The Cayman Islands Monetary Authority (CIMA) has recently issued a number of Rules relating to regulated mutual funds including in respect of the segregation of assets, calculation of net asset value, and contents of offering documents.
The Rule provides that all financial assets and liabilities of a fund must be segregated and accounted for separately from the assets of any service provider of the fund so that no service provider uses the fund assets to finance their own or any other operations. Funds are required to appoint a service provider to ensure safekeeping of the fund’s portfolio. The use or transfer of assets can be consented to by the fund so long as this is disclosed in the offering documents or otherwise disclosed to investors.
It is necessary for the operator1 of the fund to establish, implement and maintain strategies, policies, controls and procedures (or oversee the same) to ensure compliance with this Rule consistent with the fund’s marketing materials and appropriate for the size, complexity and nature of the fund’s activities and investors.
The fund operator must also ensure that the fund holds title to its assets and that a record of such assets is maintained by an administrator or other independent third party or by a manager, operator or person with a control relationship with the fund so long as this is independent from the portfolio management function and that potential conflicts of interest are properly identified, managed, monitored and disclosed to investors.
CIMA clarified by way of FAQs update of 21 July 2020 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.
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Recent Regulatory Changes Issued in Respect of Cayman Funds Regulated Under the Mutual Funds Law
1 “Operator” means, in the case of a unit trust, the trustee of that unit trust; in the case of a partnership, a general partner in that partnership; in the case of a company, a director of that company, or in the case of a limited liability company, a manager of the limited liability company.