Cayman Islands: Mutual Funds Law amendment and Private Funds Law

To enhance best practices and strengthen investor confidence, the Cayman Islands enacted new and revised legislation, which has a direct impact on entities domiciled in the Cayman Islands. These legal amendments also result in the Cayman Islands being fully compliant with international regulations, specifically meeting criteria specified by the Council of the European Union. The revisions to the existing Mutual Funds Law (MFL) and a new Private Funds Law (PFL) (collectively, the Laws) were enacted on Feb. 7, 2020. The Laws subject all private open and closed-ended funds formed in the Cayman Islands to register with the Cayman Islands Monetary Authority (CIMA.)

Amendment to the Mutual Funds Law

The MFL removes the previous exemption under Section 4(4) from registration for funds that have 15 or less investors. Due to this amendment, entities with greater than one, but less than 15 investors are no longer exempt from the MFL and are required to register with CIMA in order to comply.

Private Funds Law

The PFL establishes a framework to monitor closed-end funds (i.e., private funds) which are beyond the scope of the MFL and it requires private funds to register with CIMA. The PFL defines private funds as a company, unit, trust or partnership in which:

• The principal business is offering and issuing investment interests
• The purpose is to pool investor funds to diversify risks to allow investors to realize profits from the holding, management and disposal of investments
• The investors do not have day-to-day control over the entity’s investment objectives
• Investment interests are not redeemable at the option of the investor
• The investments are managed by the fund’s operator for reward, based on the entity’s assets, profits or gains

A private fund is deemed to carry on or attempt to carry on business in or from the Cayman Islands if it is:

1. Established in the Cayman Islands; or
2. Established outside of the Cayman Islands and makes an offer of its interests to the public of the Cayman Islands; and
3. Is in receipt of capital contributions from investors, with the purpose of making investments