In December 2013 the Cayman Islands Monetary Authority (CIMA) published a Statement of Guidance for Regulated Funds - Corporate Governance (SOG) that sets forth minimum guidance for operators of Cayman Islands Regulated Funds (Regulated Funds) for the sound and prudent governance of the Regulated Fund they operate.

The SOG does not create new law but places a focus on the standards expected from operators of Regulated Funds.  Furthermore, operators should note that in addition to the SOG, we expect that the regulation of fund corporate governance in the Cayman Islands will also see the introduction of a new dual registration and licensing regime for directors of Cayman funds and the creation of a CIMA-managed database to assist due diligence on the operators of regulated investment funds.  We expect that the legislation required to implement this regime will be in place during the first quarter of 2014.

This note provides a brief summary of the SOG.  We urge operators and promoters of Cayman Islands Regulated Funds to review the corporate governance of the funds they operate, ensure that they are familiar with the existing laws setting forth the duties and obligations of operators, and ensure that they implement best practices that meet or exceed the requirements of the SOG.  Ogier has extensive experience advising operators of Cayman Islands companies, limited partnerships and trusts, including Regulated Funds, in respect of their ongoing responsibilities.  If you have any questions regarding the SOG or the services Ogier can provide, contact your usual Ogier funds attorney.


The liquidity crisis of 2008 placed the spotlight on corporate governance of investment funds, as directors and other operators were called to navigate choppy waters in addressing liquidity mismatches in a balanced manner that took account of the interests of all investors and provided a buffer to the conflicts of investment managers.  Investors were quick to see the investor protection and value added provided by properly-functioning boards, which resulted in a move to more sophisticated professionalised independent boards.

The Cayman Islands has since seen an explosion of independent directorship providers.  However, with over 11,000 Regulated Funds and no mandatory requirement to appoint professional (or local) directors with intimate knowledge of the common law duties of operators, varying standards of corporate governance have been applied by different operators.  This was evidenced in the 2011 case of Weavering Macro Fixed Income Fund Limited (in Liquidation), where the Grand Court of the Cayman Islands was asked to review the actions of non-professional directors of a Regulated Fund that were not based in the Cayman Islands. In this case, the Grand Court provided a helpful description of the actions that would evidence that directors are meeting their duties of skill, care and diligence to a Regulated Fund.

The Weavering judgment attracted much publicity and discussion and brought the issue of corporate governance into foreground.  Accordingly, in January 2013, after much informal industry consultation, CIMA commenced a formal private sector consultation on corporate governance for the financial services industry.  The consultation process was aimed at developing new corporate governance guidelines for the investment fund industry that would ensure a standardised approach to corporate governance in order to promote and enhance market confidence and protect the reputation of the financial services industry of the Cayman Islands.

Although many proposals were considered throughout the consultation period, including the imposition of compulsory standards (such as setting maximum numbers of directorships capable of being undertaken by a single person) CIMA ultimately followed industry feedback, which showed strong support for providing non-binding guidance on corporate governance rather than implementing compulsory standards.  The feedback also showed solid support for bespoke guidance on corporate governance standards specifically tailored to mutual funds.

The SOG does not create new law and is not intended as a prescriptive or exhaustive guide regarding the governance of a Regulated Fund.  It is intended to provide operators of Regulated Funds - which include the board of directors of a company, the general partner(s) of a limited partnership or the trustee(s) in the case of a unit trust - with guidance on CIMA's minimum expectations for the sound and prudent governance of Regulated Funds.  It is important to note that the SOG sets forth minimum expectations.  In our experience, most professional independent director services providers already implement processes and procedures that exceed these minimum requirements.  Furthermore, the SOG directs operators to implement processes and procedures that exceed these minimum standards if warranted by factors such as (1) assets under management, (2) number of investors, (3) complexity of the structure; (4) nature of the investment; or (5) nature of the operations.

Finally, the SOG sets forth guidelines that apply to all regulated "mutual funds", as defined by section 2 of the Mutual Funds Law (as amended) (the Law), which include funds licensed or administered under section 4(1) or registered under section 4(3) of the Law.  Although technically this does not include funds that do not meet the definition of "mutual fund" under the Law, such as closed-ended funds, or funds that operate under an exemption from registration, the common law duties on operators continue to apply to such non-regulated funds.  Accordingly, although technically not covered by this SOG, operators of non-regulated funds should nevertheless refer to the SOG as a means of identifying standards required to comply with such duties.

The SOG addresses Oversight Functions, Conflicts of Interests, Operator Meetings, Duties, Documentation, Relations with CIMA, and Risk Management.

Oversight Function; Conflicts of Interest; Operator Meetings

Under the SOG, the operator of a Regulated Fund has the ultimate responsibility for effectively overseeing and supervising the activities and affairs of the fund and for ensuring the fund conducts its affairs in accordance with all applicable laws, regulations, rules, statements of principles, statements of guidance and anti-money laundering and combating terrorist financing requirements, including those of the Cayman Islands.

The operator should request appropriate information from the service providers and/or professional advisors to the fund to satisfy itself regularly that the Regulated Fund is in compliance with all laws and regulations and also to enable the operator to make informed decisions and adequately oversee and supervise the fund. 

Under the SOG, the operator of a Regulated Fund should meet at least twice a year in person or via telephone or video conference, or more frequently where the circumstances or size, nature and complexity of the fund's operations require.  Where necessary, the operator should request the presence of the fund's service providers at such meetings.

Additionally, the operator must suitably identify, disclose, monitor and manage all conflicts of interest, and the operator must document any disclosed conflicts of interest.

Operator Duties

The SOG provides considerable guidance on operator duties, in the wake of the Weavering judgment.  Operators must exercise independent judgement, always acting in the best interests of the Regulated Fund, taking into consideration the interests of the investors as a whole.  Operators should communicate adequate information to fund investors and must act honestly and in good faith at all times.

Operators must operate with due skill, care and diligence and should ensure they have sufficient and relevant knowledge and experience to carry out their duties as operators.  Operators must also ensure that they have sufficient capacity to apply their minds to overseeing and supervising each regulated fund for which they act as operator.

At the time of registration of a fund with CIMA and on a continuing basis, an operator is responsible for ensuring the constitutional and offering documents of the Regulated Fund comply with Cayman Islands law and that the investment strategy is clearly described in the offering documents.  The operator should regularly verify or seek confirmation from service providers that they are acting in accordance with the fund's constitutional and offering documents and should regularly monitor whether the investment manager is acting in accordance with the defined investment criteria, investment strategy and restrictions.

Operators retain ultimate responsibility for delegated functions, including to service providers.  Operators are responsible for approving the appointment and removal of service providers, including ensuring that the roles and responsibilities of such providers are clearly set out and defined.  They are also responsible for continuously assessing the suitability and capability of service providers, and for ensuring that service providers are performing their functions in accordance with their respective contracts.

Operators should, as necessary, and at all material times inform themselves of the Regulated Fund's investment activities, performance and financial position, including conducting reviews of the fund's financial results and audited financial statements and monitoring the fund's net asset valuation policy and the calculation of its net asset value.


Operators are responsible for ensuring that a full, accurate and clear written record is kept of operator meetings. 

Records should include: agenda items and circulated documents; list of attendees present and whether attendance was in person or via telephone or video conference; the matters considered and decisions made; and information requested from, and provided by, service providers and advisors.

Relations with CIMA

The SOG calls for transparent and honest communications with CIMA of any matter that could materially and adversely affect the financial soundness of the Regulated Fund or any breach of law or regulation, encouraging communication of information to CIMA as a default in the case of uncertainty.

Risk Management

Operators should provide suitable oversight of risk management, ensuring the Regulated Fund's risks are appropriately managed and mitigated, with material risks being discussed and acted on by the governing bodies where necessary.