This article is the third in a series on
The changes to the mutual funds law were not as extensive as some in the industry had anticipated. However, a number of important recommendations of the mutual funds working group established by CIMA were accepted. The changes include increasing the minimum subscription limit for Cayman hedge funds, allowing Cayman-based fund administrators to administer foreign hedge funds without those funds being required to register with CIMA and giving increased powers to CIMA in relation to audits and auditors.
The minimum initial investment limit for section 4(3) funds (the most common registration alternative under the mutual funds law) has been raised from $50,000 (£26,000) to $100,000 (£52,000). This strengthens the distinction between public and non-public funds, brings Cayman into line with the rules in many other jurisdictions (for example, the minimum for funds listing on the Irish Stock Exchange) and satisfies a recommendation of the International Monetary Fund (IMF). In practice, the change will have little or no impact, as 80% of funds registered with CIMA have a minimum subscription of $1m (£518,027) or more, and only 5% have an investment minimum of less than $100,000. It should be noted that all existing funds will be ‘grandfathered’ and will not be affected by the change.
Perhaps the most significant change to the mutual funds law is an amendment to the definition of ‘carrying on business in or from the
Amendments have also been made to the provisions of the mutual funds law dealing with the obligations of auditors and the annual audit requirement for regulated funds. Auditors of regulated hedge funds now have an obligation to notify CIMA if, in the course of carrying out an audit, the auditor obtains information or suspects that the hedge fund is carrying on business in a fraudulent or criminal manner or is carrying on business otherwise than in compliance with the relevant laws and licence conditions. CIMA in turn now has the ability to waive the obligation to file audited accounts. It should be noted that CIMA is expected to exercise its discretion to waive the audit requirement sparingly and only in exceptional circumstances.
A further significant amendment to the mutual funds law gives CIMA the ability to specify the manner in which audited accounts are submitted to the regulator and, in order to meet the burden of supervising the ever increasing number of hedge funds and fund administrators, CIMA is expected to implement an e-reporting system by April 2007. E-reporting will enable the processing of fund information in a way that will streamline CIMA’s oversight functions at a time when the success of the
The e-reporting initiative is being implemented in stages, starting with the requirement that auditors transmit audited accounts to CIMA in electronic form together with a key data elements (KDE) form to be completed by the fund’s director, general partner or trustee. No new information is being asked for in the KDE form and all data requested should be contained in the audited financial statements and the offering document of the fund. Both the fund’s audited accounts and the KDE form must be filed with CIMA within six months of the fund’s financial year-end.
The e-reporting initiative does not represent any kind of intrusion on funds’ confidential information, nor does it impose any additional regulatory burden upon them. No information relating to the fund and its service providers will be made available to the public. Only aggregate statistical information gleaned from the KDE forms will be published. There are no additional regulatory costs associated with implementation of the e-reporting initiative and the incremental costs to the fund in completing the KDE form should be minimal.
The amendments to the mutual funds law and the manner in which the e-reporting initiative is to be implemented demonstrate the continuing commitment of CIMA to non-intrusive regulation. In the wake of episodes such as the demise of US hedge fund Amaranth there are inevitably demands, especially in the
