Date post: | 25-May-2015 |
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Law |
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Carne Global Financial Services
Cayman Islands Statement of
Guidance
Yvonne Connolly
Carne Group
Summary
• Background
• Investor feedback
• Weavering Case
• Statement of Guidance – what is required?
• Directors Registration and Licensing Bill
• Implications of governance reforms
May 14 3
Background
• Weavering Case
• Investor Dissatisfaction
• Regulatory Pressure (e.g. G8,
IOSCO)
• Press reporting on jumbo
directorsMay 14 4
Lessons of Weavering
• Poor governance = substantial risk to fund
• Failure to discharge fiduciary duties
• Directors must act in best interests of the
company
• Directors must avoid conflicts of interest
• Directors must exercise independent judgement
• Proper independent review of documentation
• Regular board meetings
May 14 5
Carne Fund Governance Survey 2011
Are you happy with overall governance levels in these
jurisdictions?
Ireland 83%
Luxembourg 80%
Channel Islands 53%
Cayman Islands 37%
Survey based on interviews with hedge fund investors representing over $600
billion in assets under management.
May 14 6
E&Y/Greenwich survey feedback
Jan 2013: Ernst & Young / Greenwich Associates survey of
fund managers, directors, service providers and investors
• 53% concerned that directors not devoting enough time
to fund boards
• 71% of investors still felt governance needed to be
improved
• 86% of investors wanted to see total # of directorships
held by each director
• 54% of hedge fund managers felt governance standards
fit for purpose versus only 11% of investors
May 14 7
Definition of ‘operator’
What is an ‘operator’ in the context of the SOG?
• Director of a company
• Trustee of a trust
• GP of a partnership
What is a ‘service provider’?
• Investment manager of the fund
• Administrator
• Prime broker
• Any other delegates of the fund
May 14 8
Statement of Guidance
• Directors must act independently
• Directors must have necessary skills and experience
• Applies to all directors of Cayman funds including non-
resident directors
• Regular and structured inquiry of service providers
• Communication with investors and CIMA where
appropriate
• Conflicts of interest must be adequately disclosed
• Risk management must be supervised
May 14 9
SOG: Is it voluntary?
• Reflection of common law as set out in
Weavering – NOT voluntary
• Directors must be able to explain non-
compliance to CIMA
• CIMA and courts will refer to SOG in
disciplinary proceedings
• CIMA will be carrying out examinations of
firms and individuals
May 14 10
Oversight function
• Board of directors has responsibility for overseeing and
supervising activities
• Must require regular reporting from IM and SPs
• Must monitor and ensure that IM and SPs are meeting
defined investment and service criteria including
regulatory responsibilities
• Should request relevant information from SPs and
professional advisers when appropriate
• Should provide appropriate directions to rectify non-
compliance
May 14 11
Conflicts of interest
• Identify, disclose, monitor and manage
conflicts at the board level
• Disclosed conflicts must be documented
• Currently no requirement for documented
conflicts policy
May 14 12
Meetings and documentation
Board Meetings
• Recommends that Boards meet at least twice a year
• Directors/operators responsible for ensuring that full record of meetings are
kept
• We recommend use of Company Secretary to support documentation
Documentation
• Ensure clarity of documents, including constitution and offering documents,
description of strategy, any conflicts
• Communicate adequate information to investors where able
• Ensure compliance of documents with Cayman regulations
May 14 13
Director’s duties
• Care, skill and diligence
• Independent judgement
• Best interests of the fund
• Must ensure adequate capacity before taking on
new funds
• Make relevant inquiries where issues are raised
• Ensure appropriate and timely action
May 14 14
Service providers / IM
Service Providers (inc Investment Manager):
• Board must approve appointment / removal
• Notify fund and CIMA of changes
• Responsible for all delegated functions
• Review contracts – ensure responsibilities clearly defined / divided
• Must be satisfied that SP is performing functions adequately
• Regular assessment of suitability / capability
• SP acting in accordance with fund’s constitutional documents?
• Is IM performing in accordance with defined investment
criteria/strategy/restrictions?
May 14 15
Financial and risk oversight
• Must keep informed of activities,
performance, financial position
• Review and approve results
• Monitor NAV and calculation thereof
• Oversight of risk management and Risk
Management Policy
• Compliance with regulations
• Reporting to CIMA
May 14 16
Directors Registration and Licensing Bill 2014
• Licensing regime for resident and non-resident directors
of CIMA-regulated funds and SIBL-excluded persons
• Database of Cayman fund directors
• ALL directors of Cayman funds must be registered
• Directors with 20+ funds must also be licensed
• Licensed directors will be subject to greater regulatory
requirements
• Penalties for non-compliance, inc fines and
imprisonment
• Obligatory insurance cover
May 14 17
Directors database
• No details on content - e.g. search criteria
• No details on costs related to search
• Access likely to be only for sophisticated
investors
• Investors will be able to decide how many
directorships are tolerable to them
• Investors have asked to see historic as well as
current board membership
May 14 18
Corporate Directors
• Tighter supervision of corporate directors
• Two natural persons to be pre-approved
as directors of corporate entity
• Directors cannot change without CIMA
approval
• Foreign entity to be registered as Cayman
vehicle
May 14 19
Unanswered questions
• What will be contained in the database?
• How will director capacity be assessed?
• What about other activities of the director?
• What will the fees be – e.g. database fees,
director registration, licensing?
• What information will CIMA require for
registration?
May 14 20
Implications for Cayman
• Addresses investor concerns over director capacity and
responsibilities
• Documented regime for fund boards will generate more
investor confidence
• Paves way for more acceptable regime for EU investors
• Keeps Cayman Islands in ranks of top grade fund
jurisdictions
• Clearly defines role for CIMA in regulating fund directors
• Cautious welcome from leading investors
• CIMA – regime may evolve as market matures
May 14 21
Carne Group
• Offices in all key fund domiciles, including Cayman
Islands
• All Carne directors have minimum 10-15 years funds
industry experience
• Carne insists on regular board meetings
• Wide range of skill sets ensures Carne directors can
complement board composition
• Secretarial services play important role in documenting
board meetings
• Full transparency on directorships held by each Carne
director
May 14 22
Contacts
Ireland
Yvonne Connolly
T: +353 1 489 6821
Twitter: @carneglobal
Cayman Islands
Julie O’Hara
T: +1 345 769 9980
May 14 23