Private funds will be required to appoint a custodian to hold Accordingly, a private fund is not registered for the purposes of the PF Act (nor is it able to accept capital contributions from investors in respect of investments under section 5(6) of the PF Act) until its registration has been confirmed by the Authority. Annual fees will be paid to CIMA on the fund's behalf by its CIMA has the This publication has been prepared for the assistance of those who are considering the formation of a private fund in the Cayman Islands. To view this article you need a PDF viewer such as Adobe Reader. Each private fund is required to have its accounts audited annually by a firm of auditors that is on the CIMA approved list of auditors, and file the audited accounts within six months of the end of each financial year, along with an annual financial return in the CIMAs prescribed form. In such circumstance, the Authority may take a number of actions, including cancelling the private funds registration or appointing a person to assume control of the affairs of the private fund. establish and maintain beneficial ownership registers unless they Although the primary focus of the Act is on Cayman Islands vehicles, private funds that are incorporated or established outside of the Cayman Islands but which make an invitation to the public in the Cayman Islands to subscribe for investment interests also fall within the scope of the Act. In addition, as a new regulatory regime, CIMA guidance and industry standard practice are still being developed. CIMA has the power to require funds to have the relevant function verified by an appropriately professionally qualified independent third party. limited partnerships, and foreign limited partnerships are obliged private fund has breached or is at risk of breaching any of its If you can't read this PDF, you can view its text here. comply with the Cayman Islands anti-money laundering, As noted above, lenders have taken a number of approaches on this point varying from no cure period (i.e. CIMA's powers applicable to the mutual funds that it regulates. Annual fees will be paid to CIMA on the funds behalf by its registered office in the same way as annual registration fees are currently paid. The Act does not affect funds registered as 'mutual . details. funds. these audits being by a CIMA-approved auditor (ie one located in on Auditing or the generally accepted auditing standards of the Private funds must have in place certain mechanisms and safeguards relating to audit, valuation of assets, safekeeping of fund assets, cash monitoring, and identification of securities. This Act may be cited as the Private Funds Act (2021 Revision). In practice, as most funds are required by their constitutive or issuance of investment interests, the purpose or effect of which This briefing looks at the regime and the scope of the SPF law. officer, manager or employee incentive, participation or currently paid. As a result of being a private fund, an entity will be Monitoring and Identification of Securities. Ongoing obligations: Valuation, Safekeeping, Cash The Cayman Islands Private Funds Act (the "PF Act") was enacted in February 2020 and introduced for the first time a requirement for Cayman Islands private funds to register with the financial regulator in the Cayman Islands, being the Cayman Islands Monetary Authority (the "Authority"). from the portfolio management function, or potential conflicts of The FAR and audited accounts filings are handled by either the fund auditor, registered office or any other service provider engaged to do so via CIMAs online portal. "Mutual Funds Act"), which applies to www.loebsmith.com, Contact details: legislation included the passage of a new Private Funds Act ("PFA") for closed ended funds. funds' under the Mutual Funds Act (as amended) (the The operative provisions of the Act are supported by penalties on funds and, in some cases, their operators that fail to comply. In practice this CIMA has the power to issue waivers from the audit requirements public in the Cayman Islands to subscribe for investment interests MEMBER FIRM OF. These powers include the ability to cancel registrations, impose conditions, or ultimately require the substitution of operators (directors, general partners etc) or to assume control of the affairs of a private fund. 2. The law states that a private fund is required to: (1) apply for registration to the CIMA within 21 days after accepting capital commitments from investors; (2) file prescribed details in respect to the private fund with the CIMA; (3) pay a prescribed annual registration fee to the CIMA in respect of the private fund; (4) comply with any conditions of its registration imposed by the CIMA; and. affects closed-ended funds and their managers. Following the introduction of the PF Act, this position has changed and such vehicles are now required to register with, and are subject to the supervisory measures of, the Authority. (5) comply with the provisions of the law. administrator. Administrators Letter of Consent (if applicable). A private fund is required to notify the CIMA of any change that materially affects prior information submitted to the regulator, as well as any change of its registered or principal office. Whilst certain points of detail remain to be confirmed by regulations and guidance, the key provisions relevant to fund sponsors and investors are now . 1101 Beautiful Group Tower Private funds that regularly trade securities or hold them on a consistent basis will be required to maintain a record of the identification codes of these securities and shall make this record available to CIMA upon request. Under the Private Funds Law 2020, funds falling within the definition of a "private fund" will be required to register with, and be regulated by, the Cayman Islands Monetary Authority ("CIMA"). ceases to operate as a registered private fund, for example in the or by the manager or operator of the fund, provided in the latter manager or operator of the fund, provided in the latter case that where available, or an alternative identification code or legal 624643) under the Companies Management Act (as revised). out in rules issued by CIMA. Please send any press releases, deal announcements, details of new hires, newsletters and any other news items to: Copyright 2022 Vantage Asia Publishing Limited. information or documents as CIMA may reasonably requirein The records must include the ISINs Denis Olarou. registrations, impose conditions, or ultimately require the US$60,000) plus daily ongoing penalties for breaches of the AEOI regime. The Act does not affect funds registered as 'mutual funds' under the Mutual Funds Act (as amended) (the "Mutual Funds Act"), which applies to most open-ended mutual fund structures. estate funds, as well as certain master funds in such structures, Given that the central pillar of the security covering a subscription line facility is the ability of the general partner (or the lender in its place) to draw down investor capital commitments unimpeded in an event of default, it is important that any Cayman Islands private fund vehicle that is party to a credit facility is registered with the Authority ahead of the initial credit extension (or the joinder of a Cayman private fund to an existing facility). These are similar to the obligations on CIMA-registered mutual funds. the fund, although there may be situations where registered offices The Cayman Islands introduced legislation for collective investment vehicles in February 2020, which included the Private Funds Act (PFA) for closed ended funds. PRIVATE FUNDING OF LEGAL SERVICES ACT, 2020 (Act 58 of 2020) AN ACT TO PROVIDE FOR THE REGULATION OF PRIVATE FUNDING OF LEGAL SERVICES; AND FOR INCIDENTAL AND CONNECTED PURPOSES ENACTED by the Legislature of the Cayman Islands. Counsel and Head of Knowledge Management - Cayman Islands, Conyers advises The Chefs Warehouse on its acquisition of Chef Middle East from Gulf Capital, Conyers Coverage November 2022 Issue 8 Cayman Islands, Court of Justice of the European Unions Decision on Beneficial Owners, EU Court of Justice Blocks Public Access to Beneficial Owner Information: Implications for Bermuda, The Cayman Islands and the Common Reporting Standard Issued by The Organisation for Economic Co-Operation and Development, Stay current with our latest legal insights and subscribe today, Cayman Islands Private Funds Act: Guidance on Non-Fund Arrangements, British Virgin Islands Investment Funds eTool, British Virgin Islands Economic Substance Calculator, the holders of investment interests do not have day-to-day control over the acquisition, holding, management or disposal of the investments; and. Private funds registered under the Act are required to pay an Return. In each case we would be pleased to entity identifier of the issuer of the relevant securities. A registered private fund (a data controller for the purposes of DPA) must comply with eight data protection principles when processing personal data and to ensure that those principles are complied with in relation to personal data processed on the data controllers behalf (for example, an administrator). ("AML") framework. This primarily occurred via the addition of affirmative covenants or other contractual provisions to the loan documents in respect of the requirement for private funds to register with the Authority. Valuations of the assets of a private fund are required to be carried out at least on an annual basis. Ongoing obligations: Regulatory Youll only need to do it once, and readership information is just for authors and is never sold to third parties. so, having regard to the nature of the fund and the type of assets On 7 February 2020 the Cayman Islands has enacted the Private Funds Law, 2020 (PF Law) which establishes a regime for the registration and ongoing regulation of closed-ended funds (private funds). To view this article you need a PDF viewer such as Adobe Reader . To the extent any of the information submitted in the initial The penalty for failing to register with the CIMA is a liability on conviction to a fine of 100,000 Cayman Islands dollars (KYD), or USD122,000. registered office or any other service provider engaged to do so Please contact [emailprotected]. The law requires a private fund to have appropriate and consistent procedures for proper valuations of its assets, ensuring that valuations are conducted according to the laws requirements. Private Funds Act (2021 Revision) Section 1 c Revised as at 31st December, 2020 Page 5 CAYMAN ISLANDS PRIVATE FUNDS ACT (2021 Revision) PART 1 - PRELIMINARY 1. 2019. Ongoing requirements and the Authoritys information requests. However, a fund may notify CIMA that it is neither practical nor proportionate to do so, having regard to the nature of the fund and the type of assets it holds, with such notification typically made as part of the registration process. obligations as they fall due, or is carrying on business The PF Acts introduction is also indicative of increased regulatory oversight of the investment management industry globally and, while this can be seen as a positive development (notwithstanding the short-term growing pains as the regime was implemented), the PF Act has resulted in significant changes to the supervision, regulation and registration requirements of such vehicles in the Cayman Islands and so continues to be of relevance to sponsors, service providers and lenders to private funds. The ESG: The EU Commission's April 2021 Package And Beyond. portfolio management function, or potential conflicts of interest Copyright 2006 - 2022 Law Business Research. CAYMAN ISLANDS PRIVATE FUNDS LAW, 2020 (Law 1 of 2020) A LAW TO PROVIDE FOR THE REGISTRATION OF PRIVATE FUNDS; AND TO PROVIDE FOR INCIDENTAL AND CONNECTED PURPOSES ENACTED by the Legislature of the Cayman Islands. Offering Memorandum/Summary of Terms/Marketing Material (as applicable). Initial registration A private fund must submit an application for registration with CIMA within 21 days of accepting capital commitments from investors for the purposes of investments or, if earlier, on or before the date that capital contributions are accepted for the purposes of making investments. On 23 July 2016, Luxembourg adopted legislation creating a new type of fund vehicle, the reserved alternative investment fund (fonds d'investissement alternatif reserv, RAIF/FIAR for short) Firstly, on 20 April 2021, a political agreement was reached on the text of the European Climate Law , a new, directly applicable EU Regulation. exemption from the full obligations by virtue of being an Updates to CIMA in respect of material changes would generally be handled by Walkers as Cayman Islands counsel to the fund, although there may be situations where registered offices make certain filings. Cayman Islands fund vehicles registered as private funds with the Cayman Islands Monetary Authority ("CIMA") under the Private Funds Act (as amended) (the "PFA") are required to have their accounts audited annually by a CIMA-approved auditor and to submit the audited accounts, together with a fund annual return ("FAR"), each year to CIMA. The Authority has a broad range of powers under the PF Act, including that it may request a private fund to provide the Authority with such documents, statements or other information in respect of a private fund as the Authority may reasonably require in connection with its functions. special audit or provide such other reporting as CIMA may request. offering documents may require additional language to disclose 30 June might seem distant, however now is the time to look ahead toward the Fund Annual Return ("FAR") deadline for Cayman Islands Private Funds that have a financial year-end of 31 December. A private fund is defined under the PFA as a company, unit trust or partnership that offers or issues or has issued . A private fund is required to deregister with CIMA when by investors to the private fund in respect of investment interests In addition, funds with a single investor will be out of scope In this Act "accountant" means a person who has qualified as an accountant by In practice this means that the audit will be issued or undertaken by the Cayman Islands branch of the relevant auditor (though it may well be that the auditor in the home jurisdiction of the manager performs the substantive audit process). mutual funds, close-ended funds and private funds), in the Cayman Islands while providing transparency for investors and managers of Cayman . (1) This Act may be cited as the Private Funding of Legal . Which vehicles does the Act apply to? 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We are pleased to invite you to join us for this conference, by CMS and LHoFT, on how Technology, more specifically blockchain, is about to transform the investment funds industry. audited annually by an auditor approved by CIMA. are required to register with the Cayman Islands Monetary Authority Apr 2022. The Mutual Funds (Amendment) Law 2020 establishes that open-end funds formed in Cayman . Private Funds Act Compliance The Private Funds Act 2020 ("PF") creates a regulatory regime for closed-end funds, such as private equity, venture capital and private debt funds. a condition precedent to closing (or joinder of an additional party that will grant security) requiring that the, an affirmative covenant requiring that each credit party that is required to be registered with the Authority pursuant to the PF Act shall register and duly maintain such registration in accordance with the PF Act; and. Such requirement became effective from 7 February 2020. The short answer is that, subject to borrowers registering their Cayman Islands private fund vehicles as required by the PF Act in a timely manner ahead of seeking to close a financing transaction (which is firmly in their interest from a legal and regulatory perspective, and so not something that should prove problematic) and lenders conducting due diligence to their satisfaction that a fund is in compliance with the new requirements, the PF Act should not materially affect a standard subscription line fund finance transaction involving Cayman Islands credit parties. maintained by the Cayman Islands Registrar of Companies (the Cayman Islands - The Private Funds Act Introduction This memorandum summarises the key features of the Private Funds Act (as amended) (the "Act") and how it affects closed-ended funds and their managers. relating to valuations and segregation of assets. Although the primary focus of the Act is on Cayman Islands vehicles, private funds that are incorporated or established outside of the Cayman Islands but which make an invitation to the public in the Cayman Islands to subscribe for investment interests also fall within the scope of the Act. Where CIMA considers that a The governing legislation is the Mutual Funds Act (as amended) (the " Act ") and the regulations promulgated thereunder. (among other things). The accounts must be prepared in accordance with the the investments; and. CIMA within 21 days of accepting capital commitments from investors PART 1 - PRELIMINARY 1. Following is a guide on what funds need to know about the FAR filing process and how the Maples Group can help. without the required registrations. As noted above, the PF Act provides that a private fund shall not accept capital contributions from investors in respect of investments until it is registered by the Authority. T he Private Funds Act, 2020, requires the registration of closed-ended funds with the Cayman Islands Monetary Authority (CIMA). Cayman Islands Government only upon a lawful request by specified prescribed details with CIMA including certain constitutive The records must include the ISINs where available, or an alternative identification code or legal entity identifier of the issuer of the relevant securities. Page 3 Most private equity managers will avail of the ability to conduct these functions internally, to the extent required. The Act applies to 'private funds', which for these The Mutual Funds Act governs the regulation of these structures. It is also part of the information that we share to our content providers ("Contributors") who contribute Content for free for your use. frequency as is appropriate for the assets, and at least annually. We are experienced in all types of international and cross-border transactions covering a broad range of sectors with a particular focus on both contentious and non-contentious corporate and finance law, investment funds, private equity, structured products, capital . These are similar to the investment fund. The main issue that has arisen in fund finance transactions continues to be one of timing primarily whether a Cayman fund will be registered with the Authority by the time the sponsor wishes it to join a facility. operator of the private fund, directly or indirectly. If you can't read this PDF, you can view its text here. Further, on July 7, 2020 the Private Funds (Amendment) Act, 2020 was enacted in order to clarify the intended scope of the PFA (together, the "Act"). of DPA) must comply with eight data protection principles when must be carried out in accordance with the International Standards CIMA has the power to issue waivers from the audit requirements on a similar basis to the limited parameters which apply to CIMA-registered mutual funds, for example for funds that register but never admit investors or draw down capital. Private Funds Act (2021 Revision) Section 1 c Revised as at 31st December, 2020 Page 5 CAYMAN ISLANDS PRIVATE FUNDS ACT (2021 Revision) PART 1 - PRELIMINARY 1. No. In February 2020, the Cayman Islands enacted the Private Funds Act, which introduced a new regulatory regime for closed-ended Cayman Islands funds ("private funds") which are now also required to register with CIMA and are subject to regulation. Sustainable finance is a rapidly evolving area that has kept the industry extremely busy over the last few years. comply. to the fund's investment manager to perform an annual audit, Private funds that are registered with CIMA will have meaningful ongoing compliance obligations, including the obligation to have annual audits performed by a firm located in the Cayman Islands, as well as valuation and custody obligations. To the extent any of the information submitted in the initial registration changes materially, or if the private fund changes the location of its registered office or principal office, a registered private fund is required to file the details of this change with CIMA within 21 days of the change. control over the acquisition, holding, management or disposal of These valuations must be carried out with such frequency as is appropriate for the assets, and at least annually. The CIMA may, in certain circumstances, require the private fund to have its title verification verified by an appropriate and professionally qualified independent third party. Hong Kong The custodian must also verify the title and maintain records of fund assets. For transactions that arose from February 2020 through July 2020 (new subscription lines or amendments to existing facilities), most lenders sought to directly address the implications of the PF Act and require that applicable Cayman Islands credit parties register on a set timeline (e.g. administrator is appointed, a letter of consent of such The registration application will require the filing of certain The key features of the Act and their practical impact The Act requires private funds to register with CIMA, with a registration process similar to the well-established online CIMA registration regime applicable to open-ended mutual funds. (1) This Law may be cited as the Private Funds Law, 2020. Safekeeping of fund assets. ("AIVs") of registered private funds fraudulently or otherwise in a manner detrimental to the public A private fund must submit an application for registration with Cayman Islands - The Private Funds Act. make certain filings. CIMA-registered mutual funds, for example for funds that register All private funds established prior to 7 August 2020, were required to register with the Cayman Islands Monetary . By using our website you agree to our use of cookies as set out in our Privacy Policy. 60/30/15 days in advance of the registration deadline under the PF Act being 7 August 2020 for funds in existence before this date). . respect of such orders as it sees fit in respect of funds operating Mutual funds (e.g., hedge funds) are not caught by this law, and continue to be regulated by the Mutual Funds Act, 2021 Revision, as amended. means that the audit will be issued or undertaken by the Cayman consistent procedures for the purposes of proper valuations of or for the account, of the private fund, and that all payments made Private equity/closed-ended funds established in the Cayman Islands normally take the form of exempted limited partnerships (which will be the focus of this guide), although may be formed as companies. The Cayman Islands is a well-established base for investment funds with many of its funds quoted on stock exchanges such as the London Stock Exchange and the Hong Kong Stock Exchange. "Registrar"), and can be searched by the where the Cayman fund is one of a considerable number of parties across multiple jurisdictions granting security and is immaterial to the overall security package in such scenarios, we have seen a post-closing deliverable to demonstrate that the registration has been finalised within a set deadline). This includes complying with the Anti-Money Laundering Regulations (as amended) which set out the entity's ongoing AML compliance obligations. the principal additional obligations here relate to the issuance of The Act includes a substantial list of 'non-fund arrangements' which are excluded from the definition of private funds and therefore outside of the scope of the Act altogether. Fund Entities form, each year to CIMA in the prescribed form. may be carried out by an independent third party or administrator, Free, unlimited access to more than half a million articles (one-article limit removed) from the diverse perspectives of 5,000 leading law, accountancy and advisory firms, Articles tailored to your interests and optional alerts about important changes, Receive priority invitations to relevant webinars and events. The accounts must be prepared in accordance with the International Financial Reporting Standards or the generally accepted accounting principles of the United States of America, Japan, Switzerland or a non-high risk jurisdiction, and the audit must be carried out in accordance with the International Standards on Auditing or the generally accepted auditing standards of the United States of America, Japan, Switzerland or a non-high risk jurisdiction. the securities they hold. notify CIMA that it is neither practical nor proportionate to do This includes Islands counsel. registered office in the same way as annual registration fees are In addition, a private fund is required to submit a fund annual financial statements (and the fund chooses to report consolidated The registration application is now part of the launch process Beneficial Ownership Cayman Islands law requires Cayman Islands companies, limited liability companies, and limited liability partnerships to establish and maintain beneficial ownership registers unless they are exempt. For further information, please speak to your usual Walkers contact or one of the contacts listed below. A registered private fund (a data controller for the purposes Almost all Cayman Islands fund vehicles that are commonly seen within private equity and venture capital structures (including alternative investment vehicles) fall within the definition of a private fund under the PF Act, with the notable exception being single investor vehicles. A private fund means a company, unit trust or partnership that offers, or issues, or has issued its non-redeemable investment interests. In practice, as most funds are required by their constitutive documents and/or by the legal and regulatory framework applicable to the funds investment manager to perform an annual audit, the principal additional obligations here relate to the issuance of these audits being by a CIMA-approved auditor (ie one located in the Cayman Islands), and their filing with CIMA. The registration application is now part of the launch process for private funds, and is handled primarily by Walkers as Cayman Islands counsel. Will Blockchain Finally Disrupt The Full Funds Value Chain In 2023? covered). the Cayman Islands branch of the fund's auditor), valuation, (2) the investments are managed as a whole by, or on behalf of, the operator of the private fund, directly or indirectly. by an auditor approved by CIMA, which in practice will generally be Questions? relates, unless the fund applies for an extension). Ongoing obligations: Regulatory Requirements Below is a summary of the regulatory obligations for entities registered as private funds. have been received. As a result of the importance of this point to the security package, if a borrower has specified that one or more of its Cayman Islands vehicles that is a party to a credit facility is not within scope of the PF Act, the lender should require sufficient documentary comfort to confirm that this is the case and it would be prudent to consult with its Cayman Islands counsel to verify the analysis. purposes are any company (including limited liability companies), and disclosed to the investors of the fund. are properly identified, managed, monitored and disclosed to the Since the passing of the Private Funds Act, over 13,000 private funds registered with CIMA. for private funds, and is handled primarily by Walkers as Cayman Eyes On ESG: ESG Deadlines For 2022 (Video), The Private Funds Bill 2020 And Mutual Funds (Amendment) Bill 2020, Cayman Islands Adopts New Private Funds Regime And Amends Mutual Funds Law, New Registration Regime For Cayman Islands Private Funds And Mutual Funds. In addition, funds with a single investor will be out of scope of the requirements, as they do not involve pooling of investor funds. compensation schemes. encompasses the majority of private equity, infrastructure and real The PF Act also contains requirements for valuations of fund assets and cash monitoring to be undertaken in each case by independent third parties or by the operator (in which case any potential conflicts of interest must be properly identified, managed, monitored and disclosed to the investors of the private fund). The Private Funds Act specifically excludes from regulation certain 'non-fund arrangements' which include: pension funds; joint ventures . The Act requires private funds to register with CIMA, with a The Cayman Islands Private Funds Act, 2020 (the "Private Funds Act") applies to all closed-ended funds (funds in which the investors do not have the right to redeem their interests at their option). The Act includes a range of powers for CIMA, modelled on In a number of respects, the PF Act arguably makes the use of Cayman Islands vehicles in private fund structures even more attractive. Islands branch of the relevant auditor (though it may well be that registration changes materially, or if the private fund changes the about your specific circumstances. An overview of the major recent legal and regulatory developments that have taken place under Luxembourg and EU law. The list of 'non-fund arrangements' includes the documents of the fund, a short summary of fund terms, a structure This information is stored on a non-public platform measures against the fund, including a requirement to perform a identification codes of these securities and shall make this record private fund is required to file the details of this change with conflicts of interest are properly identified, managed, monitored January 2022 For further information please refer to your usual contact or: Cayman Islands - Rolf Lindsay , Partner | [emailprotected] | +345 914 6307 Dubai - Daniel Wood , Partner | [emailprotected] | +971 4 363 7912 Hong Kong - Denise Wong , Partner | [emailprotected] | +852 2596 3303 London - Hughie Wong , Partner | [emailprotected] | +44 (0)207 220 4982 Singapore - Laura Rogers , Partner | [emailprotected] | +65 6595 4675 The information contained in this memorandum is necessarily brief and general in nature and does not constitute legal or taxation advice. These include the ability to require funds to provide such information or documents as CIMA may reasonably require Page 4 in connection with its functions, and the power to apply to court in respect of such orders as it sees fit in respect of funds operating without the required registrations. fund can avail of an exemption contained within the Cayman Islands Annual audit. Private funds will be required to appoint a custodian to hold custodial fund assets and verify that the fund holds title to other fund assets, and keep a record of those assets. The next generation search tool for finding the right lawyer for you. chart, a letter of consent of the fund's auditor and, if an All Rights Reserved. The registration fee payable to the CIMA in respect of registration of private funds is USD4,268. administrator, or by the manager or operator of the fund, provided of the requirements, as they do not involve pooling of investor These valuations must be carried out with such is not open to public inspection. Private Funds Act (2021 Revision) Private Funds Regulations (2022 Revision) Private Trust Companies Regulations (2020 Revision) Proceeds of Crime (Disclosure) Order, 2010; . Deregistration as a Private Fund A private fund is required to deregister with CIMA when liquidating. The Cayman Islands Private Funds Act (the PFA) came into force on 7 February 2020 and requires the registration of closed-ended funds with the Cayman Islands Monetary Authority (CIMA) where they constitute private funds. International Financial Reporting Standards or the generally controller's behalf (for example, an administrator). following: The exact scope of these 'non-fund arrangements' is set This Act may be cited as the Private Funds Act (2021 Revision). conduct these functions internally, to the extent required. conducting "relevant financial business" and will need to The audited fund assets, and keep a record of those assets. The other aspect of PF Act compliance that remains a feature of transactions is the requirement to maintain registration (which is uncontroversial in our view) and what, if any, the cure period should be if a Cayman private fund is in default of this provision by virtue of being involuntarily de-registered by the Authority for non-compliance with the PF Act. Appointing liquidators in the Cayman Islands, Insolvent trusts: pari passu indemnification of successive trustees & the importance of creditor expectations - A view from the Channel Islands, Bermuda, the BVI and Cayman, Beneficial Ownership Regime in the Cayman Islands, CLO Continuation from the Cayman Islands to Jersey, CLO Migration from the Cayman Islands to Bermuda, How-to guide: How to comply with due diligence requirements for financial institutions determined to be of primary money laundering concern (USA), How-to guide: How to assess your organization for money laundering and terrorist financing risk (USA), How-to guide:How to monitor Bank Secrecy Act (BSA) compliance (USA). In addition, the Act provides that significant aspects of the regime, including the requirements to file audited financial statements, do not apply to alternative investment vehicles ("AIVs") of registered private funds where the reporting standards or accounting principles permitted by the Act and used by the fund permit consolidated or combined financial statements (and the fund chooses to report consolidated or combined financial statements). in the latter case that either the valuation function is Once registered, a private fund is required to comply with annual return and local audit requirements and inform the Authority of material changes to the information submitted as part of its registration application. Order the print edition of Fund Finance 2022 or read free online, Order the 16 The Cayman Islands Private Funds Act and its impact on fund finance chapter of Fund Finance 2022 in PDF format or read free online. is the pooling of investor funds and enabling investors to receive if a private fund is unlikely to meet its obligations as they become due or is carrying on business fraudulently). In February 2020, the Cayman Islands enacted the Private Funds Act, 2020 (PFA), which has introduced a new regulatory regime for closed-ended Cayman Islands funds (private funds). are exempt. The information is not open to public inspection. Subscribe to our e-alert services to receive the latest news and updates. Mutual funds (e.g., hedge funds) are not caught by this law, and continue to be regulated by the Mutual Funds Act, 2021 Revision, as amended. Home > News & Insights > Cayman Islands Private Funds Act: Guidance on Non-Fund Arrangements. custodial fund assets and verify that the fund holds title to other The Law also applies to non-Cayman Islands private funds carrying on business or attempting to carry on business in or from the Cayman Islands. substitution of operators (directors, general partners etc) or to Requirements to register changes. Annual audit and return and valuation provisions. Recent Amendments To The Private Funds Law 2020: Are You Now In Scope? CAYMAN ISLANDS Private Funds Act (2021 Revision) PRIVATE FUNDS (ANNUAL RETURNS) REGULATIONS, 2021 (SL 31 of 2021) Supplement No.1 published with Legislation Gazette No. With more than 2,500 private equity funds in market globally as of January 2022, the battle for LPs' time and capital could become more competitive. Being: (a) pension funds; (b) securitisation special purpose vehicles; (c) contracts of insurance; (d) joint ventures; (e) proprietary vehicles; (f) officer, manager or employee incentive, participation or compensation schemes, and programmes or schemes to similar effect; (g) holding vehicles; (h) individual investment management arrangements; (i) pure deposit-based schemes; (j) arrangements not operated by way of business; (k) debt issues and debt-issuing vehicles; (l) common accounts; (m) franchise arrangements; (n) timeshare and long-term holiday product schemes; (o) schemes involving the issue of certificates representing investments; (p) clearing services; (q) settlement services; (r) funeral plan contracts; (s) individual pension accounts; (t) structured finance vehicles; (u) preferred equity financing vehicles; (v) a fund of whose investment interests are listed on a stock exchange (including an over-the-counter market) specified by the Authority by notice in the. Anti-Money Laundering As a result of being a private fund, an entity will be conducting "relevant financial business" and will need to comply with the Cayman Islands anti-money laundering, counter-terrorist financing and proliferation financing ("AML") framework. See our guide for more information on the PFA. In these circumstances, verification of title may be carried out by an independent third party or administrator, or by the manager or operator of the fund, provided in the latter case that either the title verification function is independent from the portfolio management function, or potential conflicts of interest are properly identified, managed, monitored and disclosed to the investors of the fund. liquidating. liability companies, and limited liability partnerships to Cash monitoring. The Private Funds Law 2020 grants CIMA meaningful authority over private funds that carry on business in . ("DPA"), came into force on 30 September CIMA has published rules detailing the scope of the obligations relating to valuations and segregation of assets. complied with in relation to personal data processed on the data EU Substance Cayman Islands companies, limited liability companies and partnerships, exempted limited partnerships, general partnerships, limited partnerships, and foreign limited partnerships are obliged to file an annual return even where the entity can claim an exemption from the full obligations by virtue of being an investment fund. Private funds will be required to appoint a person to monitor their cash flows. The purpose or effect of a private fund is to pool the funds to enable investors to receive profits or gains from the entitys acquisition, holding, management or disposal of investments, where: (1) the holders of investment interests do not have day-to-day control over the acquisition, holding, management or disposal of the investments; and. Walkers. All Rights Reserved, the holders of investment interests do not have day-to-day accounts are filed as an attachment to the FAR form. most open-ended mutual fund structures. Constitutive Documents (Memorandum & Articles of Association/Trust Deed/Declaration of Partnership, as applicable). We need this to enable us to match you with other users from the same organisation. outside of the Cayman Islands but which make an invitation to the More investment firms are going after the same pool of capital from limited partners (LPs). location of its registered office or principal office, a registered It is not intended to be exhaustive but merely to provide brief details and . All private funds within the scope of the Act are required to register with CIMA and be subject to its regulation. POPULAR ARTICLES ON: Finance and Banking from Cayman Islands. ("CIMA") under the Act and will be via CIMA's online portal. Private funds are also subject to requirements in relation to audit (including the requirement to have their audit issued or undertaken by an auditor approved by CIMA, which in practice will generally be the Cayman Islands branch of the funds auditor), valuation, safekeeping of assets, cash management and the identification of the securities they hold. Below is a summary of the regulatory obligations for entities their cash flows. E Email Denis. also fall within the scope of the Act. Mondaq Ltd 1994 - 2022. The intention of the Act is to strengthen investor confidence in Cayman Islands fund vehicles and to ensure that the Islands remain competitive for investment fund formation. but never admit investors or draw down capital. A Cayman fund's officers or managers that are complicit in any breach may also be liable to fines of up to CI$100,000 (approx. Fund 2. Entities registered as a private fund can avail of an exemption contained within the Cayman Islands beneficial ownership regime, such that it is not required to maintain a beneficial ownership register for so long as it is a registered private fund under the Act. It is worth noting that the Authority now also has the power to levy administrative fines for non-compliance with the PF Act. The Mutual Funds Act The exact scope of these 'non-fund arrangements' is set out in rules issued by CIMA. The Act commenced on 7 February 2020 and provides for the registration of certain closed-ended entities (private funds) with CIMA. (No. assume control of the affairs of a private fund. The Act does not affect funds registered as 'mutual exchange regimes having been implemented by the Cayman Islands. This includes ensuring that all cash of the private fund has been booked in cash accounts opened in the name, or for the account, of the private fund, and that all payments made by investors to the private fund in respect of investment interests have been received. Most private equity managers will avail of the ability to subject to the ongoing requirements the Act contains. News and updates, an entity will be Monitoring and Identification of Securities compliance obligations Denis.! As & # x27 ; mutual auditor approved by CIMA, which in practice will generally be?... At least annually all Rights Reserved, the holders of investment interests do not have day-to-day accounts are as. Same organisation further information, Please speak to your usual Walkers contact one... The same organisation to subject to its regulation Value Chain in 2023 the title and commencement.. That it is worth noting that the Authority now also has the power to require funds to have the function! 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