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The seriousness with which the Cayman Islands continues to meetand exceed international standards in a proactive and sophisticatedmanner has been underlined this week. The introduction ofamendments to the Private Funds Law to further clarify the scope ofapplication to certain entities were passed on 7 July.

On 7 February the Cayman Islands Government published thePrivate Funds Law, 2020 and the Mutual Funds (Amendment) Law, 2020in order to enhance the oversight of both open-ended andclosed-ended funds in the jurisdiction and to respond to EUrequirements with respect to transparency, best market practice,enhanced anti-money laundering procedures and other key regulatorystandards (please refer to our previous update here). Further fast tracked amendments, toprovide greater certainty and clarity, have been introduced in thePrivate Funds (Amendment) Law, 2020.

In summary, the Private Funds Law applies to companies, unittrusts or partnerships that offer or issue or have issuedinvestment interests, the purpose or effect of which is the poolingof investor funds with the aim of enabling investors to receiveprofits or gains from such entity's acquisition, holding,management or disposal of investments, where (a) the holders ofinvestment interests do not have day-to-day control over theacquisition, holding, management or disposal of the investments;and (b) the investments are managed as a whole by or on behalf ofthe operator of the private fund, directly or indirectly. Privatefunds do not include, however, single investor funds; regulatedmutual funds under the Mutual Funds Law (as amended); personslicensed under the Banks and Trust Companies Law or the InsuranceLaw; persons registered under the Building Societies Law or theFriendly Societies Law; or, importantly, any non-fund arrangements the list of which is extensive and includes:

pension funds; securitisation special purpose vehicles;contracts of insurance; joint ventures; proprietary vehicles;officer, manager or employee incentive, participation orcompensation schemes, and programmes or schemes to similar effect;holding vehicles; individual investment management arrangements;debt issues and debt issuing vehicles; structured finance vehicles;preferred equity financing vehicles; a fund of whose investmentinterests are listed on a specified stock exchange; sovereignwealth funds; or single family offices.

The main changes introduced by the Private Funds (Amendment)Law, amend the definition of a private fund by removing thereference to spreading investment risk meaning closed ended fundsmaking only a single investment may constitute a private fund,provided they satisfy all of the remaining requirements of thedefinition. Further, the inclusion of funds that have issuedinvestment interests at some point during their life, removes theuncertainty around funds that have issued interests in the past butare no longer actively offering or issuing. All are required toregister.

Existing private funds and private funds formed after 7 Februarymust register with CIMA no later than 7 August 2020. Registrationsare being conducted apace as the industry successfully absorbsthese new requirements.

As previously observed, the new regime seeks to strike a balancein achieving the dual purpose of strengthening investor confidencein Cayman Islands investment funds and ensuring that the CaymanIslands remains the preeminent jurisdiction for investment fundformation. The new regime also addresses EU suggestions forinvestment fund oversight and the Cayman Islands Government workedclosely with industry stakeholders and fund professionals,including accounting, audit, administration, governance and legalfirms in drafting the laws.

Originally published by Appleby, July 2020

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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