The Cayman Islands Monetary Authority (CIMA), in April 2023, released updated rules in relation to the Governing Body (as defined below) of regulated entities (Rule) which introduces a number of changes to the previous regime aiming to enhance the current governance practices of regulated entities by introducing qualitative and quantitative criteria. A supplementary statement of guidance for mutual funds and private funds was also issued (Guidance).
For these purposes, Governing Body is the Board of Directors, the General Partner, the Manager (or equivalent), and the Board of Trustees of the relevant entities as applicable.
The Rule applies, amongst others, to the following entities regulated by CIMA: banks, insurance companies, mutual funds, private funds and credit unions. The new regime will become effective on 14 October 2023, and it creates a legally binding obligation on all parties to which it applies.
Governing Body Composition
The new regime introduces minimum requirements regarding the Government Body’s composition, which should have an appropriate number of individuals as required by the applicable regulatory acts and regulations, with a diversity of skills, background, experience and expertise to ensure that there is an overall adequate level of competence.
The Governing Body shall indicate a minimum time commitment expected from Non-Executive Directors in letters of appointment, noting that such time commitment may change from time to time, given the needs of the regulated entity.
The members of the Governing Body shall be subject to clear and objective independence criteria, and are obliged to act in good faith, honestly and reasonably, exercising due care and diligence, while remaining up to date with the regulated entity’s obligations, business operations and ongoing matters at all times.
Function Delegation and Outsourcing
The Governing Body may establish sub-committees to carry out delegated powers, duties, and functions in respect of certain matters.
The Governing Body must have in place an appropriate Compliance Committee or person who reports directly and timely to the Governing Body on all compliance matters. The Governing Body must also establish an Audit Committee or equivalent that is commensurate with the size, complexity, structure, nature of business and risk profile of the regulated entity.
Where a function of the Governing Body is outsourced, the Governing Body must have mechanisms in place for documenting the delegation and monitoring the exercise of delegated functions.
Internal Governance
Code of Conduct: The Governing Body must abide by a Code of Conduct that is based on selflessness, integrity, objectivity, accountability, openness, honesty, leadership.
Conflict of Interest Policy: The Governing Body shall establish a documented ‘conflicts of interest’ policy for its members, which may be documented in the constitutional documents, offering documents or marketing materials, as applicable, of the regulated entity.
Remuneration Policy: The Governing Body must adopt and oversee the effective implementation of a written remuneration policy which shall be in line with the regulated entity’s corporate culture, objectives, strategies, identified risk appetite and long-term interests of the regulated entity and its stakeholders.
Annual Meeting Record: The records of the Governing Body meetings and/or determinations should include a) the agenda items and circulated documents; b) a list of attendees present at the meeting and whether that attendance was in person or via telephone or video conference; c) the matters considered and decisions made; d) the information requested from, and provided by, service providers and advisors; and, e) a declaration of conflicts of interest.
Annual and Ongoing Obligations
The Governing Body shall at a minimum of once per year:
a) hold an annual meeting with a detailed agenda which will be properly recorded;
b) review the strategic objectives and policies of the regulated entity and either amend or re-adopt them as appropriate;
c) evaluate the progress made towards achieving strategic objectives;
d) review the composition of the Governing Body to ensure that collectively it has sufficient knowledge, skills, experience, commitment and independence to oversee the regulated entity effectively, considering the size, complexity, structure, nature of business and risk profile of the regulated entity.
e) undertake appropriately executed self-assessments of the performance of the governing body (as a whole) and individual members. Any deficiencies identified should be remedied and documented;
f) review the implementation of the risk assessment and risk management systems to ensure that all significant risks are being adequately measured, monitored and mitigated;
g) review the implementation of internal controls, ensuring they are operating effectively and that any deficiencies are adequately addressed; and
h) where applicable, review the remuneration policy for senior management.
The Governing Body has the ongoing responsibility of cooperating with CIMA in good faith and ensure that the regulator is notified by email, within ten days, of any substantive issues which could materially affect the regulated entity, in line with applicable acts, rules, regulations and regulatory measures.
Regulated entities must review and update their current practices and adopt appropriate measures prior to the deadline, in order to avoid any potential fines imposed or regulatory action being taken by CIMA.
How we can Help
For regulated entities, it is imperative to review their existing record-keeping practices and introduce necessary changes to ensure compliance. At Royal Pine, our team of legal and regulatory experts stands ready to support you with a range of solutions as follows:
- Compliance Review: we can assist you with conducting a comprehensive evaluation of your existing corporate governance framework, identifying any areas that may need enhancement or amendments to comply with the Rule and Guidance.
- Drafting of Corporate Governance Policies: our team can help you with formulating or revising your corporate governance policy in accordance with the Rule and Guidance.
- Update and Review of Offering Documents: we provide support with reviewing your offering documents to ascertain if amendments are required to reflect your updated corporate governance policies, and we are ready to assist you in drafting these amendments.
* This publication has been prepared as a general guide and for information purposes only. It does not purport to be comprehensive or to render professional advice. Before making any decision or taking any action that may affect you and/or your business, bespoke advice should be obtained.
