This advisory is intended for general guidance only and is not, nor should it be used for, a substitute for specific legal advice on any particular transaction or set of circumstances.
Background
The Cayman Islands Government announced, on 21 March 2014, its intention to introduce a regime for the registration and licensing of directors appointed to the boards of the following types of entities, known as “Covered Entities”:
- mutual funds regulated under the Mutual Funds Law (Revised) (“Regulated Mutual Funds”); and
- companies to which paragraphs 1 and 4 of Schedule 4 of the Securities and Investments Business Law (Revised) apply (“Excluded Persons”), usually entities providing investment management or investment advisory services.
The Law was brought into force on 4 June 2014 along with the Directors Registration and Licensing (Registration and Licensing) Regulations, 2014. These Regulations set out the information and fees required when applying to the Cayman Islands Monetary Authority (the “Authority”) for registration or licensing under the Law and the annual fees payable thereafter.
There are provisions in the Law which require the Authority to assess the capacity of the Directors to act for Covered Entities, but these are yet to be determined.
Who does the Law apply to?
The Law applies to directors of Covered Entities and divides such directors into three categories, being:
- a “Registered Director”: a natural person who is required to be registered under the Law;
- a “Professional Director”: a natural person appointed as a director for twenty or more Covered Entities; and
- a “Corporate Director”: a body corporate appointed as a director of a Covered Entity (irrespective of the number of appointments).
The registration and licensing requirements apply regardless of residency of the director and not just to Cayman Islands resident directors.
The Law does not apply to partnerships or unit trusts. Directors of funds that are not Regulated Mutual Funds, such as closed-ended private equity funds, are not required to be registered or licensed under the Law.
Requirements of the Law
A natural person appointed as a director of 19 or fewer Covered Entities is required to register as a “Registered Director”.
A natural person appointed as a director for twenty or more Covered Entities is required to be licensed as a Professional Director subject to the exemptions described below.
A body corporate appointed as a director of a Covered Entity (irrespective of the number of appointments) is required to be licensed as a Corporate Director subject to the exemptions described below.
In all cases, applications for registration or licensing can only be made via the Authority’s web portal.
Deadline for registration or licensing
Persons who, prior to the Law being enacted, were acting as Registered Directors or Professional Directors have three (3) months (i.e. until 4 September 2014) to register or obtain a licence.
Persons who, prior to the Law being enacted, were acting as Corporate Directors have six (6) months (i.e. until 4 December 2014) to obtain a licence.
Any person who is not already appointed as a director of a Covered Entity should apply to register as a Registered Director (or obtain a licence as a Professional Director) before a company which he is to be a director of applies to be registered with the Authority as a Regulated Mutual Fund or an Excluded Person.
Registration process for Registered Directors
The online registration form requires certain basic information including, at a minimum, full name, date of birth, nationality and country of birth, principal residence and postal address (if different), details of any criminal offence involving fraud or dishonesty, details of any adverse finding, financial penalty, sanction or disciplinary action by a regulator, self-regulatory organisation or professional regulatory body and the names and registration numbers of the Covered Entities for which the applicant acts or proposes to act (per Schedules 1, 2 and 3 of the Regulations depending on whether the applicant is exempt from licensing or not). The registration fee is US$854 on application and US$854 annually thereafter.
An application for registration is only likely to be refused by the Authority where the applicant has been convicted of a criminal offense involving fraud or dishonesty, or the subject of an adverse finding, financial penalty, sanction or disciplinary action by a regulator, self-regulatory organisation or a professional disciplinary body.
The Authority has indicated that successful applicants should receive confirmation of registration within 48 hours.
Licensing process for Professional Directors
In addition to completing the online application form, applicants will be expected to provide three references acceptable to the Authority and evidence of adequate insurance (see below) (per Regulation 4(a) and Schedule 4 of the Regulations). The registration fee is US$3,658 on application and US$3,658 annually thereafter.
A licence will be granted if the Authority is satisfied the applicant is a “fit and proper” person. In determining whether a natural person meets this standard the Authority will consider all circumstances including the person’s (a) honesty, integrity, reputation; (b) competence and capability; and (c) financial soundness.
The Authority has indicated that successful applicants should receive confirmation of licensing within four weeks.
Licensing process for Corporate Directors
In addition to completing the online application form, applicants will be expected to provide three references acceptable to the Authority on all directors and shareholders of the corporate director, information on all parent and subsidiary companies and evidence of adequate insurance (see below) (per Regulation 4(b) and Schedule 5 of the Regulations). The registration fee is US$9,756 on application and US$9,756 annually thereafter. Given the higher fees, existing Corporate Directors who serve on few funds may consider resigning in favour of individual Directors.
A Corporate Director must also:
- be registered as an ordinary resident, exempted or foreign company in accordance with the Companies Law (Revised); and
- appoint to its board of directors at least two persons who are either Registered Directors or Professional Directors or a combination of both.
Any additional director appointed to the board of a Corporate Director must be approved by the Authority prior to such appointment.
Corporate Directors (and all members of the board of directors) must themselves be fit and proper persons as determined by the Authority in the same manner as for Professional Directors.
Again, the Authority has indicated that successful applicants should receive confirmation of licensing within four weeks.
Exemptions from licensing
Notably, a director affiliated with a fund manager which is registered or licensed by an approved overseas regulatory authority does not need to be licensed as a Professional Director even if he or she is a director of 20 or more Covered Entities and should, instead, simply register as a Registered Director. To qualify for this exemption, the person must (a) be a director, employee, member, officer, partner or shareholder of a fund manager registered or licensed by an approved overseas regulatory authority (i.e. the SEC, CFTC, and FINRA in the US., the SFC in Hong Kong, the FSA in Japan, MAS in Singapore, FCA in the UK., BaFin in Germany, AMF in France, AFM in the Netherlands, CBI in Ireland CSSF in Luxembourg, DFSA in Dubai or the CVM in Brazil), which serves as the manager of a Regulated Mutual Fund and (b) act as a director of a Covered Entity by virtue of his/her position in the fund manager.
Persons which are licensed under the Companies Management Law (Revised) or the Mutual Funds Law (Revised) as a mutual fund administrator and directors, employees, members, officers, partners or shareholders thereof, are not required to be licensed by the Authority under the Law. However, such persons are still required to register as Registered Directors.
Insurance
Corporate Directors and Professional Directors must maintain insurance with an authorised insurer to cover loss arising from claims in respect of civil liability incurred in connection with the business of the Corporate Director or Professional Director in an amount which is a minimum aggregate cover of US$1.2m and a minimum cover of US$1.2m for each claim.
Publicly available information
The database of directors of Covered Entities maintained by the Authority is not public and will be kept confidential in accordance with section 50 of the Monetary Authority Law. The only information which will be publicly available (and searchable) is the name of a registered director, the type of registration or licence held, registration/licence number and the date of licence or registration.
Changes in information
In all cases, the Authority must be informed of any changes in the information provided to the Authority within 21 days of the change.
Annual renewal of registration or licence
Directors must renew their registration or licence annually on or before 15 January in each year by:
- filing the prescribed annual return form; and
- paying the applicable annual fee.
Penalties
The Law provides for penalties of up to US$125,000, continuing penalties of up to US$12,000 per day in certain circumstances and/or up to 12 months imprisonment for failure to comply with the applicable registration, licensing and ongoing compliance requirements.
Annual fees which are submitted late are subject to a penalty equal to one-twelfth of that annual fee for each month or part thereof during which the fee remains unpaid. A failure to file a notice of changes in the information submitted to the Authority within 21 days of the change attracts a potential fine of up to US$25,000.
The Law permits the Authority a wide discretion and power to access information from persons it suspects of non-compliance with the requirements of the Law.
Next Steps
The Authority has announced that the registered office of each Covered Entity will receive a list containing unique identification numbers for all of the directors that are associated with the Covered Entities of that registered office. Directors will then be contacted by the relevant registered office who will supply the identification number information and details of the web portal through which directors will be required to register or submit their applications. Where Campbells Corporate Services Limited serves as registered office for a Covered Entity, the usual client contact will receive this information shortly.
Applications and the payment of fees will only be accepted via the web portal, although certain enquiries can be submitted to DirectorsRegistration@cimoney.com.ky. Payments to the Authority may be made by Visa and MasterCard. The Authority has also issued a set of FAQs which are available from their website at the following link.
Should you have any queries regarding the above, or if we can be of any assistance, please do not hesitate to contact your usual Campbells contact or any of the following:
