This guide sets out the continuing obligations under Cayman Islands law of an open-ended fund registered with the Cayman Islands Monetary Authority (CIMA) under section 4(3) or 4(4)(a) of the Mutual Funds Act (Mutual Funds Act).

Part A of this guide covers the ongoing requirements of an open-ended investment fund (provides investors with voluntary redemption or repurchase rights) that is registered under section 4(3) or 4(4)(a) of the Mutual Funds Act.

It applies equally to a feeder fund and a master fund.

Part A sets out the ongoing requirements under the Mutual Funds Act as well the various FATCA and CRS requirements,

director registration obligations and anti-money laundering compliance.

An open-ended investment fund,

registered with CIMA under the Mutual Funds Act,

can be structured as an exempted company,

limited partnership, limited liability company or unit trust, each of which also have ongoing obligations.

Part B applies to a fund that is an exempted company incorporated with limited liability and an authorised share capital.

If the fund is an exempted limited partnership see also Part C.

If it is a limited liability company incorporated under the Limited Liability Companies Act (LLC Act) see also Part D and if it is an exempted trust,

see also Part E.

Please see our guide to mutual funds in the Cayman Islands for more details of the open-ended fund structures available in the Cayman Islands.

Administrative Fines

CIMA has the power under the Monetary Authority Act (MA Act) to impose significant administrative fines of up to CI$1 million (US$1.2 million) for each breach of certain provisions of the Anti-Money Laundering Regulations and other Cayman regulatory laws and regulations,

including the Mutual Funds Act,

Securities Investment Business Act and Directors Registration and Licensing Act.

The level of an administrative fine will depend on various factors including whether the breach is committed by an individual or a body corporate and if the breach is classified as minor,

serious or very serious.

Compliance Calendar

An overview of the annual compliance dates is set out in our compliance calendar,

which can be found here on our website.

Note in particular that penalties frequently apply for late filings and so the registered office should be informed promptly of any notifiable changes to allow the appropriate filing/s to be made.

Part A - Registered Mutual Fund

Annual fee

Action required

Timing and penalties

Must be paid to CIMA.

Fund/Feeder fund

CI$3,500 / US$4,268 plus CI$300 / US$366 Fund Annual Return fee

Master fund

CI$2,500 / US$3,049 plus CI$300 / US$366 Fund Annual Return fee

SPC

If a fund is structured as a segregated portfolio company an additional annual fee of CI$250 / US$305 per segregated portfolio is also payable to CIMA.

By 15 January of each calendar year.

Penalties under Mutual Funds Act

1/12 of the annual fee due for each month the payment remains outstanding.

For a fund which has ceased carrying on business and which has applied to de-register from CIMA (license under termination,

eg due to liquidation) half annual fees are payable.

Any change that materially affects any information in the offering document (or prescribed details for a master fund which does not have an offering document) if there is an ongoing offering of equity

Action required

Timing and penalties

For all funds registered under section 4(3),

all master funds and for those funds registered under section 4(4)(a) that filed an offering document with CIMA,

a copy of amended offering document or supplement to the offering document (or prescribed details for a master fund which does not have an offering document) must be filed with CIMA along with a signed amended application form (if applicable).

Offering document / supplement filing fee

CI$100 / US$122

Application form filing fee

CI$300 / US$366

Within 21 days of becoming aware of the change.

Corporate Governance

CIMA expects the governing body[i] and operators of registered fun...

The Cayman Islands Data Protection Act (the DP Act) governs how a data controller may process, use and retain personal data.

Anyone who falls within the definition of a "data controller" (such as a Cayman Islands investment fund) must now comply with eight data protection principles in relation to any personal data processed by the data controller. Where a data controller engages a third party (such as an administrator or investment manager) to process personal data on its behalf, the data controller must ensure the third party complies with the eight data protection principles.

In addition to governing how a data controller processes, uses and retains personal data, the DP Act also sets out the rights of individuals to control their personal data and implements a system to protect against the misuse of personal data. The DP Act is similar to the General Data Protection Regulation (GDPR) of the European Union with which many clients will be familiar.

For a general overview of the Cayman Islands DP Act please see our Guide to data protection in the Cayman Islands.

In order for investors to invest in an investment fund they must provide certain personal identifying information to the investment fund. Even where the investor is an entity, personal identifying information of contact persons, beneficial owners, directors, employees, partners or members of that entity will be provided to the investment fund. This personal information will be considered personal data under the DP Act.

The individual to which the personal data relates does not need to be in the Cayman Islands or a citizen of the Cayman Islands in order for the DP Act to apply.

Any investment fund structured as a Cayman Islands company or partnership, or any foreign company registered in the Cayman Islands that acts as a general partner of an investment fund will be subject to the DP Act and will be a data controller.

As a data controller, an investment fund must ensure that it complies with the eight data protection principles when it processes any personal data. It must also ensure that any third party that processes personal data on its behalf also complies with the eight data protection principles.

Cayman Islands investment funds must:

send a privacy notice to existing investors

update their subscription documents to include a privacy notice for new investors as well as obtain certain acknowledgements, representations and warranties

update offering documents to reflect the requirements under the DP Act

update agreements with any third parties that process personal data on behalf of the investment fund to ensure such processing is undertaken in compliance with the DP Act especially where there is transfer of data outside of the Cayman Islands

If the investment fund is already subject to GDPR then the investment fund may have already adopted a GDPR compliant privacy notice. If that is the case, then a few minor amendments to the privacy notice to reflect the DP Act are all that are needed.

If the investment fund has not yet adopted a privacy notice then it should prepare one in order to communicate the required information to its investors.

In either case the privacy notice should be sent to existing investors and/or made available on an investor or fund administration portal.

The subscription agreement of the investment fund will also need to be updated to include the privacy notice and certain acknowledgements from the investor.

It should also contain representations and warranties from entity investors that they have provided the privacy notice to any person whose data is given to the investment fund (eg beneficial owners, directors etc) and may need to also contain consent provisions for specific activities prescribed under the DP Act, such as the processing of sensitive personal data if applicable.

Offering documents should be updated to include a brief disclosure and overview of the DP Act. If no update to the offering documents is scheduled or the investmen...

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The following table shows the similarities and differences between the BVI, Cayman and Luxembourg Investment Funds across 27 different areas.

Please reach out to the authors to find out more.

On 9 February 2022, the Luxembourg Chamber of Deputies (Chambre des Députés), adopted the law modernising the Luxembourg law of 2 March 2004 on securitisation, as amended (the New Securitisation Law). The New Securitisation Law enhances legal certainty and flexibility of the Luxembourg securitisation regime, while ensuring and increasing effective protection for investors.

The New Securitisation Law has modernised the following main aspects.

New sources of funding

The financing of a securitisation transaction is no longer limited to the issuance of securities but is open to the issuance of any type of financial instrument.

Furthermore, in addition to the issuance of any financial instruments, securitisation undertakings can have recourse, in whole or in part, to the conclusion of any type of loans, whose yield or repayable principal depends on the risks acquired (eg profit participating loans, asset-backed loans).

New legal forms

The legal forms that can be used for securitisation companies are now broadened by:

The unlimited company (société en nom collectif)

The common limited partnership (société en commandite simple)

The special limited partnership (société en commandite spéciale)

The simplified limited company (société par actions simplifiée)

New authorisation and supervision requirements

A securitisation vehicle must be subject to the authorisation and supervision of the CSSF, when it issues to the public on a continuous basis.

Only securitisation vehicles issuing more than three times per year (on an all compartments basis) non-private placements with a denomination below €100,000 per each unit issued to non-professional investors need to be authorised and supervised by the CSSF.

New rules governing the accounting treatment of equity-financed compartments

The accounting treatment and distribution of profits and losses of equity financed compartments shall now be done on a compartment basis unless the articles of the securitisation entity provide otherwise.

Where compartments are equity-financed:

The balance sheet and the profit and loss account prepared for each compartment shall be approved only by the shareholders of that compartment, unless the articles of the securitisation entity provide otherwise

Limitations to the distribution of profits and other distributable reserves may be determined by reference to each compartment, without regard to the global situation of the securitisation entity, unless the articles of the securitisation entity provide otherwise

The legally required reserve according to the Luxembourg law of 10 August 1915 on commercial companies, as amended, shall be determined on a compartment basis without regard to the global situation of the securitisation entity, if this is provided for by the articles of the securitisation entity

Holding of securitised assets

A securitisation entity can now:

Directly own the assets generating the cash flows that are securitised

Acquire such assets or risks to be securitised indirectly, either through a subsidiary or via the acquisition of an entity holding these assets or risks

Security interests

A securitisation vehicle can now grant security interests over its assets to parties that are involved in a securitisation transaction but are not direct creditors of the securitisation vehicle.

Active management

Active management of securitised assets is now allowed for Luxembourg securitisation vehicles but only where the following conditions are met:

The pool of securitised risks is made up of debt securities, claims or debt financial instruments

The securitisation entity is not financed by issues to the public

Ranking/legal subordination

The following default waterfall of payments/order of priority in respect of debt and equity instruments issued by a securitisation vehicle is now applicable to securitisation entities unless otherwise agreed:

The units of a securitisation fund are subordinated to the other financial instruments issued by, and loans contracted by, s...

Companies incorporated in the BVI are, by most measures, the most popular offshore holding structure in the world. Whilst offshore vehicles are used for a wide variety of different purposes globally, there are a number of common factors which feed into the success of the BVI product. Whilst the most popular BVI vehicles are companies, BVI trusts and partnerships are also increasing in popularity.

Many of the BVI's advantages are common to numerous other jurisdictions (English language, absence of currency exchange controls, US dollar as a currency, stable democracy, common law legal system with final appeal to the Privy Council in London). A number of other advantages are not:

Taxation

BVI has no income tax, corporation tax, capital gains tax, wealth tax or similar fiscal laws. Whilst trading companies will normally pay taxation in the usual way in countries where they engage in business, using a BVI company as an intermediary holding company can create tax neutral layers in the corporate holding structure.

Speed

Subject to satisfying relevant KYC requirements, companies can be incorporated quickly by licensed registered agents via the BVI's online electronic interface, usually within 2 days.

Names

BVI companies may be incorporated with foreign character names (eg a Chinese name) in addition to their English name.

Cost

BVI companies are still comparatively inexpensive compared to other premium jurisdictions such as Cayman and Bermuda, and most mid-shores such as Hong Kong or Singapore. A vanilla BVI company can normally be incorporated for around US$1,750 inclusive of disbursements.

Confidentiality

Neither the register of directors nor the share register of a company is required to be publicly filed in the BVI. Although safeguards exist to prevent abuse of corporate confidentiality in relation to money-laundering and international crime, law abiding companies can exist with the confidence of privacy.

Corporate flexibility

Company law in the BVI is designed to provide the maximum flexibility consistent with common law legal systems. Companies are permitted to undertake any lawful act or activity, and there are no strictures relating to corporate benefit. The economic substance regime requires entities undertaking relevant activity, which are not tax resident outside the BVI in a suitable jurisdiction, to have adequate substance in the BVI.

Capitalisation requirements

BVI does not impose "thin capitalisation" rules or impose any general maintenance of capital requirements. Provided a company maintains cash-flow and balance sheet solvency, there are no limitations relating to its ability to distribute assets to its shareholders by way of dividend. A BVI company is expressly empowered to provide financial assistance to a third party for the acquisition of its own shares.

Joint ventures

BVI companies may adopt specific provisions in their corporate constitutions to abrogate the common law duties on directors to act in the best of interests of all of the shareholders in a joint venture, and instead free them to act for the benefit of the party appointing them. This flexibility has led to a number of high profile international joint ventures being structured through BVI holding companies.

IPO ready

For successful businesses, BVI companies are widely used in international capital markets as listing vehicles. Shares in BVI companies are listed in stock exchanges in London (LSE and AIM), New York (NASDAQ and the Big Board), Toronto, Hong Kong and Singapore, amongst others.

Debt financing

BVI has a quick and simple system relating to secured creditor registration which facilitates leveraging assets where a BVI company needs to do so in order to raise capital. The BVI also has the most developed insolvency system in the offshore world which, whilst not usually a great consideration for entrepreneurs, is normally a key factor for banks who are being asked to fund them.

"Light touch" regulation

Outside of certain very specific industries...

Companies incorporated in the BVI are, by most measures, the most popular offshore holding structure in the world. Whilst offshore vehicles are used for a wide variety of different purposes globally, there are a number of common factors which feed into the success of the BVI product. Whilst the most popular BVI vehicles are companies, BVI trusts and partnerships are also increasing in popularity.

Many of the BVI's advantages are common to numerous other jurisdictions (English language, absence of currency exchange controls, US dollar as a currency, stable democracy, common law legal system with final appeal to the Privy Council in London). A number of other advantages are not:

Taxation

BVI has no income tax, corporation tax, capital gains tax, wealth tax or similar fiscal laws. Whilst trading companies will normally pay taxation in the usual way in countries where they engage in business, using a BVI company as an intermediary holding company can create tax neutral layers in the corporate holding structure.

Speed

Subject to satisfying relevant KYC requirements, companies can be incorporated quickly by licensed registered agents via the BVI's online electronic interface, usually within 2 days.

Names

BVI companies may be incorporated with foreign character names (eg a Chinese name) in addition to their English name.

Cost

BVI companies are still comparatively inexpensive compared to other premium jurisdictions such as Cayman and Bermuda, and most mid-shores such as Hong Kong or Singapore. A vanilla BVI company can normally be incorporated for around US$1,750 inclusive of disbursements.

Confidentiality

Neither the register of directors nor the share register of a company is required to be publicly filed in the BVI. Although safeguards exist to prevent abuse of corporate confidentiality in relation to money-laundering and international crime, law abiding companies can exist with the confidence of privacy.

Corporate flexibility

Company law in the BVI is designed to provide the maximum flexibility consistent with common law legal systems. Companies are permitted to undertake any lawful act or activity, and there are no strictures relating to corporate benefit. The economic substance regime requires entities undertaking relevant activity, which are not tax resident outside the BVI in a suitable jurisdiction, to have adequate substance in the BVI.

Capitalisation requirements

BVI does not impose "thin capitalisation" rules or impose any general maintenance of capital requirements. Provided a company maintains cash-flow and balance sheet solvency, there are no limitations relating to its ability to distribute assets to its shareholders by way of dividend. A BVI company is expressly empowered to provide financial assistance to a third party for the acquisition of its own shares.

Joint ventures

BVI companies may adopt specific provisions in their corporate constitutions to abrogate the common law duties on directors to act in the best of interests of all of the shareholders in a joint venture, and instead free them to act for the benefit of the party appointing them. This flexibility has led to a number of high profile international joint ventures being structured through BVI holding companies.

IPO ready

For successful businesses, BVI companies are widely used in international capital markets as listing vehicles. Shares in BVI companies are listed in stock exchanges in London (LSE and AIM), New York (NASDAQ and the Big Board), Toronto, Hong Kong and Singapore, amongst others.

Debt financing

BVI has a quick and simple system relating to secured creditor registration which facilitates leveraging assets where a BVI company needs to do so in order to raise capital. The BVI also has the most developed insolvency system in the offshore world which, whilst not usually a great consideration for entrepreneurs, is normally a key factor for banks who are being asked to fund them.

"Light touch" regulation

Outside of certain very specific industries...

Harney Westwood & Riegels International, Harney Westwood & Riegels (BVI) LP, Harney Westwood & Riegels (Cayman) LLP, Harney Westwood & Riegels (UK) LLP, Harney Westwood & Riegels (Hong Kong), Harney Westwood & Riegels Singapore LLP, Aristodemou Loizides Yiolitis LLC (practising as Harneys), Harney Westwood & Riegels SARL, Harneys Bermuda Limited, and each of their subsidiaries (collectively known as Harneys) is committed to the privacy of information in line with data protection principles,

regulatory and legal requirements, and global best practices.

By completing this form and clicking submit, you consent to receive communications from Harneys and recording your personal data through our Privacy Statement. For more information on how your personal data is collected and managed by Harneys, please see our Privacy Statement. Jersey legal services are provided through Harneys (Jersey) which is an independently owned and controlled Jersey law firm.

There was an uptake in open-ended funds being launched in Q1. This was driven by fund managers based in Hong Kong and Japan, who were looking to take advantage of volatility in the secondary market. At the same time, we identified a drop in deal flow and closings, partially due to investors being unable to conduct on-site due diligence due to COVID-19, as well as uncertainty surrounding valuations.

During Q2 and moving into Q3, we have seen a solid pipeline of new fund launches, which was particularly apparent in the real estate, pharmaceutical, technology, and infrastructure sectors.

Regulatory change which has affected the offshore landscape over the last couple of years has been positively received by the Asia market, providing additional assurance and transparency for investors, managers, and for Harneys' business partners alike.

BVI and Cayman offer complimentary fund products, with a versatile range of products on offer for every type of manager. With the BVI offering cost-effective and flexible solutions for start-up managers and Cayman remaining the first choice for those managers wanting to attract more institutional investors.

Domestic fund vehicles in Asia, such as the VCC in Singapore, as well as those under the HK Partnership regime, can happily co-exist with offshore vehicles, and potentially feature in the same fund structure.

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Whilst there is clearly a cacophony of different issues for him to tackle, it did remind me of this excellent article in Reuters back in October which was already tracking the moves being made in the investment funds industry to continue the meteoric rise of ESG investment strategies.

For those that are very late to the party, ESG stands for environmental, social and governance and the story of ESG investing actually began back in January 2004 when former UN Secretary General Kofi Annan wrote to over 50 CEOs of major financial institutions, inviting them to participate in a joint initiative under the auspices of the UN Global Compact and with the support of the International Finance Corporation (IFC) and the Swiss Government. The goal of the initiative was to find ways to integrate ESG into capital markets.

Whilst the concept has become an undoubted success, getting it to this position has not been without challenges. Ignoring those that thought ESG might just be something of a fad, one of the more interesting issues came from institutional investors who argued that making investment decisions on the basis of these principles was actually a breach of their fiduciary duties to their shareholder base.

This has caused extensive debate, but a strong argument was being made in many circles that the pursuit of financial gains should always be the sole focus. It became litigious in a number of jurisdictions, where investment managers were challenged on both their principles and ethics, although in almost every case, it was where the financial gains had not matched the expectations of the investors.

But both the UK and the EU decided to take this out of the hands of the courts and the new disclosure requirements for investment managers and advisers with respect to their ESG policies will apply in the European Union from 10 March 2021 and new climate-related disclosures will apply to investment managers under a UK disclosures regime that is expected to be phased in from 2022.

We will ignore the impact of Brexit for the purposes of this short article, but it does appear that all of Europe is united on this front. What is interesting to watch is that the regulatory landscape in this area is undoubtedly evolving and when you add these new initiatives to the Shareholder Rights Directive, the UK Stewardship Code, the Principles for Responsible Investing and the UK Corporate Governance Code, it is now the case that European managers will be operating within these parameters indefinitely.

Figures show that assets in sustainable investment products in Europe are forecast to reach €7.6 trillion over the next five years, which will then outnumber conventional funds. Part of this drives comes from a critical mass of pension funds and insurers deploying capital exclusively to asset managers with ESG capabilities.

Whilst this level of market dominance has not yet been reached in the US, largely due to some of the scepticism highlighted above, the clearer path that the Democratic party now have in the US may well see their domestic capital providers follow a very similar path, especially in a market with greater maturity that really is looking for a transformation for the better.

This article was originally published by funds europe.