In July 2020, the Cayman Islands Monetary Authority (CIMA) published a Rule on the Segregation of Assets. Regulated Mutual Funds under the Cayman Islands Mutual Funds Law are required to ensure that:
- The financial assets and liabilities of the funds are segregated and accounted for separately from the assets of any service provider;
- With some permitted exceptions (around rehypothecation of assets), none of a fund’s service providers use assets to finance their own or any other operations;
- Policies, controls, and procedures are established to ensure compliance with the segregation Rules, and which ensure a fund holds title to assets and a record of those assets is maintained;
- A service provider is appointed with regard to ensuring the safekeeping of the fund assets. Service provider is defined as “an administrator, auditor, custodian, investment advisor, investment manager, operator, prime broker, promoter or registrar”.
Over the past few months, INDOS has observed many fund Boards and managers grappling with the question: How do we demonstrate compliance with the new Rule?
In many situations, a fund will already have appointed a number of service providers, such as the fund administrator, depositary, prime brokers, custodians, auditors and so on, and there are many checks and balances in place which the fund Board can take comfort from as part of the fund’s overall compliance with the Rule.
This is particularly the case where an independent depositary is appointed and performs on-going monitoring and oversight over the fund’s cash flows, the NAV process including asset ownership verification. It is another example of how a fund can leverage one regulatory requirement (for example the AIFMD depositary requirements) to meet another regulatory requirement (the Asset Segregation Rules), thereby taking a smarter and holistic approach to regulatory compliance.
INDOS has created a Segregation of Assets Rule Compliance template which considers the roles performed by existing service providers and enables fund Boards to document how their fund complies with the Rules.
We have produced this as part of our service for a number of INDOS depositary clients and we are pleased to make it available broadly for the benefit of the Cayman funds industry to adapt and use for the specifics of individual funds.
We would be pleased to share the template with interested parties. Please contact [email protected].
More details on the Rule and CIMA Q&A can be found here:
CIMA Rule: Segregation of Assets – Regulated Mutual Fund
CIMA Q&A Notice in relation to comingling of assets
