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4The Cayman Islands have long been considered the number one jurisdiction in the world of offshore investment funds. Many projects with investment fund structuring have been implemented through the jurisdiction. Meanwhile, in the beginning of 2020, the Caymans were added to the “black list” of EU non-cooperating jurisdictions for tax purposes. The new status of the Cayman Islands may create significant difficulties for existing PEFs there. To save the situation, local authorities have made steps to improve legislation to ensure that they maintain the privileged status. In this blog post, we'll take a quick look at the latest developments in the Cayman law regarding PEF.

What has changed?

This year’s Law on PEFs has been widely discussed among investors and asset managers. In accordance with this law, closed-end funds must now be registered with CIMA. Earlier, only open-end funds had to be registered.

The establishment of the PEF in the Caymans now implies that the fund will be structured as an exempt arrangement. 

Problems that funds operating in the Caymans may face:

  • investment promotion;
  • problems with planned investments in the EEA;
  • impact on funding levels, especially since lenders will have to protect themselves in terms of compliance.

Limitations

When choosing the name of an offshore company in the Cayman Islands, you cannot use words that need additional permission and justification: “Bank”, “Trustee Company”, “Assurance”, “Building Society”, “Trust Company”, “Royal” etc.

Without obtaining a license, it is not allowed to engage in the following activities:

  • fund management;
  • insurance, banking;
  • reinsurance;
  • trust management;
  • create collective investment enterprises;
  • management of trustees.

Obtaining a PEF Manager License in the Caymans

An investment manager registered in the islands as a foreign investment management or advisory company will be subject to SIBL. To do this, you must obtain a PEF operator license from CIMA or apply for a consultant license in the Cayman Islands.

It is not a rare case that a GP provides advisory services to ELP. The need to register in this case will not arise if he does not receive a separate remuneration for his services, except as a GP.

Licensing issues

Those interested in licensing as a PEF in the Cayman Islands should familiarize themselves with the major changes in the regulatory framework, in particular:

  1. confirmation that limited partners of the foundation do not have fiduciary duties;
  2. simplification of the mechanism for accepting new LPs and transferring partner interests.

AML Strategy

The jurisdictional authorities continue to review the AML provisions to ensure that they are up to date. They have been expanded and now apply to a wider range of organizations. 

The new regimes for the automatic exchange of information have been adopted. This will help government authorities to know the scope of assets held offshore, and to curb tax evasion and illicit flows. The registration of a financial institution in the Caymans requires mandatory reporting. Such companies have obligations to carry out DD.

Final word

If you want to open a PEF in the Caymans, it is essential to know that the regulatory regime for PEFs has undergone significant changes this year. If you would like to clarify the details and order advice regarding the establishment of a Cayman PEF or advice on the regulation of funds in the Caymans, please contact the IQ Decision UK team at the contacts listed on the website.