From Appleby

As a result of the industry consultation process commissioned by the Cayman Islands Monetary Authority (CIMA) earlier this year, CIMA has published a Statement of Guidance (SoG) which applies to investment funds regulated under the Mutual Funds Law of the Cayman Islands (Funds).

The SoG sets out best practice and lays down minimum standards for governing bodies of Funds on the topic of corporate governance.

What you need to know:

The SoG does not impose a strict or all-encompassing code of conduct on governing bodies or operators of Funds. At a concise 8 pages, the SoG establishes an overall framework for good corporate governance within which Funds should operate. The SoG does not contain specific restrictions on investments, risks or strategies, nor does it attempt to direct, prescribe or constrain the management or business activities of Funds.

CIMA has left open the possibility of legislative amendments to the Mutual Funds Law to enforce or sanction noncompliance with the SoG.

Statement of Guidance

The SoG is not a prescriptive or exhaustive guide. The SoG sets out the key corporate governance principles related to the governing body (the directors, general partner or trustee) of a Fund and its Operators (as defined in the Mutual Funds Law). The SoG acknowledges that the adequacy and suitability of any Fund’s governance network will depend on a number of factors – including (but not limited to) the value of assets under management, number of investors, risk management, complexity of the structure and the Fund’s investment strategy.

The SoG includes the following:

Oversight Function

           Governing bodies of Funds are ultimately responsible for overseeing and supervising the activities of the Fund. They should regularly monitor and take steps to ensure that the Fund and its service providers are conducting the affairs of the Fund in compliance with the Fund’s defined investment criteria, investment strategy and restrictions as well as with all applicable laws, regulations and other rules. Governing bodies should receive regular reporting from the investment manager and service providers to ensure they are able to make informed decisions and to adequately oversee and supervise the Fund.

Conflicts of Interest

           Governing bodies of Funds must ensure that the Fund’s offering documents adequately and accurately disclose conflicts of interest and ensure that the Fund has adequate measures in place to identify, disclose, monitor and manage any conflicts of interest.

Governing Body Meetings

           Governing bodies of Funds should meet at least twice a year, and more often depending upon the circumstances or size, nature and complexity of the Fund and service providers should also attend. Full, accurate and clear written records must be kept of such meetings.

Operator Duties

           Governing bodies of Funds are responsible for the appointment, removal and contract terms of services providers including notifying investors and CIMA of any changes;

           Members of the governing body should communicate adequate information to the Funds investors, where disclosure is proper;

           Each member of the governing body must have sufficient capacity to apply their minds to overseeing and supervising each Fund in accordance with relevant laws, regulations, rules, statements of principles and the provisions of the SoG; and

           Governing bodies of Funds should ensure that the offering contain such information as is necessary to enable a prospective investor to make an informed investment decisions.

Database

CIMA has also announced that it intends to create a public database identifying the members of governing bodies of Funds, and the number of directorships held.

 

How Appleby can help

Appleby can assist investment managers and governing bodies of Funds with their review of existing corporate governance procedures and their review of offering documents, particularly in terms of disclosing conflicts of interest, to ensure compliance with the SoG. A dedicated and skilled team of professionals are available to undertake systems audits and guidance to our Fund clients through the new regulatory landscape.

For further information please contact:

 

Bryan Hunter

Managing Partner Cayman Islands +1 345 814 2052 [email protected]

 

Jeremy Walton

Cayman Practice Group Head Litigation & Insolvency Cayman Islands +1 345 814 2013 [email protected]

 

Ian Gobin

Group Head Funds & Investment Services Cayman Islands +1 345 814 2002 [email protected]