CAYMAN ISLANDS Law and Practice Contributed by: Christie Walton, Patrick Rosenfeld and Philip Dickinson, Maples Group
Upon determination of a breach, CIMA will pro - vide a breach notice to the relevant party. There will be a 30-day opportunity to reply to the breach notice and to rectify a minor breach to the Authority’s satisfaction. The potential for administrative fines reinforces the need for all operators of regulated invest - ment funds to understand their obligations under the Mutual Funds and Private Funds Acts and to ensure that they maintain appropriate systems and controls to meet these obligations, as failure to do so could potentially result in the imposition of significant fines. 2.4 Operational Requirements Legislation imposes no restrictions on the types of activity that may be undertaken by a Cayman Islands investment fund or the types of invest - ments it may make. However, there are certain operational requirements imposed on mutual funds and private funds regulated by CIMA. Mutual Funds A regulated mutual fund needs to comply with the Net Asset Value (NAV) Calculation Rules and the Segregation Rules. The NAV Calcula - tion Rules require a mutual fund to establish, implement and maintain pricing and valuation practices, policies and procedures (a NAV Cal - culation Policy) that ensure the fund’s NAV is fair, complete, neutral, free from material error and verifiable. The NAV of a mutual fund must be calculated by a service provider that is independent of the fund’s investment manager/adviser and opera - tors, and who is competent, has the capability to value the Portfolio of the fund and is able to adhere to the NAV Calculation Policy. A mutual fund’s investment manager/adviser or opera - tors may calculate or assist in the calculation of
the fund’s NAV but only if this fact is explicitly detailed in the fund’s offering document, togeth - er with an explanation as to why another service provider could not calculate the fund’s NAV. The Segregation Rules require a regulated mutu - al fund to appoint a service provider with regard to ensuring the safekeeping of the fund’s portfo - lio. A mutual fund’s portfolio must be segregated and accounted for separately from the assets of any service provider. A mutual fund must ensure that none of its service providers uses the port - folio to finance their own or any other operations in any way. The operators of a mutual fund must establish, implement and maintain (or oversee the estab - lishment, implementation and maintenance of) strategies, policies, controls and procedures to ensure compliance with the Segregation Rules, consistent with the fund’s offering document and appropriate for the size, complexity and nature of the fund’s activities and investors. Private Funds The Private Funds Act contains certain opera - tional requirements for a registered private fund, including provisions relating to the valuation of assets, the safekeeping of fund assets, cash monitoring and the identification of securities. A private fund is required to establish, imple - ment and maintain appropriate and consistent pricing and valuation practices, policies and pro - cedures in order to properly value such private fund’s assets and to ensure that valuations are conducted in accordance with the Private Funds Act. A private fund is required to appoint a custodian, unless it has notified CIMA and it is neither prac - tical nor proportionate to do so, having regard
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