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CIMA Turns the Spotlight on Corporate Governance for Regulated Mutual Funds

2014年 1月 13日

In January 2013 the Cayman Islands Monetary Authority ("CIMA") embarked on a consultation process inviting stakeholders to provide feedback on a range of corporate governance topics relevant to Cayman Islands regulated mutual funds.  In response to feedback from this initial consultation, CIMA issued a draft Statement of Guidance on Corporate Governance for Regulated Mutual Funds ("SOG") for industry to consider. 

On 6 December 2013 CIMA released its findings with respect to industry's comments on the draft SOG, and a final SOG was formally issued by CIMA on 13 January 2014.  In discussing industry's comments, CIMA also provided some revealing insights into its current position on other potential corporate governance developments for regulated mutual funds. 

This update highlights some of CIMA's current position statements about potential future developments and focuses on key features of the SOG, which will be relevant to the operators of all regulated mutual funds, whether funds licensed or administered under section 4(1) or registered under section 4(3) of the Mutual Funds Law (together, "Regulated Mutual Funds"). 

An operator of a Regulated Mutual Fund should take this opportunity to undertake a review of the fund's corporate governance arrangements and practices, in light of the SOG.  The SOG should be taken into account on a going-forward basis; including with respect to:

(a)  determining the frequency of meetings of the fund's governing body;

(b)  considering who should be responsible for the appropriate minuting of its meetings;

(c)  scheduling regular check-ups on the activities of service providers;

(d)  considering a service provider's attendance at meetings; and

(e)  considering whether adequate disclosure as to conflicts and other matters has been made in the fund's offering materials. 

Public Database – Proposal expected to Proceed 

CIMA announced that it intends to proceed with the introduction of a public database for Regulated Mutual Funds (the "Database").  The timetable for this particular project is yet to be confirmed.  CIMA's current intention is that the information in the Database: 

(a)  should comprise factual (rather than subjective) non-sensitive information which will be of benefit to stakeholders; and

(b)  should be kept current and be searchable by director/trustee/general partner (each an "Operator") of the Regulated Mutual Fund.

The particular information proposed to be published in the Database and the fee structure for accessing it will be determined in the project's developmental stage. 

Licensing/Registration of Directors – Under Consideration 

CIMA continues to consider how it intends to develop a framework for the possible licensing and registration of directors of Regulated Mutual Funds.  This may take the form of stand-alone legislation, rather than an amendment to the existing Companies Management Law. 

CIMA has indicated that its initial proposed threshold of six or more directorships requiring a director to obtain a licence as well as register is under review, and that any such licence threshold is likely to be higher.

Number of Directorships - Consideration Deferred

CIMA envisages allowing a two year period to monitor the effects of the introduction of the Database and SOG before CIMA considers whether, from a corporate governance perspective, it might be beneficial to impose any limitations on the number of Regulated Mutual Fund directorships held by a director. 

CIMA believes that the enhanced transparency that will be provided by the Database should allow stakeholders to make more informed decisions on whether the governing body of the relevant Regulated Mutual Fund (the "Governing Body") has the appropriate capacity, knowledge and experience to satisfy the relevant stakeholder's needs. 

Corporate Directors and Cayman Resident Directors – Feedback Acknowledged 

CIMA noted that some respondents to its consultation papers had volunteered views on the use of corporate directors and whether there should be a requirement that at least one director of a Regulated Mutual Fund be resident in the Cayman Islands.  CIMA acknowledged the views expressed but noted that these topics were not the subject of the particular consultations. 

SOG – Certain Key Features

The SOG is relevant to all Regulated Mutual Funds, their Operators and their Governing Bodies.  It does not extend to the banking and insurance sector.

CIMA acknowledged that the SOG is intended as guidance, and that the adequacy and suitability of the governance structure of a particular Regulated Mutual Fund will need to reflect the actual circumstances of that fund, such as its size, nature and complexity.

While the SOG is not directly enforceable by CIMA, CIMA might itself look to the SOG as a guide should CIMA need to consider whether the direction and management of a Regulated Mutual Fund has been conducted in a "fit a proper manner" (pursuant to CIMA's powers to take action under section 30(1)(d) of the Mutual Funds Law). 

Oversight Function

The SOG draws together existing principles and standards expected of (i) Regulated Mutual Funds, (ii) their Governing Bodies and (iii) individual Operators.  The SOG outlines key management oversight principles and seeks to provide guidance on CIMA's minimum expectations for the sound and prudent governance of Regulated Mutual Funds.

CIMA expects a Governing Body to:

(a)  regularly take steps and request appropriate information to satisfy itself that the Regulated Mutual Fund’s service providers ("Service Providers") are monitoring compliance with, and that the fund is operating in compliance with, applicable laws;

(b)  where necessary, give appropriate directions to the Service Providers to rectify any non-compliance; and

(c)  require regular reporting from the fund's investment manager and other Service Providers, to enable it to make informed decisions and to adequately oversee and supervise the fund. 

Conflicts of Interest 

The Governing Body and an Operator must suitably identify, disclose, document, monitor and manage its conflicts of interest. 

Governing Body Meetings 

CIMA considers that a Governing Body should:

(a)  meet at least twice a year, whether in person or via a telephone or video conference call;

(b)  meet more frequently if the circumstances or size, nature and complexity of the Regulated Mutual Fund dictate (as may be appropriate to enable the Governing Body to fulfil its responsibilities effectively); and

(c)  where necessary, request the attendance of Service Providers at meetings. 

Operators' Duties 

While CIMA notes that the SOG is not intended to be an exhaustive guide, the SOG sets out a number of duties that CIMA considers applicable to an Operator, including that an Operator: 

(a)  Should exercise independent judgement;

(b)  Should always act in the best interests of the Regulated Mutual Fund (taking into consideration the interests of its investors as a whole and/or, where applicable, the interests of the fund's creditors);

(c)  Should operate with due skill, care and diligence and act honestly and in good faith at all times;

(d)  Should ensure that it has sufficient capacity to apply its mind to overseeing and supervising the activities of the Regulated Mutual Fund;

(e)  Should ensure that the Regulated Mutual Fund's offering documents describe the investment strategy and conflicts of interests policy of the fund and that they describe the equity interests being offered for sale in all material respects, and contain such other information as is necessary to enable a prospective investor to make an informed investment decision;

(f)  Is responsible for approving the appointment and removal of the Service Providers, should review the terms of their service contracts and understand the scope and nature of the responsibilities of each Service Provider;

(g)  Should ensure that the Service Providers are performing their functions in accordance with the terms of their respective contracts and that their roles and responsibilities are clearly defined;

(h)  Retains ultimate responsibility for functions delegated to Service Providers and should regularly monitor and supervise the delegated functions;

(i)  Should regularly monitor whether the investment manager is performing in accordance with the defined investment criteria, investment strategy and restrictions;

(j)  Should review and approve the Regulated Mutual Fund’s financial results and audited financial statements and regularly monitor the fund's net asset valuation policy and that the calculation of its net asset value is being done in accordance with this policy;

(k)  Should assess whether it has, together with any other Operator of the Regulated Mutual Fund, sufficient collective knowledge and experience to perform the duties imposed upon the Operator;

(l)  Should ensure that a full, accurate and clear written record is kept of Governing Body meetings, of the attendees, the agenda and documents circulated, the matters considered, decisions made and the information requested from and provided by Service Providers; and

(m)  Should, on an on-going basis, disclose to CIMA (i) any matter which could materially and adversely affect the financial soundness of the Regulated Mutual Fund, or (ii) any non-compliance by the Regulated Mutual Fund with applicable laws. 

Risk Management 

The SOG specifies that an Operator should ensure that it provides suitable oversight of the risk management of the Regulated Mutual Fund, ensuring that the fund’s risks are always appropriately managed and mitigated (with material risks being discussed at meetings of the Governing Body and the Governing Body taking appropriate action where necessary). 

SOG Conclusions 

The purpose of the SOG is to provide Governing Bodies and Operators with guidance on CIMA's minimum expectations for the sound and prudent governance of a Regulated Mutual Fund.  It is not intended by CIMA to be an exhaustive guide.

While the SOG is not directly enforceable by CIMA, CIMA might itself look to the SOG as a guide should CIMA need to consider whether the direction and management of a Regulated Mutual Fund has been conducted in a "fit a proper manner" (pursuant to CIMA's powers to take action under section 30(1)(d) of the Mutual Funds Law).

An operator of a Regulated Mutual Fund should take this opportunity to undertake a review of the fund's corporate governance arrangements and practices, in light of the SOG.  The SOG should be taken into account on a going-forward basis; including with respect to: 

(a)  determining the frequency of meetings of the fund's governing body; 

(b)  considering who should be responsible for the appropriate minuting of its meetings; 

(c)  scheduling regular check-ups on the activities of service providers; 

(d)  considering a service provider's attendance at meetings; and 

(e)  considering whether adequate disclosure as to conflicts and other matters has been made in the fund's offering materials.

Click here to read the SOG in its entirety.


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