Cayman Islands updates policy on audit waivers for Cayman funds

Following industry consultation in early 2016, the Cayman Islands Monetary Authority (CIMA) has published an updated policy on exemptions from the annual audit requirement for regulated Cayman Islands investment funds (the Policy). The Policy clarifies CIMA’s existing approach on granting exemptions in various situations and introduces new circumstances when an exemption may be available.

When does the Policy apply?

The Policy applies to investment funds which are regulated by CIMA as an administered fund, a licensed fund or a fund registered under section 4(3) of the Mutual Funds Law (Revised) which is the most common type of Cayman Islands investment fund registered with CIMA. Under the Mutual Funds Law, those funds must have their financial accounts audited annually and file them with CIMA within six months of the financial year end, or such extended period as CIMA may allow, and CIMA may also exempt regulated funds from the obligation to file audited accounts in certain circumstances.

In what circumstances may an exemption be granted?

Under the Policy CIMA will consider granting an audit exemption under the following new circumstances:

• When a fund is being voluntarily liquidated and a third party liquidator has been appointed under terms that require a review of the period since the last financial year end for which an audit has been filed • When all investors in a fund have agreed to forego the audit for not more than six months of a financial year and no more than ten investors existed at any time during the part period

• When a fund is transferring to another jurisdiction within six months of its last financial year end, for which an audit has been filed. For consistency, this links with the updated regulatory policy on deregistration of regulated funds issued by CIMA in 2015

• When a fund is dissolving by way of merger within six months of its financial year end, for which an audit has been filed. Again, this also links with CIMA’s updated regulatory policy on de-registration which was issued in 2015

CIMA may also grant an exemption from the audit requirement in other exceptional circumstances in its absolute discretion, on submission of such information as CIMA may request.

The Policy confirms that funds can continue to apply for audit exemptions:

• When a fund has not launched but does not wish to be de-registered from CIMA

• When a fund has not launched and is being liquidated or wishes to be de-registered from CIMA • When a fund has launched but has been unsuccessful in raising sufficient capital for
sustainability

• When a fund is unable to obtain audited financial accounts due to events such as bankruptcy proceedings, legal or regulatory enforcement actions

• When a fund has been placed in compulsory liquidation and CIMA is satisfied with the appointment of the liquidator and scope of the liquidator’s review The requirements for applying for an exemption in some of these existing circumstances have been amended and clarified. Any exemption application is considered by CIMA on a case-by-case basis and on payment by the fund of a fee of US$610, with the Policy setting out the documentation required in different circumstances.

Extensions

The Policy confirms that CIMA will consider extending a fund’s first audit period for a maximum of 18 months from the date of registration, and introduces the option of applying for an extension for a fund’s last audit period for a maximum of 18 months from the date of the last financial year for which an audit has been filed.

The Policy provides a welcome expansion of the circumstances when a fund can apply for an exemption from the annual audit requirement, as well as much needed clarity, demonstrating CIMA’s continued responsiveness to feedback from the funds industry in its policy making.

 

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