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On 13 January 2014, the Cayman Islands Monetary Authority published a statement of guidance on corporate governance for Cayman Islands regulated mutual funds. Affected entities include registered funds, administered funds and licenced funds.

Persons charged with compliance with the new policy are those who comprise the “governing body” and who act as “operators” of the affected entities. Policy breach is inevitable for those operators (director in case of a corporate fund, a trustee in the case of a unit trust and a general partner in the case of a partnership) who are unfamiliar with the new policy or the legal and fiduciary duties of directors, trustees and general partners under Cayman law. It is helpful therefore to provide a summary of the main points covered in the new policy. These are set out below.

Policy (not “law”)

Observers note that the statement of guidance is not in the form of legislation. Notwithstanding this, all operators should comply with the new policy. Compliance by all can only lead to a stronger fund governance framework, which is in the best interests of all fund investors.
Minimum Expectations

As mentioned in the guidance, the new rules only set out the Cayman regulator’s minimum expectations with regard to fund governance. It is therefore at the liberty of operators to establish governance requirements which exceed those set out in the guidance.

Board of Directors Responsible for Oversight

This section of the policy reinforces the existing responsibility of a board of directors under Cayman law to monitor and supervise a fund’s service providers. It is also a reminder of the hierarchy in a Cayman fund’s structure: board of directors bearing ultimate responsibility and all other parties taking their directions from the board.

Also worthy of emphasis is the requirement for the board of directors to ensure compliance by the fund and all service providers with laws and regulations applicable to the Cayman fund. Evidence of the satisfaction of this requirement will probably come in the form of a checklist.

Conflicts of Interest

Of no surprise is the obligation for a board of directors to identify, disclose, monitor and manage all conflicts of interests. This includes situations where a board member of the Cayman fund is affiliated with the fund’s investment manager. As per usual practice, conflicts will be documented in the fund’s offering document and in minutes of meetings of the board. However, query whether it is better to simply remove the conflict altogether (while the disclosure of an existing conflict is a good measure, the continued existence of a conflict may impact a board member’s ability to consistently exercise independent judgement).

Minimum Number of Board Meetings

For convenience (and where permitted by a corporate fund’s articles of association), some Cayman funds approve transactions by way of resolutions in writing signed by all directors. The new guidance goes further by mandating a minimum of two board meetings per annum, which can be held in person or by telephone conference call. If a director has 300 board appointments, he should attend 600 meetings per year (perhaps, one hour for each meeting).
Duties of Operators

The duties of Cayman fund directors set out in the statement of guidance can be described as a reconfirmation of some of the known, existing duties of persons who act as directors of Cayman funds. Of interest is the emphasis placed on each director to ensure that the director has sufficient capacity to apply his mind to overseeing and supervising each regulated Cayman fund. While “capacity” does not appear to be defined, the guidance indicates that, prior to taking on additional director appointments, a director should always ensure that he is able to perform his functions and duties in a responsible and effective manner in accordance with the statement of guidance. In this sense, capacity might be said to vary from director to director.


While the guidance is not “law”, all operators of Cayman funds should carry out the affairs of Cayman funds in accordance with the guidance and in compliance with existing laws and regulations applicable to Cayman funds. In the case of a new Cayman fund, the operators should decide what will be the Cayman fund’s governance structure and document the same in minutes or in a formal policy approved by the board.

With respect to operators of Cayman funds based outside the Cayman Islands, there does not appear to be any exemption from compliance with the guidance. Failure to comply with the guidance will undoubtedly be deemed a breach regardless of the location of the operator and the operator will be subject to any measures which may be applied by the Cayman regulator.

About the Author:

Alric Lindsay is a corporate lawyer and an independent fund director approved by the Cayman Islands Monetary Authority. Alric is also licensed as a professional director under The Directors’ Registration and Licensing Law. Alric also acts as voluntary liquidator to Cayman Islands entities. Alric can be contacted at