The Cayman Islands Monetary Authority (“CIMA”) has announced that it had entered into a Memorandum of Understanding (the “MOU”) with the Securities and Exchange Commission of Brazil (the Comissão de Valores Mobiliários (“CVM”)).
The MOU affirms CIMA’s commitment to cooperating and sharing information with international regulatory counterparts. This latest development establishes Cayman as a compliant and safe jurisdiction for Brazilian domestic fund managers who invest assets abroad as permitted by CVM Regulation 450 (as amended).
Monetary Authority Law
The Monetary Authority Law (1996) contains specific provisions relating to CIMA’s power to investigate and to respond to requests for assistance from an overseas regulatory authority, including procedures that need to be followed, certain discretions that CIMA may apply in deciding whether or not to respond to a request, and conditions that CIMA may apply to a response, all of these exercisable whether or not CIMA has entered into an agreement with such overseas regulatory authority for the exchange of information. The Monetary Authority Law also contains provisions that permit CIMA to formalise the framework for the exchange of information by entering into memoranda of understanding with overseas regulatory authorities.
The Monetary Authority Law was amended in December 2008 to implement the agreed position reached with the International Organisation of Securities Commissions’ recommendations on international cooperation. The amendments remove the distinction between routine and non-routine requests of an overseas regulatory authority (the latter of which previously required a referral to the Attorney General and Financial Secretary and an option to not provide assistance if it would not be in the public interest to give the assistance sought) and also enable CIMA to consent to the use of information in certain criminal investigations or proceedings.
This agreement with the CVM simply sets forth a reciprocal framework that enables both CIMA and the CVM to cooperate with specific requests for information from each side.
The MOU covers assistance by CIMA to facilitate the performance by CVM of its functions to enforce or secure compliance with laws and regulations in Brazil concerning:
- insider dealing, market manipulation, misrepresentation of material information and other fraudulent or manipulative practices relating to securities and derivatives, including solicitation practices, handling of investor funds and customer orders;
- the registration, issuance, offer, or sale of securities and derivatives, and reporting requirements related thereto;
- market intermediaries, including investment and trading advisers who are required to be licensed or registered, collective investment schemes, broker dealers, and transfer agents; and
- markets, exchanges, and clearing and settlement entities.
Requests for assistance must be made in writing and must include a detailed description of the facts underlying the investigation and details of the laws and regulations that may have been violated.
The assistance available under the MOU includes but is not limited to:
- providing information and documents held in the files of CIMA regarding the matters set forth in the request for assistance;
- 2. obtaining information, documents or copies thereof regarding the matters set forth in the request for assistance, including:
- contemporaneous records sufficient to reconstruct all securities and derivatives transactions, which may include records of all funds and assets transferred into and out of bank and brokerage accounts relating to these transactions;
- records that identify: the beneficial owner and controller, and for each transaction, the account holder; the amount purchased or sold; the time of the transaction; the price of the transaction; and the individual and the bank or broker and brokerage house that handled the transaction;
- information identifying persons who beneficially own or control non-natural persons organised in the Cayman Islands; and
- taking or compelling a person’s statement, or, where permissible, testimony under oath, regarding the matters set forth in the request for assistance.
CVM may use the information it obtains from CIMA solely for:
- the purposes set forth in the request for assistance, including ensuring compliance with the applicable laws and regulations; and
- a purpose within the general framework of the use stated in the request for assistance, including conducting a civil or administrative enforcement proceeding, assisting in a self regulatory organisation’s surveillance or enforcement activities, assisting in criminal prosecution, or conducting any investigation for any general charge applicable to the violation of the provision specified in the request where such general charge pertains to a violation of the laws and regulations administered by CVM. This use may include enforcement proceedings that are public.
Save as set forth above or in response to a legally enforceable demand (following consultation with CIMA), CVM may not disclose non-public documents it receives and must use its best efforts to protect the confidentiality of non-public documents and information received under the MOU.
Following on from the first MOU CIMA entered into with Banco Central do Brasil in February 1999 (subsequently updated in March 2006), the MOU with CVM is a further milestone in the history of strong cooperation between Cayman and Brazilian regulatory authorities and is evidence of the close business ties between the two countries.
The MOU also is good news for Brazilian managers of Brazilian domestic funds looking to use Cayman Islands vehicles as a platform for international investment permitted by CVM Regulation 450. Although Cayman has been used to establish such vehicles for some time, the signing of the MOU should remove any residual doubts over the use of Cayman as a jurisdiction to establish such vehicles and should facilitate Cayman-based custodians and registrar and transfer agents to act on such structures.