The Statement of Guidance on corporate governance for mutual funds (SoG) published by CIMA in December 2013 is one of the key regulatory developments to have come out of the Cayman Islands in recent years.
The results of an initial consultation with industry service providers were published by CIMA in July 2013. “The SoG is essentially CIMA providing high-level guidance on the minimum standards required of a fund director and is really an extension of the case law in the Cayman Islands summarised by Justice Jones QC in the Weavering case with respect to directors’ duties,” says Ian Gobin (pictured), Global Head of Funds at law firm Appleby.
In that respect the SoG does not contain anything new from a Cayman law perspective. Or as Gobin puts it: “There’s nothing earth shattering in the SoG.” The SoG establishes an overall framework for good corporate governance within which funds should operate and should be seen as a positive move by CIMA and for the Cayman Islands. The SoG does not contain specific restrictions on investments, risks or strategies, nor does it attempt to direct, prescribe or constrain the management or business activities of funds.
The SoG sets out the key corporate governance principles related to the governing body (the directors, general partner or trustee) of a fund and its Operators (as defined in the Mutual Funds Law). The SoG acknowledges that the adequacy and suitability of any fund’s governance network will depend on a number of factors – including (but not limited to) the value of assets under management, number of investors, risk management, complexity of the structure and the fund’s investment strategy.
The SoG stipulates for example that a fund’s directors should meet at least twice a year. “That’s fine if the fund has semi-annual redemptions but if you’ve got monthly or quarterly redemptions in the fund then the directors should meet monthly or quarterly. That’s how you would discharge your duties as a director and potentially avoid any Weavering-esque complications. But it’s setting a minimum standard and is not intended to be exhaustive,” says Gobin.
CIMA has left open the possibility of legislative amendments to the Mutual Funds Law to enforce or sanction non-compliance with the SoG. “That has to be CIMA’s next move,” says Gobin.
CIMA has also announced that it intends to create a public database identifying the members of governing bodies of funds, and the number of directorships held.
The correct place for disclosing information on directors is in the private placement memorandum.
As Gobin says: “That’s how you attract investors, through your PPM. If an investor has a particular issue or flashpoint with a director on a fund or they have a question to ask on who’s been selected as a director, they can raise it privately with the investment manager. But the public database is coming in one form or another and if it assists investors it should be seen as a positive change.”