cayman islands statement of guidance
DESCRIPTION
Overview of the recent Statement of Guidance by the Cayman Islands Monetary Authority for boards and directors of regulated mutual funds in the Cayman Islands. Includes latest on the new Directors Registration Bill which is intended to become law in June 2014.TRANSCRIPT
Carne Global Financial Services
Cayman Islands Statement of
Guidance
Yvonne Connolly
Carne Group
Summary
• Background
• Investor feedback
• Weavering Case
• Statement of Guidance – what is required?
• Directors Registration and Licensing Bill
• Implications of governance reforms
May 14 3
Background
• Weavering Case
• Investor Dissatisfaction
• Regulatory Pressure (e.g. G8,
IOSCO)
• Press reporting on jumbo
directorsMay 14 4
Lessons of Weavering
• Poor governance = substantial risk to fund
• Failure to discharge fiduciary duties
• Directors must act in best interests of the
company
• Directors must avoid conflicts of interest
• Directors must exercise independent judgement
• Proper independent review of documentation
• Regular board meetings
May 14 5
Carne Fund Governance Survey 2011
Are you happy with overall governance levels in these
jurisdictions?
Ireland 83%
Luxembourg 80%
Channel Islands 53%
Cayman Islands 37%
Survey based on interviews with hedge fund investors representing over $600
billion in assets under management.
May 14 6
E&Y/Greenwich survey feedback
Jan 2013: Ernst & Young / Greenwich Associates survey of
fund managers, directors, service providers and investors
• 53% concerned that directors not devoting enough time
to fund boards
• 71% of investors still felt governance needed to be
improved
• 86% of investors wanted to see total # of directorships
held by each director
• 54% of hedge fund managers felt governance standards
fit for purpose versus only 11% of investors
May 14 7
Definition of ‘operator’
What is an ‘operator’ in the context of the SOG?
• Director of a company
• Trustee of a trust
• GP of a partnership
What is a ‘service provider’?
• Investment manager of the fund
• Administrator
• Prime broker
• Any other delegates of the fund
May 14 8
Statement of Guidance
• Directors must act independently
• Directors must have necessary skills and experience
• Applies to all directors of Cayman funds including non-
resident directors
• Regular and structured inquiry of service providers
• Communication with investors and CIMA where
appropriate
• Conflicts of interest must be adequately disclosed
• Risk management must be supervised
May 14 9
SOG: Is it voluntary?
• Reflection of common law as set out in
Weavering – NOT voluntary
• Directors must be able to explain non-
compliance to CIMA
• CIMA and courts will refer to SOG in
disciplinary proceedings
• CIMA will be carrying out examinations of
firms and individuals
May 14 10
Oversight function
• Board of directors has responsibility for overseeing and
supervising activities
• Must require regular reporting from IM and SPs
• Must monitor and ensure that IM and SPs are meeting
defined investment and service criteria including
regulatory responsibilities
• Should request relevant information from SPs and
professional advisers when appropriate
• Should provide appropriate directions to rectify non-
compliance
May 14 11
Conflicts of interest
• Identify, disclose, monitor and manage
conflicts at the board level
• Disclosed conflicts must be documented
• Currently no requirement for documented
conflicts policy
May 14 12
Meetings and documentation
Board Meetings
• Recommends that Boards meet at least twice a year
• Directors/operators responsible for ensuring that full record of meetings are
kept
• We recommend use of Company Secretary to support documentation
Documentation
• Ensure clarity of documents, including constitution and offering documents,
description of strategy, any conflicts
• Communicate adequate information to investors where able
• Ensure compliance of documents with Cayman regulations
May 14 13
Director’s duties
• Care, skill and diligence
• Independent judgement
• Best interests of the fund
• Must ensure adequate capacity before taking on
new funds
• Make relevant inquiries where issues are raised
• Ensure appropriate and timely action
May 14 14
Service providers / IM
Service Providers (inc Investment Manager):
• Board must approve appointment / removal
• Notify fund and CIMA of changes
• Responsible for all delegated functions
• Review contracts – ensure responsibilities clearly defined / divided
• Must be satisfied that SP is performing functions adequately
• Regular assessment of suitability / capability
• SP acting in accordance with fund’s constitutional documents?
• Is IM performing in accordance with defined investment
criteria/strategy/restrictions?
May 14 15
Financial and risk oversight
• Must keep informed of activities,
performance, financial position
• Review and approve results
• Monitor NAV and calculation thereof
• Oversight of risk management and Risk
Management Policy
• Compliance with regulations
• Reporting to CIMA
May 14 16
Directors Registration and Licensing Bill 2014
• Licensing regime for resident and non-resident directors
of CIMA-regulated funds and SIBL-excluded persons
• Database of Cayman fund directors
• ALL directors of Cayman funds must be registered
• Directors with 20+ funds must also be licensed
• Licensed directors will be subject to greater regulatory
requirements
• Penalties for non-compliance, inc fines and
imprisonment
• Obligatory insurance cover
May 14 17
Directors database
• No details on content - e.g. search criteria
• No details on costs related to search
• Access likely to be only for sophisticated
investors
• Investors will be able to decide how many
directorships are tolerable to them
• Investors have asked to see historic as well as
current board membership
May 14 18
Corporate Directors
• Tighter supervision of corporate directors
• Two natural persons to be pre-approved
as directors of corporate entity
• Directors cannot change without CIMA
approval
• Foreign entity to be registered as Cayman
vehicle
May 14 19
Unanswered questions
• What will be contained in the database?
• How will director capacity be assessed?
• What about other activities of the director?
• What will the fees be – e.g. database fees,
director registration, licensing?
• What information will CIMA require for
registration?
May 14 20
Implications for Cayman
• Addresses investor concerns over director capacity and
responsibilities
• Documented regime for fund boards will generate more
investor confidence
• Paves way for more acceptable regime for EU investors
• Keeps Cayman Islands in ranks of top grade fund
jurisdictions
• Clearly defines role for CIMA in regulating fund directors
• Cautious welcome from leading investors
• CIMA – regime may evolve as market matures
May 14 21
Carne Group
• Offices in all key fund domiciles, including Cayman
Islands
• All Carne directors have minimum 10-15 years funds
industry experience
• Carne insists on regular board meetings
• Wide range of skill sets ensures Carne directors can
complement board composition
• Secretarial services play important role in documenting
board meetings
• Full transparency on directorships held by each Carne
director
May 14 22
Contacts
Ireland
Yvonne Connolly
T: +353 1 489 6821
Twitter: @carneglobal
Cayman Islands
Julie O’Hara
T: +1 345 769 9980
May 14 23