CIMA's new Regulatory Policy for Licensing Mutual Fund Administrators
11 October 2018
The Cayman Islands Monetary Authority (‘CIMA’) has published a new Regulatory Policy - Licensing Mutual Fund Administrators (‘the Policy’) which sets out the criteria CIMA will apply in licensing mutual fund administrators.
When does the Policy apply?
The Policy states that CIMA must give prior approval to anyone wanting to conduct Mutual Fund Administration (‘MFA’) in or from within the Cayman Islands (‘Cayman’). The Policy sets out how CIMA will assess those who apply to do so, although it will also apply: the Mutual Fund Administrators Licence (Applications) Regulations 2001 (the ‘Regulations’); the Anti-Money Laundering Regulations (2017 Revision) (‘AML Regulations’); the Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands (the ‘AML Guidance Notes’); and any other law, policy or statement of guidance which is relevant to the application.
What types of licence are there?
There are two categories of licence depending on the number of funds to which fund administration services can be provided:
- Mutual Fund Administrators (‘MFA’) licence (‘MFAL’) which authorises the holder to act or carry on business as a mutual fund administrator in respect of an unlimited number of regulated mutual funds and other investment funds; or
- Restricted Mutual Fund Administrators (‘RMFA’) licence (‘RMFAL') which authorises the holder to act or carry on business as a mutual fund administrator solely in respect of the regulated mutual funds and other investment funds specified in the licence.
How do you apply for a licence?
An application for the grant of either licence must be made to CIMA in writing, accompanied by the prescribed fee and the documents and information set out in the Schedule of the Regulations. If CIMA also requires other documents these should be provided. Applications should normally be processed in six to eight weeks from CIMA receiving all the required documentation, information and the full fee.
Can you discuss the application with CIMA?
CIMA strongly encourages applicants to get in touch before making any application to enable CIMA to decide if it needs to meet to discuss the prospective application. CIMA may also want to impose requirements, which can include a formal legal opinion setting out how the applicant meets the requirement for a licence.
What criteria does CIMA apply?
CIMA will assess the following aspects of any applicant:
- Fitness and propriety: CIMA will apply the Regulatory Policy – Fitness and Propriety. Applicants must demonstrate they are controlled and managed by a sufficient number of directors and senior managers with a sufficient range of skills and experience. These must satisfy the requirements to be considered fit and proper for their roles, and must disclose all issues relevant to such an assessment and able to apply informed independent judgement to the applicant’s governance, free from any conflicts of interest.
- Ownership and Control - Checks and rules apply on ownership and management of risk. The legal, managerial and ownership structures of the applicant and its wider group must be transparent and CIMA must be able to identify all intermediate and ultimate owners. CIMA will apply its Regulatory Policy - Criteria for Approving Changes in Ownership and Control when assessing shareholding and control updates/amendments.
- Financial Resources - CIMA must be satisfied that the applicant will have, and will continue to have, financial resources (whether actual or contingent) that are adequate for the nature and scale of the business and for its risk profile. Generally, applicants for a MFAL need to prove a net worth of at least CI$400,000, although this can be waived or increased. There are no prescribed net worth requirements for holders of a RMFAL.
- Track Record and Business Plan - CIMA will consider whether the applicant’s beneficial owners have a proven track record in running a business. They will require a detailed business plan covering the first five years of projected business activity, the short and long-term objectives and how they will be achieved.
- Internal Systems, Controls and Risk Management - CIMA must be satisfied that an applicant’s proposed policies, procedures, manuals, systems, and internal controls, relating to all areas of the applicant’s risk areas are appropriate for the size, nature, and complexity of its operations and comply with good mutual fund administration practices and all applicable laws, relevant regulations, rules, policies and statements of guidance.
- AML/ CFT Risk Management - Applicants must demonstrate how they will comply with the requirements of the Proceeds of Crime Law as amended, the AML Regulations, including adequate policies, procedures, and systems consistent with the AML Guidance Notes.
- Record Keeping - CIMA must be satisfied as to how and where management information is stored and accessed and that it is protected by appropriate security. Applicants must also show that CIMA will have reasonable access to their records at all reasonable times.
Can CIMA impose restrictions?
CIMA reserves the right to impose conditions on any licence issued under the regulatory laws. General restrictions include:
- Financial Statements - Applicants for a MAFL must supply an Auditor’s Letter of Consent as confirmation of the engagement of an auditor to sign off annually and file with CIMA their audited accounts within six months of the end of the financial year.
- Physical Presence in Cayman - An applicant for a MFAL should have a principal office in Cayman and two individuals or a body corporate resident or incorporated in Cayman to be its agent. Holders of a MFAL or their agent need to have sufficient resources in Cayman to perform their obligations and adequately service the obligations of their clients. RMFAL holders may not act as the registered office for another mutual fund administrator.
- Legal Structure The legal structure of the licensee must enable CIMA to have ongoing supervision.
- Grant of RMFALs These are granted to entities that intend to only administer CIMA approved funds and the holder of an RMFAL must seek approval for all entities for which it intends to provide administration services.