Changes to the Mutual Funds Law
In June 2011 the Cayman Islands government announced a proposal to amend the Mutual Funds Law (“2009 Revision”) (the “Mutual Funds Law”) to require Cayman Islands master funds that have regulated feeder funds as part of their structure to be subject to new registration and filing requirements. A draft bill containing these proposals was published on 20 October 2011. Following consultation by the Cayman Islands government and the Cayman Islands Monetary Authority (“CIMA”) with industry experts a revised version of the bill (the “Bill”) was passed by the Legislative Assembly of the Cayman Islands on 5 December 2011.
Cayman Islands Master Funds – A Favoured Structure
Master-feeder fund structures have long been favoured by fund managers as a means of implementing a tax effective structure for both taxable and tax-exempt investors. Most often the Cayman Islands, with its efficient regulatory regime and high quality service providers, is the neutral offshore jurisdiction of choice for establishment of a master fund and its offshore feeder fund. Although the precise figure is not known it is anticipated that there may be over 4,000 existing master funds which may be affected by the proposed regulations.
At present most types of Cayman Islands domiciled feeder funds that are regulated by the Mutual Funds Law do not require a mutual fund licence but are subject to registration and reporting requirements under Section 4(3) of the Mutual Funds Law and must pay annual fees to CIMA. However, the Mutual Funds Law does not currently impose specific requirements on Cayman Islands domiciled master funds and, since registration and reporting is not required by mutual funds with fifteen or fewer investors, the vast majority of Cayman Islands master funds are exempt from the existing registration and reporting process.
New Obligations for Master Funds
The Bill, which at the time of writing has not yet been officially published, amends the Mutual Funds Law so that:
Timelines and Updates
Once the Bill is published in the Cayman Islands Gazette it will become law. The next issue of the Cayman Islands Gazette is due to be published on Monday 19 December 2011.
This article is intended to provide general guidance on the subject matter only and may not be relied upon as legal advice.
Further information and updates to this briefing will be posted to the author’s website, www.higgsjohnson.com
6 December 2011
Authors: Sarah Bolton and Gaela Bailey, Higgs & Johnson