Revisiting Independence Following Latest Guidance For Private Funds

The Cayman Islands Monetary Authority (CIMA) has recently released a new Statement of Guidance on Corporate Governance for Mutual Funds and Private Funds (SOG) and a Rule on Corporate Governance for Regulated Entities. While the SOG is already familiar to operators of open-ended funds registered with CIMA as mutual funds, it introduces new guidelines for operators of closed-ended funds registered as private funds.

The aim of the SOG and the Rule is to incorporate relevant corporate governance elements from the existing framework and enhance them based on international standards, jurisdictional comparisons, and regulatory needs. The goal is to replace the current mutual funds corporate governance guidance with a unified Statement of Guidance on Corporate Governance applicable to both mutual funds and private funds in the Cayman Islands.

Although the corporate governance elements outlined in the Rule are not significantly different from the existing framework, the key distinction lies in its broader scope of applicability, covering all CIMA regulated entities. This expansion aims to enhance supervisory enforceability and consistency across the board.

The SOG provides guidance on various corporate governance principles concerning the operators of regulated funds. It emphasizes the operators’ ultimate responsibility in effectively overseeing and supervising fund activities. The guidance suggests that operators should have a diverse group of individuals with relevant skills and expertise, monitor compliance with applicable requirements, and obtain regular reports from the fund’s service providers.

The SOG also addresses the management of conflicts of interest, emphasizing the need for a written conflicts of interest policy commensurate with the fund’s size, complexity, structure, and risk profile. It highlights the importance of operator meetings, recommending that they be convened at least once a year.

Additionally, the SOG outlines the duties of operators, which include exercising independent judgment, making relevant inquiries, providing adequate information to investors, acting honestly and in good faith, and regularly assessing the suitability and capability of service providers. The guidance also covers documentation and record-keeping requirements, disclosure obligations, and risk management principles.

For private fund operators, the introduction of the SOG means adhering to these new corporate governance requirements. It is crucial for them to invest time and resources in understanding and implementing the necessary processes and procedures or consider engaging Cayman Islands independent directors to navigate the evolving regulatory landscape.

In an article recently published by Cayman Finance, Clearwater’s Managing Director – Fiduciary Services, Todd Hazlewood in partnership with Simon Thomas, a partner at Campbells, discuss the new guidance and regulations, their implications for CIMA regulated entities and the role that independent directors play in offering objective oversight and protecting investors’ interests.

You can read the full article here: Revisiting independence following latest guidance for private funds – Cayman Finance .

Download a copy of Clearwater’s Private Funds Brochure here: Private Funds Brochure

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