New regulatory measures regarding Corporate Governance and Internal Controls for Cayman Islands funds recently came into effect, impacting both mutual and private funds.
The new rules and guidance form part of a series of changes introduced by CIMA this year, designed to modernise its approach and ensure that various rules and statements of guidance are applied consistently across the various regulated sectors.
The Rule — Corporate Governance for Regulated Entities and the Rule and Statement of Guidance — Internal Controls for Regulated Entities, both become effective on 14 October 2023. These measures, which outline the regulator’s minimum expectations, followed CIMA’s previous updates, including guidance on governance, outsourcing, cybersecurity and record retention.
Proportionate Framework — Corporate Governance and Internal Controls
Looking into the detail of the framework for corporate governance and internal controls, the regime previously in place for mutual funds has been now extended to private funds, in addition to certain new provisions. All regulated funds are required to implement and maintain a framework for corporate governance and internal controls. CIMA states this framework must be proportionate to the size, complexity, nature of business and the risk appetite of the regulated entity.
Operators of regulated funds in the Cayman Islands, as the governing body, have ultimate responsibility for compliance and should be fully aware of their obligations. In addition to the company directors, managers of an LLC and the trustee of a unit trust, operators now include general partners of private funds established as partnerships.
In many cases, regulated private funds will already be broadly in compliance with these measures, given the strong culture of corporate governance that exists in the Cayman Islands. Where a regulated entity believes any rules are not applicable, based on the proportionate approach outlined above, it is the responsibility of the entity to demonstrate to CIMA why that is the case, if required.
The guidance confirms service providers or group-wide functions for internal controls or corporate governance frameworks can be relied upon to meet obligations, however funds may be required to demonstrate the effectiveness of these arrangements. Operators of a regulated fund are also responsible for requesting appropriate information from any service providers or advisors, to be satisfied the fund is operating in compliance with all laws and regulations.
More specifically on Internal controls, the measures cover requirements regarding risk assessment and risk management, which would tend to be fulfilled through engagement with relevant service providers, including receiving regular reports and making directions to address any issues.
Board Meetings and Best Practice
In addition to the prescribed duties of operators and extensive obligations regarding conflicts of interests, the CIMA guidance provides a useful reminder of the minimum expected requirements for board meetings. Operators of a regulated fund should meet at least once per year, although this should be more frequent if the size, complexity, structure, nature of business or risk profile of the fund demands so. As part of the governing body’s oversight function, service providers should also be requested to attend meetings where necessary.
It is essential that all meetings must be appropriately documented with minutes of how all decisions were taken. In-person meetings are not mandatory and although professional company secretarial support is not required, many funds do utilise such services.
Calderwood Board Support Services
Calderwood’s Board Support services ensures funds meet their obligations with regard to board meetings and governance, while making life easier for all meeting participants. Our company secretarial team can efficiently manage the process for funds of all sizes, providing professional support, including arranging and coordinating meetings, distributing agendas and board packs, as well as recording minutes to meet regulatory standards.
If you have any questions regarding CIMA’s new regulatory measures for investment funds or require further information on our Board Support services, please don’t hesitate to get in touch.
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