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During a recent budget address, the Premier of the Cayman Islands announced a proposal to require master funds in open-ended master/feeder structures to register with the Cayman Islands Monetary Authority (“CIMA”), the jurisdiction’s financial regulatory body. It is anticipated that the proposal will apply to “master funds” which have one or more existing “feeder funds” already registered with CIMA but do not constitute “mutual funds” or are otherwise exempted from registration.
The motivation to regulate the funds comes in part from growing pressure regarding international regulation and observations by the OECD that the regulatory status of these master funds should be improved. Given that all of the assets of the master/feeder fund structure are held at the master fund level, CIMA also felt it prudent to bring the master funds within its oversight and plug this regulatory gap in the fund industry.
CIMA has not yet revealed the timetable for implementation of the new regulations nor has any legislation yet been drafted. The proposal will be subject to consultation in conjunction with CIMA and representatives from the legal and financial services community. Experts in the industry stated they do not expect the procedure for registering these funds to be onerous or increase reporting requirements.
The Cayman Islands remains the domicile of choice for hedge funds. The market has consistently shown that business gravitates to where the best infrastructure and service providers can be found, coupled with effective, efficient regulation. The Cayman Islands’ continued popularity can be credited not only to its tax neutral status but also to the developed and efficient registration and regulatory regime and the high quality service providers providing advice and support to the industry.
Further updates will be provided as they become available and the proposal winds its way through the consultation process. In the meantime, please contact your usual Conyers Dill & Pearman representative or one of the following for additional information and advice.