Directors of Cayman Regulated Mutual Funds and Private Funds are reminded that the Cayman Islands Monetary Authority’s rules on corporate governance and the Statement of Guidance on Corporate Governance for Mutual Funds and Private Funds come into effect today, October 14, 2023 (the Rule states that it comes into effect within six months of the date that it is published in the Cayman Islands Gazette).

Concerning the scope of the Rule, it says that it applies to the Governing Body of all regulated entities.

Regarding this, the Rule defines “Governing Body” as “the Board of Directors where the entity is a corporation, the General Partner where the entity is a partnership, the manager (or equivalent) where the entity is a Limited Liability Company, and the Board of Trustees where the entity is a trust business.”

When analysing the corporate governance framework for a Regulated Mutual Fund or a Private Fund, CIMA is expected to take a risk-based approach and proportionately apply measures. 

In relation to proportionality, the Rule anticipates that “The corporate governance framework for regulated entities should be commensurate with the size, complexity, structure, nature of business and risk profile of its operations.”

Overall, what the Rule and the Statement of Guidance on Corporate Governance for Mutual Funds and Private Funds require is nothing new to persons experienced as directors of Cayman funds.

However, since CIMA cannot advise any fund director directly about how to satisfy the Rule and the Statement of Guidance on Corporate Governance for Mutual Funds and Private Funds, fund directors have been discussing with legal counsel registered in the Cayman Islands how best to comply with new requirements and meet CIMA’s expectations.

Essentially such compliance will be demonstrated by good documentation by fund directors.

Approaches to this documentation include amending existing “master” corporate governance policies or creating short-form policies containing specific references to fund records (minutes, offering documents, etc.) that CIMA can cross-check to confirm regulatory compliance.

Of course, in the event of non-compliance, item 7 of the Rule states that “Whenever there is a breach of this Rule, the Authority’s policies and procedures as contained in its Enforcement Manual will apply, in addition to any other powers provided in the regulatory acts and the MAA.”

Provided that a risk-based and proportional approach is taken as expected and CIMA considers valid explanations of experienced directors in specific circumstances, such Rule breaches should not be a grave concern for experienced directors.

In the meantime, any fund directors who have not yet contacted legal counsel registered in the Cayman Islands for legal advice are encouraged to do so as soon as possible.