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In January, we published an article detailing draft legislation namedthe Private Funds Bill on 8 January 2020 (the'Bill').

In March, we published another article after the Bill was enactedinto law as the Private Funds Law 2020 on 7 February 2020 (the'Law').

The Law has now been further amended by the Private Funds(Amendment) Law, 2020 which was enacted into law on 7 July 2020(the 'Amendment') and this article hasbeen updated to reflect the most recent amendments.

By way of a reminder, the Law sets out requirements for theregistration of closed ended funds (funds in which investmentinterests are not redeemable at the option of the investor) withthe Cayman Islands Monetary Authority('CIMA'). This brings closed ended fundswithin the scope of a regulatory regime for the first time in thisjurisdiction.

The majority of closed ended funds with more than one investorcome within the scope of the Law. Specifically, the Law applies to'Private Funds'. Non Cayman IslandsPrivate Funds are also captured by the Law if they invite thepublic in the Cayman Islands to subscribe for investmentinterests.

'Private Fund' means a company, unittrust or partnership that offers or issues or has issued investmentinterests, the purpose or effect of which is the pooling ofinvestor funds with the aim of enabling investors to receiveprofits or gains from such entity's acquisition, holding,management or disposal of investments, where:

(a) the holders of investment interests do not have day-to-daycontrol over the acquisition, holding, management or disposal ofthe investments; and

(b) the investments are managed as a whole by or on behalf ofthe operator of the Private Fund, directly or indirectly.

The Law helpfully excludes several 'non fund'arrangements from its scope. The 'non fund' arrangementswhich are specifically excluded from the Law are:

programmes or schemes to similar effect;

over-the-counter-market) specified by CIMA by notice in theGazette;

The Schedule provides that these 'non fund' arrangementswill be defined in rules and guidance issued by the Ministry ofFinance but to date no guidance has been forthcoming. A full listof the 'non fund' arrangements is set out in the scheduleto the Law, which can be found here.

In addition, entities registered or licensed under the followingare excluded from the Law:

The changes to this definition are significant in four respects.All of the changes widen the definition of a Private Fund, meaningthat some entities which were not previously caught will now becaught. Those changes are:

It is not expected that the Amendment will affect entities thatwere previously classified as in scope of the Law as there are noadditional carve outs.

Under the Law, where International Financial Reporting Standardsor generally accepted accounting principles of the United States ofAmerica, Japan, Switzerland or a non-high risk jurisdiction permitconsolidated or combined financial account reporting, and a PrivateFund choses to report as such with an Alternative InvestmentVehicle, that Alternative Investment Vehicle will not be requiredto comply with the following requirements: (1) audit; (2)valuation; (3) safekeeping; (4) cash monitoring; or (5)identification of securities.

An Alternative Investment Vehicle('AIV') is defined as 'a company, unittrust, partnership or other similar vehicle that:

Similar entities formed to hold or dispose of assets which areestablished in the Cayman Islands but are related to a fund inanother jurisdiction (Delaware being a common example) or relatedto a fund which is a registered mutual fund, do not benefit fromthese reduced requirements and may be required to register, unlessthey fall outside of the definition of a private fund.

Existing private funds must be registered by 7 August 2020 (the'Transition Date').

Following the transition period ending on 7 August 2020, a newlyestablished Private Fund will be required to submit an applicationto register with CIMA within 21 days after it accepts capitalcommitments from investors and in any event, may not accept capitalcontributions from investors until the Private Fund is registeredby CIMA.

Helpfully, a Private Fund may engage in oral or writtencommunications and enter into agreements with potential investorswho are high-net-worth persons or sophisticated persons prior tothe submission of its registration application to CIMA.

Applications for registration of Private Funds will need to besubmitted electronically through CIMA's REEFS web portal.

In order to apply to be registered with CIMA, as part of itselectronic application submission, a Private Fund will need tosubmit a copy of its certificate of incorporation/registration (asapplicable), constitutive documents, offering memorandum/summary ofterms/marketing materials (as applicable), auditor's letter ofconsent, administrator's letter of consent (if applicable) anda structure chart for the entity, together with payment of theprescribed registration fee to CIMA. Private Funds which registerby 7 August 2020 will be liable to payment of a registration fee ofUS$365.85 while Private Funds which register following 7 August2020 will be liable to payment of a registration fee ofUS$4,634.14.

Once CIMA receives a complete application from a Private Fund,it will consider the application and register the Private Fund oncesatisfied. The Law sets out that CIMA will communicate its decisionto register a fund as soon as reasonably practicable after itsreview of the application and the registration date of the PrivateFund will be the date of submission of the complete application forregistration to CIMA.

A summary of the ongoing obligations of a registered PrivateFund are set out below:

CIMA has published the rules setting the parameters as to howthe Law will be implemented in relation to the segregation ofassets and the contents of marketing materials.

Based on the Rule on Contents of Marketing Materials all PrivateFunds, save for AIVs, will be obliged to include certaininformation in their marketing materials. 'Marketingmaterials' are defined as any document which is used to solicitinvestors to invest in a fund. Private Funds are not required toprepare an offering document and this is not a pre-requisite toregistration.

An existing Private Fund which is in liquidation / being woundup or that has commenced the liquidation / wind-up process prior to7 August 2020, and which submits evidence (in the form ofresolutions, auditor confirmations etc.) to CIMA that itsliquidation / winding-up will be completed prior to 7 August 2020,will not be required to apply for registration under the Law.

The Law provides CIMA with new supervisory and enforcementpowers to ensure the requirements of the Law are complied with. Forexample, if CIMA deems it necessary to comply with its functionsunder the Law, it may request additional information from a PrivateFund, carry out on-site inspections, impose additional conditionsor apply to Court for an order to take any action it deemsnecessary to protect the interests of the investors. Failure tocomply with the provisions of the Law may result in the impositionof fines on a Private Fund and / or its operators.

Originally published 15 July, 2020

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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Recent Amendments To The Private Funds Law 2020: Are You Now In Scope? - Finance and Banking - Cayman Islands - Mondaq News Alerts