Four things fund managers need to know about the new CIMA fines regime

Significant Cayman Islands Monetary Authority fines now apply far beyond anti-money laundering – read on to learn how you can avoid them.

The revised Cayman Islands Monetary Authority (CIMA) fines regulations, which were enacted in June 2020, extend CIMA fines beyond the anti-money laundering regime to all regulatory laws and CIMA rules. The regulatory laws include the Mutual Funds Law, the Private Funds Law, the Securities Investment Business Law and the Directors Registration and Licensing Law (DRLL). This change significantly expands the list of regulatory breaches for which CIMA may issue administrative fines. Here are four questions fund managers should ask, to stay one step ahead.

1. How much could it cost?

The fines range from USD 6,100 to USD 122,000 (for individuals) and USD 1,220,000 (for entities), depending on the nature and category of the breach.
Breaches are categorised as being ‘minor’, ‘serious’ or ‘very serious’.

• Minor breaches incur a fixed fine of USD 6,100. Where a minor breach continues, the penalty may be imposed multiple times up to a maximum of USD 24,400.
• Serious breaches incur a discretionary fine of up to USD 61,000 (for individuals) and USD 122,000 (for entities).
• Very serious breaches incur a discretionary fine of up to USD 122,000 (for individuals) or USD 1,220,000 (for entities).

Examples of a minor breach include:

a) failure of a director to pay their CIMA annual registration fee by 15 January under the DRLL

b) failure of a fund to pay the CIMA annual registration fee by 15 January

Examples of a serious breach include:

a) failure of a fund to file with CIMA its audited financials within six months of its year end

b) failure of a fund to file with CIMA an amended offering document within 21 days

Example of a very serious breach include:

a) providing information to CIMA that a person knows or should reasonably know is false or misleading

b) a person acting as a director of a CIMA registered fund without being registered with CIMA under the DRLL

2. Will CIMA give prior notice and what criteria must it follow?

Prior to imposing a fine, CIMA must issue a breach notice. The regulations set out a number of criteria that CIMA must consider in relation to both the issuing of a breach notice and the amount of any fine, such as the nature and seriousness of the breach.

3. Does it apply to non-resident directors of Cayman funds?

Yes, employees of fund managers who are directors of Cayman funds can be liable for the fines whether or not they are a resident in the Cayman Islands.

4. How can an independent director help you?

As an example, something as simple as failing to file an offering document with CIMA on time could result in a fine of USD 122,000. A breach can now be costly!

It is the responsibility of the fund board to ensure compliance with regulatory and legal obligations.
Independent directors also have skin in the game as individual directors can be liable for the fines. Having independent directors on the fund board will assist with dealing with the recent avalanche of legal and regulatory developments – in the Cayman Islands and internationally – and mitigate the risk of hefty CIMA fines.