Cayman Islands in 2015, and is expected to be enacted into law in early 2016. This legislation paves the way for the introduction of a new type of corporate vehicle in Cayman—the Cayman LLC.
These measures are designed to help maintain the Cayman Islands as the leading global jurisdiction for fund formation. The outlook for the future remains positive.
Cindy Scotland is the managing director of the Cayman Islands Monetary Authority.
Cayman Islands Monetary Authority, CIMA, Cindy Scotland, Hedge Funds, Cayman Islands
