The Cayman Islands Monetary Authority (CIMA) has
recently published new and updated rules and statements of guidance
relating to the governance of regulated entities.

Those that apply to regulated Cayman Islands investment funds
(both mutual funds and private funds) are:

• Rule on Corporate Governance for Regulated Entities
  (Governance Rule)




• Statement of Guidance on Corporate Governance – Mutual
  Funds and Private Funds (Governance Guidance)




• Rule and Statement of Guidance on Internal Controls for
  Regulated Entities (Internal Controls Rule)




• Statement of Guidance on the Nature, Accessibility and
  Retention of Records (Records Guidance)

The aim of the new rules and guidance is to provide a consistent
and enforceable governance regime for all regulated Cayman Islands
entities, while eliminating some of the gaps in the current regime.
In particular, by extending the governance regime to private funds.
Critically, the rules are more prudential than prescriptive in
nature, requiring funds to have governance structures appropriate
to their size, nature and complexity rather than complying with a
one-size-fits-all approach.

The Governance Rule and the Internal Controls Rule, both of
which come into force in October 2023, create an enforceable
framework of governance rules applicable to all regulated entities,
with CIMA able to impose administrative penalties for breaches. The
provisions in these two rules that are applicable to investment
funds largely overlap and must be read in conjunction with the
Governance Guidance. This guidance helpfully interprets the rules
in the context of investment funds, which differ from most other
types of regulated entity in generally being unstaffed and
outsourcing substantially all their functions to third parties.

The governance regime is focussed on fund operators, which means
the fund’s board of directors or managers, general partner or
trustee, as applicable. The key areas covered by the regime
are:

• Operator composition/meetings
  

  • Appropriate number of individuals

  
  

  • Appropriate diversity of skills and experience

  
  

  • Appropriate meeting frequency/at least one a year

  
  

  • Keep proper written records of meetings/decisions




• Operator responsibilities
  

  • Establishing and maintaining an effective internal controls
    system

  
  

  • Ultimate oversight of outsourced functions

  
  

  • Monitor service providers and fund legal and regulatory
    compliance

  
  

  • Oversight of fund risks / management, monitoring and
    documentation of risks




• Operator conduct
  

  • Act honestly and in good faith with reasonable care, skill and
    diligence

  
  

  • Adopt a written conflicts of interest policy and disclose,
    monitor and manage conflicts

  
  

  • Exercise independent judgment in the best interests of the fund
    and investors as a whole

  
  

  • Communicate material changes to investors

  
  

  • Communicate in a transparent, clear and timely manner with
    CIMA

Operators of regulated Cayman Islands funds should review their
current governance practices and procedures to ensure they comply
with CIMA’s minimum expectations before the new rules come into
force in October.

All of CIMA’s rules and statements of guidance relevant to
regulated Cayman Islands funds can be viewed on CIMA’s website.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.