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How to tackle fast-changing Cayman Island fund regulation

2 September 2021

Matthew Rush

Commercial Director, Intertrust Group, Cayman Islands

Matthew Rush

Commercial Director, Intertrust Group, Cayman Islands

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Outsourcing fund administration to ensure compliance in a complex and ever-developing jurisdiction has become essential in the Cayman Islands

The regulatory landscape in the Cayman Islands has altered dramatically in the past five years, with a series of rule changes imposing new legal and financial demands.

Influenced by other jurisdictions such as the European Union, the Cayman Islands have implemented several global regulatory initiatives. These include:

  • The International Tax Co-operation (Economic Substance) Act
  • Anti-money laundering (AML) procedures and reporting requirements
  • The Foreign Account Tax Compliance Act (FATCA)
  • The Common Reporting Standard (CRS)
  • The register of beneficial owners of legal entities (the UBO register)

Local regulations, including the Cayman Private Funds Act, have also recently been implemented and continue to change. Regulations are evolving rapidly, with the aim of helping the jurisdiction maintain its status as a premier financial centre.

Growing regulatory complexity fuels appetite for outsourcing

As the regulatory landscape for Cayman Islands funds becomes more complex, many fund managers are realising their in-house teams may not be best suited to dealing with such rapid changes. Keeping up takes valuable time away from focusing on growing their businesses.

This is particularly evident among private funds, who are showing a growing appetite for outsourcing fund administration and regulatory functions to service providers.

Part of this appetite for seeking external expertise stems from a shift in the investor base. Since the 2008 Global Financial Crisis, institutional investors have helped drive a shift from housing various operating functions internally within the hedge fund management, towards functions such as compliance and fund administration being outsourced, with independent directors sought. This has been driven partly by regulatory change and partly by demand for more transparency.

Now the cycle is repeating itself, as the same investor base moves into private capital funds where there is also increased regulation. General Partners (GPs) and Limited Partners (LPs) must navigate these extra responsibilities, forcing many private funds to follow the hedge fund trend and begin outsourcing functions to an independent party.

The Cayman Islands has historically played a major role in providing outsourced functions to hedge funds, and we now see it take on the same role in the private funds space as they become increasingly comfortable with outsourcing their functions.

Evolving with the Cayman Islands regulatory landscape

As private funds rely more heavily on outsourcing, they should look to service providers that can offer an end-to-end solution for their Cayman funds. That’s why it is crucial fund administrators also evolve to keep pace.

Whatever occurs throughout the fund’s life, a fund administrator can take charge – from new investors coming on board to fund structuring, calculating the net asset value and getting the innermost data on a fund. Managers of Cayman funds looking to outsource need administrators who can service them globally but also have intimate knowledge of the local market in which the fund operates. Private fund managers can relieve their burden by ensuring they work with a team well versed in local regulatory markets and able to offer proper governance solutions.

A global approach to Cayman Islands fund-administration regulation

While intimate knowledge of the Cayman regulatory market is crucial for a fund administrator, being able to scale that up to a global level is equally important.

No two fund managers, or the jurisdictions in which they operate, are the same. Bespoke local knowledge and flexibility are key.

Intertrust Group offers clients the unique combination of not only being a large, listed company with substantial resources, but also of having the flexibility to work as a boutique, offering bespoke solutions in each of the 30 jurisdictions in which we operate.

We can service LPs and GPs and are the largest provider of SPVs to the private equity market, administering 18,000 in all the world’s main fund centres.

We can offer global thought leadership and reach, thanks to our technology, systems and holistic approach.

How Intertrust Group can help in the Cayman Islands

We have the capabilities to support every aspect of the fund except for the audit, for which we can refer clients to the provider best suited to their needs as we work with all major audit firms.

  • We can provide the following services to fund managers:
  • Fund formation
  • Domiciliation and corporate secretarial services
  • Fund administration and investor services
  • AML compliance and reporting officers
  • FATCA and CRS administration and reporting
  • Independent directorship and fiduciary services
  • Economic Substance and beneficial ownership reporting
  • Full Cayman Islands legal services via our colleagues at Intertrust Law