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February 20, 2020

The Cayman Islands Private Funds Law 2020

Changing Requirements for Private Funds

SUMMARY

 

Earlier this month, the Cayman Islands government announced new legislation introducing the Private Funds Law. This new legislation implements required changes for private funds while strengthening regulation and increasing transparency in the country’s financial services sector. While looking to align with global compliance standards, the law also seeks to introduce regulation for previously unregulated private funds.

All Cayman Islands domiciled entities who meet the definition of a private fund have until August 7, 2020, to comply.

 

WHAT TO EXPECT

 

These new changes will increase regulation on private funds while also aligning with regulatory standards, market practices, and anti-money laundering procedures. The end goal is to adopt efficient and current processes and practices for fund managers, stakeholders, and investors. The Cayman Islands government looks to strengthen investor confidence while ensuring that the nation stays abreast of industry best practices. A transitional period will give time for those affected to review and make necessary changes to their accounts so they can be compliant with the new regulation.

 

WHAT THIS MEANS FOR PRIVATE FUNDS IN THE CAYMAN ISLANDS

 

The types of pooled investment vehicles that are in the purview of the new regulation include private equity funds and hedge funds. Separately managed accounts, single family offices, and funds of one are exempt as they don’t fall within the definition of a pooled investment vehicle.

A private fund in transition will have until August 7, 2020, to register with the Cayman Islands Monetary Authority (CIMA) and comply with the new requirements.

Upon registration, private funds must implement certain operating procedures including undergoing an annual audit, providing a valuation of assets on at least an annual basis, appointing a custodian, designating a person to oversee the cash monitoring, and adhering to securities identification requirements.

The new regulation offers flexibility by allowing private funds to choose the service providers who will conduct any required monitoring services as long as the service provider is independent of the fund’s investment manager. This can help to regulate any possible conflicts of interest.

 

HOW A FUND ADMINISTRATOR CAN HELP

 

Although the new Private Funds Law does not require appointing a third-party fund administrator, doing so could simplify and reduce costs associated with the requirements that speak to the safekeeping of assets and cash monitoring as well as the annual audit. Fund administrators generally have processes and procedures and systems in place to manage the requirements of the Private Funds Law, making them a natural partner for the Cayman Islands domiciled funds.

 

CONCLUSION

 

Overall, the new law will enable the Cayman Islands to further allow for innovation and market development while competing at a high level and strengthening investor confidence.

For further information, contact a member of the Summit Fund Services team.

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