Given the recent changes in fund management regulation in the Caymans, quite a few entrepreneurs are now having difficulty confirming economic substance in the Cayman Islands. So, let’s take a closer look at the amended ESL & ways of getting around those difficulties.
Cayman Islands: Financial Regulation
Using IM companies (i.e. companies managing investments in the Cayman Islands) as fund managers was a common practice until lately. However, after the passing of the amended ESL, companies are now required to confirm economic substance in the Caymans. Those planning to register a company in the Cayman Islands should keep in mind that companies engaged in economic activities (e.g. LLCs, LLPs or foreign companies) are now referred to as “relevant entities” & have to report their activities to the relevant authorities.
Those of them that haven't yet taken any steps have 2 options:
- register an IM in the Caymans & adhere to ESL criteria;
The second option includes:
- removing an IM from a fund’s structure;
- keeping an IM in a fund’s structure.
Removing an IM
In such an event, an IMA concluded between funds & their IMs is terminated. Following that, an IMA between funds and their investment advisors is re-concluded. IMs can then be disposed of or reused for other purposes.
Keeping an IM
Managers of assets unwilling to remove IMs from their funds’ structure & seeking to avoid being subject to additional scrutiny associated with undergoing a substance test may leave their funds’ structure unchanged; however, they will have to revise an IMA to make sure that a Cayman IM:
- doesn’t provide asset management services in the Cayman Islands;
- doesn’t get any profit from provided services.
Planning to open a company in the Caymans? Unaware how to confirm economic substance in the Caymans? Why not contact IQ Decision UK?