CIMA Regulatory Updates for Funds: Corporate Governance Rule and Internal Controls and SOG

On 14 April 2023 the Cayman Islands Monetary Authority (CIMA) introduced updates and new regulatory measures that apply to all CIMA regulated entities with effect from 14 October, 2023.

Effective 14 October 2023, the new regulatory measurements implemented by CIMA will apply to all regulated entities including: mutual funds, private funds, securities investment business licensees and registered persons, virtual asset service providers, company managers, corporate service providers, money services businesses, banks and trusts, insurance companies, building and cooperative societies and CIMA regulated corporate entities under the Directors Registration and Licensing Act (Revised).

The new Corporate Governance Rule and Internal Controls Rule create binding obligations on regulated entities, a breach of which may lead to the imposition of fines or other regulatory action.

New Regulatory Measures

The new Rules and Statements of Guidance are as follows:

1. Rule and Statement of Guidance on Internal Controls for Regulated Entities;
2. Rule on Corporate Governance for Regulated Entities;

Updated Regulatory Measures

The updated Rules and Statements of Guidance are as follows:

1. Statement of Guidance on Corporate Governance for Mutual Funds and Private Funds;
2. Statement of Guidance on Outsourcing Regulated Entities;
3. Rule and Statement of Guidance on Cybersecurity for Regulated Entities; and
4. Statement of Guidance on Nature, Accessibility and Retention of Records.

Internal Controls

The new Rule and Statement of Guidance on Internal Controls applies to all regulated entities. The Rule requires regulated entities to implement an internal control framework which consists of five parts: (i) control environment, (ii) risk identification and assessment, (iii) control activities and segregation of duties, (iv) information and communications, and (v) monitoring activities and correcting deficiencies. All regulated entities must ensure that the Rule is implemented appropriately based on its size, complexity, structure, nature of business and risk profile.

Corporate Governance

The new Rule on Corporate Governance also applies to all regulated entities. The Rule requires regulated entities to establish, implement and maintain a corporate governance framework that covers the entities:

1. objectives and strategies
2. structure and governance of the governing body
3. appropriate allocation of oversight and management responsibilities
4. independence and objectivity
5. collective duties of the governing body
6. duties of individual directors
7. appointments and delegation of functions and responsibilities
8. risk management and internal control systems
9. conflicts of interest and code of conduct
10. remuneration policy and practices
11. reliable and transparent financial reporting
12. transparency of communications
13. duties of senior management, and;
14. relations with CIMA.

All regulated entities must ensure that the Rule is implemented appropriately based on its size, complexity, structure, nature of business and risk profile.

Investment Funds

The Statement of Guidance on Corporate Governance for Mutual Funds and Private Funds replaces the 2013 version, and all funds should ensure that their corporate governance is up to date.

Next Steps

The updated measures are now in effect and the new measures will come into effect on 14 October 2023.

All regulated entities should ensure ongoing regulatory compliance including implementing the new corporate governance and internal controls frameworks and updating existing policies and procedures, subject to penalty.

All regulatory measures referred to in this Update can be found on CIMA's website.

Should you need help to prepare for these requirements, please contact our Head of Regulatory, Jonathan McLean jon.mclean@stuartslaw.com or email info@stuartslaw.com and our team will be glad to assist. 

Read more on Ongoing Obligations of Funds

How Stuarts Can Help

Stuarts Investment Funds and Regulatory teams have extensive experience advising funds and other regulated entities in the Cayman Islands on corporate governance and compliance matters. Through our subsidiaries, Stuarts Corporate Services and Southern Management Services our team of experienced corporate professionals can provide you with a full suite of corporate governance and directorship services including Cayman resident directors and corporate secretarial services, to assist in meeting the ongoing regulatory obligations of your fund and regulated entities in the Cayman Islands.

Please contact Chris Humphries chris.humphries@stuartslaw.com or Jon McLean jon.mclean@stuartslaw.com for assistance with your entities’ regulatory compliance obligations or contact us for more information.