Registration of investment fund in the Cayman Islands

29.06.2023

The Cayman Islands erstwhile occupied a preeminent status as hubs for establishing investment pools. They proffered alluring terms for global investors, encompassing diminished levies and an elevated echelon of discreetness. This allure enticed a multitude of firms keen on leveraging these benefits to refine their fiscal encumbrance and safeguard client confidentiality.

However, in recent epochs, modifications have been inaugurated to the statutory composition. Particularly, the Department of Pecuniary Amenities, in collaboration with other associated entities (comprising the Numismatic Supervisor or CIMA), has informed the sector of alterations impacting the stewardship of pecuniary resources in the Cayman Islands. It is noteworthy that CIMA serves as the fiscal overseer in the Isles and assumes responsibility for the authorization, oversight, and surveillance of financial establishments, encompassing funds. The article shall delve into the prevailing statutory amendments, varieties of funds, and the procedure for their inception.

Establishing an investment pool in the Cayman Islands: what renders this jurisdiction a favored selection?

Foreign investors frequently opt for Cayman when considering the registration of an investment fund. The subsequent predilections antecede this selection:

The Cayman Islands stand as a distinguished financial hub on the global stage.
Adaptable legislation underpinned by the tenets of English jurisprudence. The jurisdiction boasts a robust and tailored financial framework, replete with rigorous directives for the capital market. This engenders a high echelon of lucidity and safeguarding for stakeholders.
An array of fund categories, encompassing private and commingled funds, can be duly enrolled here, affording a spectrum of investment strategies.
An expansive array of services catered to financial institutions, inclusive of investment portfolio oversight and fund stewardship.
The indigenous currency maintains a steadfast linkage to the US dollar, which is widely embraced and circulated within the domestic economic sphere.
A multitude of preeminent global banks have established presences within the jurisdiction.
The jurisdiction offers competitive fiscal benefits, alluring investors in pursuit of tax optimization.

Governance of assets in the Cayman Isles

Solitary and communal treasure enactments were promulgated in 2020. They fortify the advancement of the economic domain. Especially, they establish a legal edifice for the operation and superintendence of treasures, thereby amplifying the charm of the dominion to financiers and amplifying reliance in the dominion. This possesses the potential to culminate in added investments in the economic sphere, fostering its progression.

Subsequently, the statutes governing private and commutual funds may confer specific fiscal advantages upon investors, thereby augmenting the appeal of investing in such funds. This has the potential to invigorate efforts to secure supplementary capital for the expansion of the financial domain. Furthermore, these statutes prescribe prerequisites pertaining to investment management and dispersion, thereby fostering the professionalization of financial oversight and elevating industry benchmarks. Furthermore, the implementation of the aforementioned statutes serves to bolster transparency and safeguard the concerns of investors.

The supervision of unbarred-close wealth reservoirs in the Cayman Isles is buttressed by the Mutual Funds Act (MFA). The MFA characterizes unbarred-close wealth reservoirs as joint wealth stratagems that accumulate resources from various investors to utilize in manifold securities such as equities, bonds, and alternative pecuniary utensils. Proficient wealth supervision enterprises manage unbarred-close wealth reservoirs, and they are typically employed for diversifying wealth assemblages and realizing protracted fiscal aspirations. Habitually, they proffer investors wealth increments and the capacity to procure and trade their apportions in the wealth reservoir.

Restricted terminable investment pools are governed by the Confidential Funds Statute/CFS. A confidential fund is an institution that proffers and dispenses stakes to amalgamate financiers' assets. It enables financiers to accrue advantages from the asset undertakings executed by the fund. Restricted funds are employed for investments in diverse holdings like securities, entrepreneurial undertakings, and so forth. They can manifest in a variety of manifestations such as trusts, alliances, or alternative judicial frameworks.
The aim of the MFA and PFA is to employ the pertinent degree of oversight to every category of investment fund engaging in commerce within or originating from the Isles. Apart from the statutes, mandates have been enacted as a component of the legislation to counteract tax elusion and uphold fiscal lucidity. The incorporation of these requisites has played a role in establishing the Cayman Islands as a relied-upon global financial hub.

Currently, to initiate an investment pool in the Cayman Islands, one must furnish evidence of an officially recorded domicile, engage an insular resident executive director, and possess an ample count of locally competent staff. The entity must uphold bookkeeping protocols congruent with regional statutes and codes, and furnish its fiscal records validated by an auditor.

Conversely, investment pool overseers must enroll with CIMA and furnish particulars concerning the fund and its configuration to the overseeing body. The accreditation of overseers mandates adherence to erudite and corporate leadership prerequisites. Overseers must possess erudite qualifications and proficiency and adhere meticulously to the rigorous decrees and guidelines stipulated by the pertinent supervisory entities in the Isles (embracing stipulations regarding fiscal disclosure, hazard administration, patron safeguarding, and other facets entwined with asset administration).

Furthermore, an annual enrollment levy necessitates remittance, and any alterations in the configuration and proprietorship of the investment pool necessitate notification to the accredited entity. All investment pools are beholden to the relevant anti-money laundering edicts. Hence, an AML/CTF conformity custodian (MLRO) and a substitute conformity custodian (DMLRO) must be designated. Additionally, a manuscript delineating the obligations, competencies, and qualifications requisite for these positions should be formulated. It is imperative to contemplate all pertinent AML/CTF connected regulatory statutes.

Investment fund in the Cayman Islands: what classifications of funds are accessible?

Investment pool in the Cayman Islands: Pursuant to extant statutes, there exist sundry classifications of shared funds (comprehensive elucidation in the tabular representation beneath).

Types of funds
Posted	This category of fund is absolved from indigenous licensing or regulatory stipulations due to the fact that: each investor must acquire an equity stake of USD 100,000 or higher (commensurate in an alternate currency); or equity in the fund's capital is registered on a stock market acknowledged by CIMA.
Primary	This class of fund bears resemblance to progenitor corporations insofar as the fundamental fund possesses 51% or more of the stakes in other collective investment schemes, thereby acquiring progenitor corporate status concerning the fund of which it holds stakes.
Restricted	These are capital pools documented in the Cayman Islands with less than 15 financiers or funds registered beyond the jurisdiction yet proffering their equities to denizens of the Cayman Islands via an authorized entity.
Managed	In lieu of seeking licensure, a fund may depend on the extant authorization of an overseer situated in that region. This represents the singular category of fund necessitating the appointment of an overseer situated in the Islands (alternative funds may designate an overseer without regard to locale). The overseer is obliged to communicate with CIMA if it possesses a rationale to suspect that the fund is transgressing the MFL, potentially facing insolvency, or otherwise conducting itself to the detriment of its investors.
Licenced	These represent the rarest assortment of treasures. They possess the capability to offer their stakes to the general populace without any minimal subscription amount. Consequently, the accreditation process is the most stringent among all shared assets. CIMA evaluates the ensuing facets when bestowing a permit: every supervisor must furnish substantiation of their impeccable repute; the administration must be executed by individuals boasting ample expertise and credentials; the operation of the fund and the tendering of equity shares must be executed meticulously in strict conformity with all legislative decrees.

Note

Private foundations only come in registered form.

Instituting a pecuniary reserve in the Caymans: key officers

Investment funds regulated by the MFA or PFA generally appoint the following officers:

Investment Custodian. His function will fluctuate contingent on the conditions of the accord through which he is designated. There exists no prerequisite for the designated custodian to be situated within the Isles. In the event of an investment custodian established within this dominion, said custodian must either hold accreditation pursuant to the Stocks and Investment Commerce Act or be enrolled with CIMA.
Governor. The designation of a domiciled governor is generally unnecessary for the majority of establishments instituted in the Isles. Solely in instances of a supervised collective investment fund is it obligatory to appoint a governor possessing residency within the Cayman Islands. In regard to both collective and confidential funds, CIMA shall necessitate the governor to furnish a missive of acquiescence attesting to the precise responsibilities that will fall under their purview.
Custos. A custos is assigned by the pool to act as the custos of its possessions in accordance with the stipulations of the custodial pact. If the custos is located in that territory, it shall be subject to governance under the MFA, provided it oversees the entirety or a substantial segment of the common wealth's holdings.
Inspector. Both public placements and concealed investments prerequire appointing an examiner. Each investment conveyance must present inspected documents supervised by an approved examiner in the Cayman Islands within 6 months subsequent to the termination of the fiscal year. Furthermore, an annual filing must be deposited with CIMA along with scrutinized financial records.
Administrator. The MFA necessitates collective investments to designate a min of 2 administrators. Typically, these must be persons, albeit CIMA sanctions a juridical entity to assume the function of administrator in specific scenarios. Analogous prerequisites do not pertain to confidential investments pursuant to the PFA. Administrators bear the response for the quotidian supervision of the investment and must comport themselves consonant with the tenets of commendable governance.

General prerequisites for investment pools

Every shared assets in the Cayman Islands are obligatory to:

possess an authentic presentation manuscript delineating the primary attributes of the fund, encompassing its purpose, tactic, jeopardy proclivity, and the mechanism for engagement in the fund;
supply an oblation dossier (if pertinent) comprising details regarding the gathering of capital from financiers and the apportionment of dispensed units of the fund;
modify the records when pivotal fund attributes or operational regulations alter, not exceeding 21 days following any substantial modification, and lodge amended prospectuses with CIMA within the 21-day duration;
undergo an annual audit of its financial records and furnish the scrutinized financial reports to CIMA along with the yearly financial statements;
remit the registration charge and the customary annual levy.

Note

CIMA has promulgated a Declaration of Directives elucidating the fundamental tenets of sound governance to which each collective investment scheme must conform.

Establishment of a private foundation in the Cayman Islands

Specific investment mechanisms that diverge from the delineation are exempt from the PFA's purview. The PFA omits certain non-monetary mechanisms from its classification as a private fund, encompassing, amongst others, specialized purpose securitization mechanisms, custodial mechanisms, singular investment oversight mechanisms, debt emanations, and debt emission mechanisms, and structured fiscal mechanisms.

If a secluded fund acknowledges investment pledges from financiers, it necessitates filing a plea for enrollment with CIMA within 21 days of accepting said commitments and antecedent to disbursing capital expenditure. This type of fund is obligated to proffer annual financial declarations to a certified domestic examiner for scrutiny on an annual basis.

Available legal Papers for the enrollment of capital

To institute an investment fund, one can elect from among the subsequent corporate formats (elucidated in the table beneath).

OPF
Immune corporation	This commercial configuration displays notable adaptability. Entities established as immune corporations may consist of a sole shareholder, and there exists no obligatory minimum capital mandate. Shares can be promulgated in any currency and denomination. An excused entity possesses the prerogative to repurchase its equity interests and is frequently employed for the incorporation of an unrestrained investment pool. Instituting sealed-finalized pools through this configuration is plausible, albeit less prevalent. The directorate of the enterprise assumes liableness for the comprehensive administration pursuant to the articles of establishment. An immune apportioned portfolio establishment (SPC) can be recorded. Subsequent to the inaugurating of a corporation in the Cayman Islands in the configuration of a Special Purpose Company (SPC), said commercial framework can oversee collections of assets, each of which enjoys the advantage of statutory demarcation of the pertinent assets and obligations. These structures can be employed for multifarious, encompassing, and foundational fund configurations, alongside multifaceted issuance platforms, permitting solitary managers to establish subsidiary funds with divergent profiles within the identical framework.
Exempted restricted consortium	This is a favorably accepted OFP for private financial pools such as private equity financial pools. An pardoned finite association (ELP) mandates at minimum 1 chief companion located in the Isles. Should the Cayman Islands restricted consortium be enrolled, the principal associate is accountable for the management of the ELP's commerce and is subject to personal assets' responsibility for the debts incurred by said commerce entity. The ELP lacks the designation of an autonomous juridical entity distinct from its associates, and hence, all assets owned by the ELP shall be regarded as held in fiduciary duty for the principal associate. Restricted associates possess accountability constrained by the magnitude of the capital transferred to the consortium, except if they partake in the operational oversight of ELP's commerce. In such an instance, they expose themselves to potential liability for ELP's indebtedness and obligations if the consortium undergoes insolvency.
Single reliance	The Cayman Islands possess a firmly rooted and adaptable trust framework designed to guarantee discretion and safeguard assets within both the corporate and personal domains. Within the unit trust covenant, financiers furnish capital to the trust, and each unit possessor directly garners an equitable fraction of the trust's holdings.
Restricted Responsibility Corporation	In this legal realm, a fund can be instituted as a limited responsibility firm. This constitutes an independent juridical entity whose charter delineates the stakes of the contributors, safeguarding their personal assets from being requisitioned to discharge obligations.

Impost

If you are inclined towards inaugurating an investment pool in the Cayman Islands, it is imperative to note that there are no immediate levies in this locale. Pursuant to the pertinent statutes, corporations, collective investment schemes, and restricted partnerships can formally register and submit a documented commitment, ensuring they shall retain their tax-free status for two decades in the instance of tax-exempt corporations, and half a century for collective investment schemes and restricted partnerships.

Legal entities engaged in the pertinent undertakings are obligated to satisfy the economic presence prerequisites. These prerequisites were instituted to ascertain that said legal entities possess ample economic standing in the jurisdiction where they maintain tax residency. The most noteworthy entities pertinent to the ambit of the prerequisites encompass exempted firms (comprising SPCs).

An investment overseer must satisfy the fiscal existence assessment, necessitating them to:

Conduct their primary revenue-producing operations in the Cayman Islands;
Be judiciously supervised within the Cayman Islands.

Upon electing to establish an investment pool in the Cayman Islands, it is paramount to underscore that the AML regimen extends its purview to these pools. It comprises a compendium of actions and protocols that financial institutions must adhere to with the objective of preventing currency contamination and the sponsorship of illicit undertakings. A concise delineation of these prerequisites:

Validation of ultimate advantageous proprietors (ultimate advantageous proprietors). This pertains to the procedure of ascertaining and substantiating the authentic possessors of the fund.
Hazard-oriented surveillance of fund proceedings. This encompasses methodically scrutinizing dealings and undertakings of financiers and the fund to discern plausible transgressions.
Executing proficient risk mitigation processes. Financial assets are obligated to formulate and enact protocols and methodologies for recognizing, evaluating, and overseeing hazards inherent in their undertakings.
Adherence to the inventory of non-conforming nations (locale principle). Fund overseers must scrutinize enumerations of nations or territories that fall short of conformity or are not entirely in conformity with substantive prerequisites.
Execute protocols for alerting about dubious transactions. Resources are mandated to institute systems for detecting and divulging dubious transactions or transactions potentially linked to money purification.
Execution of hazard-weighed internal autonomous examinations. There ought to be periodic evaluations and investigations of resources' internal protocols, doctrines, and restraints to gauge the efficiency and adherence to the anti-money laundering regimen.

Conclusion

As discernible, the configuration of resources in the Cayman Islands is contingent upon an expansive catalogue of prerequisites. Furthermore, the oversight of funds may diverge contingent on the nation in which its financiers are situated, as the legislations of that specific nation shall be factored in.These statutes might stipulate prerequisites pertaining to documentation, capital reservations, disclosures, investment methodologies, and sundry facets of the fund's activities. Consequently, funds that allure investors hailing from diverse nations must be primed to adhere to the disparate regulatory prerequisites of various jurisdictions.

If you have a vested interest in initiating an investment pool in the Cayman Islands, you can reach out to the specialists at YB Case. We not only counsel our patrons on all facets associated with the enrollment and functioning of investment funds but also aid them in comprehending the laws overseeing investment funds, compose petitions, investment accord, and other records requisite for the enrollment of an investment fund (including the tendering of records to the pertinent authorities and securing the required authorizations). We additionally offer assistance in the procedure of enrolling an investment fund in the Cayman Islands, encompassing collaboration with the registration governing bodies.