Considerations for Alternative Investment Funds During COVID-19: The Cayman Islands — Sea, Sand, Sun, and Fun(ds)
By Isatou Smith, Managing Director, EisnerAmper Governance Services Ltd.
Renowned for the relentless tropical climate and alluring beaches, the Cayman Islands entices people year-round to experience its beauty. Year after year, the white sandy beaches never disappoint or change but the same cannot be said for the regulatory landscape of the private funds industry. Even before the pressure the funds industry has felt from the global COVID-19 pandemic, primarily in response to pressure from various external regulatory bodies, the funds industry in Cayman has seen its most recent years filled with changes occurring in significant fashion.
The Cayman Islands has long been regarded as the domicile of choice for certain alternative fund structures. The most recent publications from the Cayman Islands Monetary Authority (CIMA) indicate that Delaware, New York, and California continue to remain the most popular worldwide domiciles of investment managers of Cayman-regulated funds. Delaware has surpassed New York for the top spot in recent years, which may be primarily attributed to Delaware legislation introduced in 2017 for blockchain technology. In 2013, the jurisdiction recorded its highest number of funds at almost 12,000 regulated funds. While the following years marked decreases in registrations, during the last three years numbers were steady at around 11,000 regulated funds. It might be convenient to draw a correlation between the decrease in fund registrations during some periods to that of increased regulatory scrutiny. However, it should also be noted that during these same periods, there was also significant market turmoil and movement away from the current types of funds that CIMA regulated. 2020 will see another unprecedented year of change as the industry will catch a glimpse of the previously unknown: the number of unregulated fund vehicles.
However, in February 2020, the Cayman Islands implemented its most recent change: the Private Funds Law 2020, which brought into scope closely held funds (funds with less than fifteen investors) and closed-ended funds (traditionally private equity funds). These funds, that were previously below CIMA’s direct radar, have now come into the full scope of the regulatory framework. While it is suspected that for most of these structures the changes may be administrative at best, only requiring managers to now add CIMA filings to their list of things to do; for others the tasks are a bit more momentous. The appointment of an auditor, including a local audit sign off from an approved Cayman auditor, a minimum of two directors that have been approved by CIMA and specific valuation procedures are amongst the requirements that existing private funds have to put in place by August 7, 2020.
Despite adopting several legislative changes, the implementation of the aforementioned came a few days too late, which resulted in the Cayman Islands being added to the European Union’s (EU’s) non-cooperative tax jurisdiction list in February 2020. The immediate effects to the industry of being placed on the list have yet to be seen, as the EU does not impose any sanctions on countries being placed on the non-cooperative tax jurisdiction list and, further, EU investors can continue to invest and remain invested in Cayman Islands funds. It is expected that the Cayman Islands will be removed at the next update of the list in October 2020.Other proposed changes in the pipeline include continued enhancements to existing legislation and the creation of a new framework to regulate the business of issuing and providing services with regards to virtual assets. The latter would be done by way of a series of changes to existing legislation and through the introduction of a new virtual asset (service providers) law, which would aim to govern the service providers as opposed to persons who engage in business with virtual assets.
Critics assert that the plethora of enhanced regulation will continue to deter funds from choosing Cayman as a domicile due to the increased costs of implementing these changes into their operations. However, statistics aside, the opposing view is that investors are welcoming the additional reporting and oversight and will vote with where they choose to put their money. Across all the legislative changes for the industry, the underlying theme is good corporate governance which leads to enhanced investor protection and ultimately the reduction of risk posed to and by the jurisdiction from being misused or seen as being a threat to global financial stability, which is what the Island is accused of.
Amidst the global pandemic, which will no doubt bring changes to the global funds industry in the short-to-medium term, Cayman continues to show strength in its infrastructure. Despite the lock down measures implemented by the government aimed at the threat posed by COVID-19, the Cayman funds industry continues to thrive seemingly seamlessly with everyone, private and public sector alike, working remotely and servicing their stakeholders. A common sentiment being expressed in the Islands throughout the current crisis is that “things must change in order to stay the same.” The Cayman Islands continues to make changes to build out its regulatory infrastructure and it is expected that these changes will allow the retention of its presence as a premier fund jurisdiction.
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EisnerAmper Global welcomes Singapore member
EisnerAmper Cayman is delighted to welcome EisnerAmper Singapore to the EisnerAmper Global network. EisnerAmper Global is a specialist network of independent member firms operating in key financial services and international trading hubs. EisnerAmper Global member firms provide clients with access to the expertise of 200 partners and 2,000 professionals globally, with office locations including New York, Miami, San Francisco, Cayman, Dublin and Singapore.
EisnerAmper Singapore, formerly Saw Meng Tee & Partners PAC, provides specialist accounting, advisory, outsourcing,and risk & regulatory services to international and domestic clients operating in Singapore and across Asia. At EisnerAmper Singapore’s launch, Managing Partner Saw Meng Tee noted that EisnerAmper Singapore’s vision is to be “recognised as one of Singapore’s leading professional services firms in the specialist areas of financial services, corporate solutions and advisory”. EisnerAmper Ireland and Saw Meng Tee & Partners PAC have been working closely together over the past 18 months to further develop existing ties between Ireland and Singapore.
For enquiries, please contact Saw Meng Tee, Managing Partner, EisnerAmper Singapore or visit the EisnerAmper Singapore website.
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Business in Brief: EisnerAmper Celebrates 10 Years in Cayman
Accounting, auditing and advisory firm EisnerAmper Cayman celebrated its 10th anniversary in the Cayman Islands at The Westin Grand Cayman last week.
EisnerAmper flew in Adam Cheyer, a co-founder of Siri, the digital assistant in Apple’s iPhone, as a key note speaker.
Mr. Cheyer, who also co-founded Viv, the digital assistant which Samsung branded as Bixby for the Galaxy S8, gave two presentations to local high school students and the business community, last Thursday.
Ben Leung, EisnerAmper’s managing partner, said: “We wanted the pupils at all the local schools to have the opportunity to listen to and meet someone who is a high achiever in the technology field. Moreover the area of mobile technology in particular is relevant now and will become more so in the future.”
The evening session was devoted to the future of artificial intelligence. Given that automation has famously reduced the number of blue collar jobs and is anticipated to reduce the number of white collar jobs as well, the presentation addressed how artificial intelligence is likely to affect businesses going forward.
Mr. Cheyer outlined the future of digital assistants which, although ubiquitous on all computer and smartphone operating systems, are not that widely used.
Mr. Cheyer said it will need four things to elevate assistants from a utility “that is nice to have to a paradigm” that every business will need to use.
This would require one assistant that can be accessed from any device for any type of service in a way that can be personalized, he said.
EisnerAmper Cayman started in 2007 as one of the smallest firms in Cayman and has quickly grown its staff and offices, now located at Cricket Square. “The world financial crisis commenced shortly after we launched so arguably it was not the best timing,” Mr. Leung said. “However, there is always a demand for quality, and we positioned ourselves in the market as a firm where senior management were heavily involved in engagements.”
The firm has undertaken many pro-bono audits such as the CI Red Cross, NCVO, CI Chamber of Commerce and Cayman Finance.
James Lewis, partner, said: “We also try and take every opportunity to participate in events supporting charities. Every year we are out at the supermarkets for Veterans Day. We have dress-down days for local charities like Rock Your Socks (Downs Syndrome) and participate in the events such as the 5Ks for the CI Red Cross and Cayman Crisis Centre, also a sponsor for both.”
A copy of the article published on the Cayman Compass can be downloaded from the following link: Business in brief – EisnerAmper celebrates 10 years in Cayman – Cayman Compass
Other articles written during Adam Cheyer’s visit are on the following link:
Article on FASB’s Accounting Standards Update (ASU) No. 2015-09
Preparers of financial statements need to be aware of the additional disclosure requirements introduced by ASU No. 2015-09, as well as consider the time impact and increased level of detail on reserving and claims data to be compiled in order to enable preparation of financial statements that comply with accounting principles generally accepted in the United States of America (U.S. GAAP).
The article published in Captive Insight can be downloaded through the link below.
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