Update: On July 7, 2020, the Cayman Islands Government amended the Private Funds Law 2020 and expanded the definition of a “private fund”. As a consequence, a few types of entities (such as “single investment funds” and “no fee no carry funds”) that were expected to be excluded from the definition of “private funds” before the amendment are now covered by the post-amendment definition (and thus will be required to register). This post has been updated to reflect such change.
The Cayman Islands published the Private Funds Law 2020 on February 7, 2020 and further amended it on July 7, 2020. Most importantly, the Law requires certain Cayman Islands private funds to register with the Cayman Islands Monetary Authority (“CIMA”). This requirement covers most closed-ended funds formed in Cayman Islands, including typical venture capital and private equity funds (though certain exceptions exist for single-LP funds, holding vehicles, and a few other less common situations). Failure to register can result in penalties including a fine of approximately US$122,000.
For existing Cayman funds that will have first called capital by such date, the deadline to complete registration is August 7, 2020. Any funds formed or first calling capital thereafter are required to file a registration application within 21 days of initial closing, and to complete the entire registration process prior to making an initial capital call for investment purposes.
Details of the registration process remain to be released by CIMA. We anticipate that in practice legal counsel will assist fund managers to register their Cayman funds where needed as part of the ordinary fund formation routine. Once registered, an annual fee will apply (though not in 2020). The amount of the fee remains to be specified, but as a point of reference open-ended funds (i.e., mutual funds, hedge funds, etc.), who have been required to file for some time now, pay about US$4,500 per year.
There are some other requirements of the Law to take note of. Implicated funds must:
- Prepare annual audited financial statements and have local Cayman auditors “sign off” on those (this requirement has existed for some time for open-ended funds; the ordinary working practice is that the long standing offshore auditors, PwC or whoever, will get their local counterparts to sign off on what they prepare, usually in a transparent manner to the fund manager in an efforts sense, and often with no additional cost); and
- Submit to CIMA the signed-off financial statements and a summary of fund information in the format prescribed by CIMA within 6 months of financial year-end.
We will update this blog post with more details when known.