Digital markets, funding and payment servicesi Crowdfunding
CIMA has not adopted a formal position on crowdfunding. That said, to the extent a proposed crowdfunding project overlapped with any of the conventional business areas that require licensing, a proprietor ought to seek advice. In particular, the operator of a crowdfunding business would seek clarification of whether the SIBL or MFL would apply.ii Collective investment schemes
As noted above, mutual funds are regulated by CIMA under the MFL. In general, only open-ended funds are regulated and must be registered with CIMA. All registered funds must be audited by a firm of auditors approved by CIMA and located in the Cayman Islands (although there is no objection to the field work being done elsewhere). Closed-ended funds and, by way of exception, open-ended funds with no more than 15 investors who, by majority, can appoint or remove the operators of the fund (i.e., directors) are not required to be registered although other regulatory aspects (such as anti-money laundering/combating the financing of terrorism (AML/CFT) regulations) will still apply.
There are three main categories of regulated fund, given below.Registered mutual funds (MFL Section 4(3))
Funds that require a minimum initial investment of at least US$100,000 (i.e., those targeted at institutional or sophisticated high net worth investors) or are listed on an approved stock exchange may be registered on filing the following documentation with CIMA:
- a prospectus that properly describes the equity interest (i.e., shares) and contains the information necessary to enable a prospective investor to make an informed decision as to whether or not to subscribe;
- a registration form (Form MF1) and letters of consent from the auditors and administrator;
- an affidavit from the directors of the fund;
- evidence of incorporation; and
- the prescribed registration fee and the initial administrative filing fee.
The majority of regulated funds in the Cayman Islands fall into this category. We have advised on the launch of regulated funds that invest in whole or in part in digital assets. There is no requirement that the administrator of a registered fund is resident in the Cayman Islands and the emphasis is on self-regulation. The fund must, however, have locally approved auditors.Administered mutual funds (MF Law section 4(1)(b))
Funds, including those that permit a minimum initial investment of less than US$100,000, may be established by appointing a licensed mutual fund administrator to provide the principal office of the fund in the Cayman Islands. The administrator has primary regulatory responsibility for the administered fund and has a statutory duty to ensure that the fund is properly administered and that the promoters are of sound reputation. The administrator has a statutory obligation to notify CIMA if it knows or has reason to believe that a fund for which it provides the principal office is or is likely to become insolvent or is carrying on business in a manner that is or is likely to be prejudicial to its investors or creditors. The auditors have a similar statutory obligation as described above for registered funds. Similar documentation to that required for a registered fund must be filed with CIMA by the licensed administrator in respect of an administered fund and the prescribed fee paid.Licensed mutual funds (MFL Section 4(1)(a))
Funds (typically retail funds) that are established and operated by large, well-known and reputable institutions may apply for a mutual fund licence. CIMA must be satisfied that the promoting institution is of sound reputation and that the fund will be properly administered by fit and proper persons with sufficient expertise before a licence will be granted.
Corporate mutual funds are the most common vehicle and are managed by their directors of which there should be a minimum of two. However, the day-to-day operations of a mutual fund will normally be delegated to other specialist professionals.
Directors of CIMA-regulated mutual funds (along with companies registered as excluded persons under SIBL (each a 'covered entity') are required to be registered or licensed with CIMA under the Directors Registration and Licensing Law 2014 (DRLL).
The DRLL distinguishes between professional directors (being a natural person appointed as a director of 20 or more covered entities), corporate directors (being a body corporate appointed as a director of a covered entity) and registered directors (being individuals who are not professional directors). An individual acting as a director of an existing covered entity is required to be registered with CIMA.
Directors not already registered with CIMA under the DRLL must first register for a director account with CIMA via the CIMAConnect portal by providing details, including the name of the covered entity for which they are to act as director.
Regulated mutual funds are required to file the following with CIMA on an annual basis:
- prescribed fee to be paid by 15 January; and
- audited accounts to be filed within six months of the end of the financial year of the fund.
Promoters and operators of regulated mutual funds (i.e., directors, trustees or general partners, as the case may be) also have a statutory obligation to notify CIMA:
- of any change that materially affects the information in the prospectus or the application form of which they are aware, and to file an amended prospectus or amended Form MF1 within 21 days; and
- if the registered office or principal office of the fund has changed.
As noted above, payment services and digital currency exchange are likely to fall under the MSBL. Anyone seeking to operate a payment service or digital currency exchange ought to consider the obligations arising under the MSBL.