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Compliance with the New Corporate Governance and Internal Controls Rules – Five Practical Steps for Cayman Islands Funds

Compliance with the New Corporate Governance and Internal Controls Rules – Five Practical Steps for Cayman Islands Funds

17 April, 2024
Americas Regulatory, Compliance & Legal Compliance Monitoring Regulatory Health Checks Compliance Consulting Ocorian Law

The Cayman Islands Monetary Authority (CIMA) has established a modern framework of rules and guidance aimed at ensuring that registered Cayman Islands investment funds adhere to the highest standards of corporate governance and maintain effective internal controls.

Kendra Foster and Nathaniel Luker, both Partners of Ocorian Law (Cayman) Limited (Ocorian Law), describe below five practical steps that such a fund can take in order to comply with the requirements of that framework.

1. Understand the Regulatory Requirements

The first step towards compliance is developing a thorough understanding of CIMA’s rules and guidance which can be found here.  Individual members of a governing body of an investment fund should familiarise themselves with those rules and that guidance.  A fund should consider engaging a Cayman Islands law firm or other service provider to conduct a gap analysis which compares the fund’s documents against CIMA’s rules and guidance and to recommend appropriate actions. Such actions may include the documentation of policies relating to conflicts of interest, code of conduct, remuneration, reporting and/or communications.

2. Establish an Effective Governing Body

An effective governing body is the cornerstone of compliance. A fund should ensure that its governing body comprises individuals with the necessary skills, experience and independence to oversee its operations effectively.  The governing body should meet at least once a year to discuss governance issues and make informed decisions that align with the fund’s objectives and the regulatory requirements to which it is subject. Depending on the size, complexity, structure, nature of business and risk profile of the fund, more frequent meetings may be necessary.  Following a comprehensive meeting agenda will ensure that all pertinent matters are addressed at each meeting. In order to enhance the effectiveness of their governing bodies, some funds opt to appoint one or more Cayman Islands based individuals to act as independent members.

3. Conduct Regular Self-Assessments

A fund should monitor and review its corporate governance and internal controls practices on an ongoing basis in order to identify potential issues and implement improvements.  CIMA’s guidance requires a registered fund to undertake an appropriately executed self-assessment of the performance of its governing body (as a whole) and the individual members of it at least once a year. A fund is also required to document and remedy any deficiencies which are identified.

4. Implement Comprehensive Internal Controls

A fund should implement robust internal controls in order to manage risks and ensure that its operations comply with regulatory standards.  The internal controls framework should include risk assessment measures and measures which are designed to mitigate any risks which are identified.

5. Maintain a High Level of Transparency

The maintenance of detailed and accurate records facilitates transparency and accountability. A fund should ensure that its governance and internal controls framework is fully and accurately documented and that detailed minutes of board meetings and comprehensive reports in relation to the performance of its service providers and governing body, and in relation to all of its actions and initiatives with respect to regulatory compliance, are prepared and placed on its records.  If a fund is to be inspected by CIMA, it should ensure that these records are in good order and that CIMA is able to access them easily.

The steps described above will not only enable a registered Cayman Islands investment fund to navigate the complexities of compliance with CIMA’s rules and guidance on corporate governance and internal controls but also enhance its reputation and increase investor confidence.

How can Ocorian help?

Ocorian Law can prepare a corporate governance and internal controls framework for a registered Cayman Islands investment fund, or assist with a gap analysis of your fund’s existing framework.

Ocorian Trust (Cayman) Limited can provide independent directors and/or board support services to a registered Cayman Islands investment fund.

For more information or assistance, please contact a member of the Ocorian team.