Introduction
This Guidance Note sets out the registration and continuing obligations of a private fund registered with the Cayman Islands Monetary Authority ("CIMA") under the Private Funds Act, (2021 Revision) (the "PFA").
Registration
All private funds are required to register with CIMA. Registrations must be made through CIMA's Regulatory Enhanced Electronic Forms Submission ("REEFs") web portal. Stuarts has access to REEFs and will attend to registrations and ongoing filings for our clients. In order to register with CIMA, a private fund is required to file: (i) application form; (ii) application fee; (iii) certificate of incorporation/registration; (iv) constitutive documents (memorandum & articles of association/trust deed/declaration of partnership (as applicable); (v) offering memorandum/summary of terms/marketing material (as applicable); (vi) administrator's consent letter; (vii) auditor's consent letter; and (viii) structure chart.
Ongoing Obligations
Annual Fee. There is an annual fee payable to CIMA of US$4,268 in each year. Such fee must be paid by 15 January subject to penalties. There is also a fund annual return fee payable in each year of US$366. Where applicable, there is also an annual fee of US$305 payable in respect of each of the private fund's alternative investment vehicles up to a maximum of 25 vehicles.
Material Information. Where a private fund (a) makes any changes, or becomes aware of any changes, that materially affects any information submitted to CIMA under the provisions of the PFA; or (b) changes its registered office or the location of its principal office, the private fund shall within twenty-one days after making the change or becoming aware of the change, as the case may be, file with CIMA the details of the changes. CIMA will charge a filing fee of US$122 for each filing.
Operators. Private funds are subject to the 'four-eyes principle' and require a minimum of two natural persons acting as directors of the fund where it is structured as a company or for the general partner of the fund where it is structured as a partnership.
Operating Conditions. The PFA requires a private fund to ensure it has certain ongoing operating provisions in place relating to annual audits, annual returns, retention of records, valuation of assets, safekeeping of fund assets, cash monitoring and identification of securities which can be summarised as follows:
- Annual audit of private fund. A private fund shall have its accounts audited annually by an auditor approved by CIMA. Accounts will need to be prepared in accordance with International Financial Reporting Standards or the generally accepted accounting principles of the United States of America, Japan or Switzerland or any non-high-risk jurisdiction. Accounts are required to be filed with CIMA within six months of the financial year end of the private fund.
- Fund annual return. A private fund will, in respect of each financial year of the private fund, be required to submit an annual return in the prescribed form.
- Retention of records. A private fund shall maintain its records in an accessible manner and in accordance with rules, statements of principle and guidance issued by CIMA under section 34 of the Monetary Authority Act (2020 Revision). This requirement includes an obligation to maintain a record of the identification codes of any securities that are regularly traded or held on a consistent basis.
- A private fund shall have appropriate and consistent procedures for the purposes of proper valuations of its assets, which shall ensure that valuations are conducted in accordance with the requirements in the PFA. Valuations of the assets of a private fund shall be carried out at a frequency that is appropriate to the assets held by the private fund and, in any case, on at least an annual basis.
Valuations of the assets of a private fund shall be performed by (a) an independent third party that is appropriately professionally qualified to conduct valuations in a nonhigh-risk jurisdiction or (b) the manager or operator of the private fund, or a person who has a "control relationship" with the manager of the private fund. If the valuation is undertaken by the latter of these options then it must be independent form the portfolio management function and potential conflicts of interest must be properly identified, managed, monitored and disclosed to investors. Alternatively, the valuation function could be undertaken by an administrator not falling under option (a) who is appointed by the private fund.
- Safekeeping of fund assets. A private fund shall appoint a custodian to hold in custody, in segregated accounts opened in the name, or for the account, of the private fund, the custodial fund assets and verify, that the private fund holds title to any other fund assets and maintain a record of those other fund assets. A private fund is not required to appoint a custodian if it notifies CIMA that it is neither practical nor proportionate to do so, having regard to the nature of the private fund and the type of assets it holds. In this scenario the private fund shall appoint either an administrator or another independent third party or the manager or operator, or a person with a control relationship with the manager of the private fund, provided that the verification function is kept separate and conflicts of interest are identified, monitored and managed in the same way that the valuation function is administered as set out above.
- Cash monitoring. The PFA requires that monitoring of cashflows and checking of cash accounts and receipt of investor payments be carried out by any of the manager or operator of the private fund (subject to functional independence or conflicts management requirements), an independent administrator, independent custodian or other independent third party.
- Identification of securities. Where applicable, a private fund that regularly trades securities or holds them on a consistent basis is required to maintain a record of the identification codes of the securities it trades and holds in accordance with the law and shall make this record available to CIMA upon request.
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