In the past, the Cayman Islands Monetary Authority (CIMA) issued the proposed rules for calculation of asset values, segregation of assets and contents of offering documents which applied to only licensed mutual funds at the time. This was mainly done to help meet the international requirements of IOSCO for retail funds. More recently and to be in line with the EU and OECD directives, these rules were expanded to include registered mutual funds as well as the newly registered private funds. To facilitate the scope expansion of the rules to both registered mutual funds and registered private funds, certain elements in the current rules required relatively minor changes. The revised and newly issued rules are as follows:
Rule on Calculation of Asset Values – Regulated Mutual Funds
Rule on Calculation of Asset Values – Registered Private Funds
Rule on Segregation of Assets – Regulated Mutual Funds
Rule on Segregation of Assets – Registered Private Funds
Rule on Contents of Offering Document – Regulated Mutual Funds
Rule on Contents of Marketing Materials – Registered Private Funds
The rules for Regulated Mutual Funds apply to any mutual fund licensed or registered under section 4 of the Mutual Funds Law (“MFL”). The rules for Registered Private Funds apply to any private fund registered under section 7 of the Private Funds Law (“PFL”). Rule on Calculation of Asset Values
This rule requires that a fund must establish, implement and maintain a NAV calculation policy that ensures a fund’s NAV is fair, complete, neutral and free from material error and is verifiable. The rule further states what should be outlined within the policy addressing valuation, pricing models, requirements on those charged with calculating the NAV, independence, requirements if not independent, etc. and that the policy must be written and disclosed in the fund’s offering document/marketing materials. Rule on Segregation of Assets
This rule states that the portfolio of the fund must be segregated and accounted for separately from any assets of the service provider who holds or manages the portfolio. CIMA also clarified that the rule does not prohibit prime brokerage/custody arrangements that allow, in accordance with established and accepted industry practice, a custodian/sub-custodian to hold all client assets in a commingled client omnibus account along with the assets of other clients. The operators of a fund must establish, implement, and maintain, (or oversee the establishment, implementation, and maintenance of) strategies, policies, controls, and procedures to ensure compliance with these rules, consistent with the fund’s offering document/marketing materials and appropriate for the size, complexity, and nature of the fund’s activities and investors. Rule on Contents of Offering Document/Marketing Materials
For regulated mutual funds this rule applies to all funds licensed/registered under section 4 of the MFL. The rule for private funds applies only to private funds under section 7 of the PFL which intend to prepare marketing materials for distribution to investors. Apart from the standard information which should usually be disclosed in a typical offering document or the marketing materials, there are two specific mandatory statements relating to CIMA which must be disclosed as well. All new and updated offering documents/marketing materials should be reviewed to ensure its complies with these rules. The full set of rules may be accessed on the CIMA website here. If you have any questions or would like to discuss this further, please get in touch with your usual IMS contact.