Cayman Islands Fund Update - December 2011


Regulatory update on Cayman Islands financial services.

In a recent presentation the head of the Cayman Islands Investments and Securities Division of the Cayman Islands Monetary Authority, Yolanda McCoy, outlined the current position of the Cayman Islands financial services industry and future developments to the Islands’ regulatory framework.

The Islands remain the jurisdiction of choice for the domiciliation of funds and continues to enjoy significant and growth. The latest figures available indicate that there are approximately 9,440 funds regulated by the CIMA , comprising approximately 8,890 registered funds, 430 administered funds and 120 licenced funds In 2011 there were on average 95 application received a month, only slightly down on the 2010 average  of 98 applications a month. The business of fund administration also continues to develop with approximately 130 licences issued and 30 securities investment business licence holders.

Against this background, Mrs McCoy warned against complacency and considered the changes needed for the Cayman Islands to maintain its position by adapting to international regulatory environment and strengthening the regulatory regime.

The key proposals include the following :

1. Registration of Master Funds - a draft bill is presently before the Islands’ Assembly.

2. Powers to CIMA to refuse registration to mutual funds or securities investment business –powers would give greater discretion to CIMA to refuse registration, if the entry standards are not met by applicants. Currently under consideration.

3. Mutual Fund Administrator’s Licence (MFA) – to develop the fund administration business as dedicated licence is being considered to attract small and medium sized niche businesses and increase the level of mutual fund administration being conducted in the jurisdiction. These proposals are currently under review.

4. Law Reform -: The Mutual Fund Law and the Securities Investment Business Law, are in the early stages of review in the light of the Alternative Investment Fund Managers Directive (AIFMD).  The CIMA is in dialogue with the European Securities Markets Authority (ESMA) on its recommendations including :

• The authorisation and continuing supervision of depositories by an independent authority following the EU regulatory regime, including dissuasive penalties for breaches: 

• Co-operation arrangements to be implemented to allow access to information by EU authorities to ensure compliance with AIFMD:

 • Assistance with the enforcement of EU law on funds that are marketed in the EU:

 • The execution of  a multilateral memorandum of understanding on consultation, cooperation and the exchange of information following the IOSCO draft.

Included in the EMSA’s recommendations were the lightening of reporting obligations on smaller fund managers and the collection of information by regulatory authorities.

CIMA is likely to adopt the recommendations including the reporting requirements and the provision of information to the relevant EU authorities

5. Corporate Governance of hedge funds: this has been under review for some time by CIMA which has been active in taking enforcement action against funds which do not observe the regulatory requirements.  Changes to the regulatory regime will follow in the course of next year.

The CIMA continues its dialogue with various EU regulatory bodies and is involved in the G20 discussions to strengthen financial markets and is active in efforts to improve international cooperation and information exchange.

We consider that the changes that have been outlined by Mrs McCoy will strengthen the Cayman Islands’ regulatory regime in line with international standards and are likely to enhance the jurisdiction’s reputation and its financial services sector.

 We await future developments with interest.