Regulatory developments in the Cayman Islands
August 2014 | EXPERT BRIEFING | COMPANY LAW
As a leading offshore financial centre, the Cayman Islands constantly reviews and updates its legal framework in response to the demands of the international financial community. In that regard, two new laws have recently been enacted in the Islands, namely The Contracts (Rights of Third Parties) Law, 2014 (CRTPL), and The Directors Registration and Licensing Law, 2014 (DRLL), the key provisions of each of which are summarised below.
An important addition to the Cayman Islands’ suite of commercially focused legislation the CRTPL
was enacted on 21 May 2014 and is now in full force and effect in the Cayman Islands. The CRTPL provides that a person who is not a party to a contract (a third party) may enforce rights expressly granted to them by the terms of a contract if: (i) the person is expressly identified in the contract by name, as a member of a class or as answering a particular description; and (ii) the contract expressly provides in writing that the third party may enforce such a term or terms.
The CRTPL will not apply, and will not confer any right on a third party to enforce a term of a contract, if the parties do not expressly state that it should apply. Certain contracts are excluded from the CRTPL. These exceptions include the memorandum and articles of association of a company; a contract on a bill of exchange, promissory note or other negotiable instrument; and a contract of employment as against an employee.
The CRTPL only applies to the rights of a third party created on or after the date the CRTPL came into force (21 May 2014) but does allow a contract to be amended after that date to specify the third party rights, albeit that the third party will only be able to enforce such rights after the contract has been amended.
The terms of the contract may expressly provide for the contract to be rescinded or varied by the agreement of the parties without the consent of the third party, or specify circumstances in which the third party’s consent is required instead of those set out in the CRTPL.
The DRLL was largely brought into force on 4 June 2014. It applies to directors of ‘Covered Entities’, namely: (i) mutual funds regulated under the Mutual Funds Law (Revised) (‘Regulated Mutual Funds’); and (ii) companies to which paragraphs 1 and 4 of Schedule 4 of the Securities Investment Business Law (Revised) apply (‘Excluded Persons’), typically entities providing investment management or investment advisory services. The registration and licensing requirements apply regardless of residency of the director.
Directors are treated by the DRLL in three categories, being ‘Registered Director’, ‘Professional Director’, and ‘Corporate Director’. A natural person appointed as a director of 19 or fewer Covered Entities is required to register as a ‘Registered Director’. A natural person appointed as a director for 20 or more Covered Entities is required to be licensed as a Professional Director subject to the exemptions described below. A body corporate appointed as a director of a Covered Entity (irrespective of the number of appointments) is required to be licensed as a Corporate Director subject to the exemptions described below. In all cases, applications for registration or licensing can only be made via the Authority’s web portal and all categories are subject to initial and recurring annual fees.
Persons who, prior to the Law being enacted, were acting as Registered Directors or Professional Directors have until 4 September 2014 to register or obtain a licence. Those acting as Corporate Directors have until 4 December 2014.
The online registration form requires certain basic information including, at a minimum, full name, date of birth, nationality and country of birth, principal residence and postal address (if different), details of any criminal offence involving fraud or dishonesty, details of any adverse finding, financial penalty, sanction or disciplinary action by a regulator, self-regulatory organisation or professional regulatory body. An application for registration is only likely to be refused by the Authority where the applicant has been convicted of a criminal offence involving fraud or dishonesty, or the subject of an adverse finding, financial penalty, sanction or disciplinary action by a regulator, self-regulatory organisation or a professional disciplinary body. In addition to completing the online application form, Professional Directors will be expected to provide three references acceptable to the Authority and evidence of adequate insurance (see below) (per Regulation 4(a) and Schedule 4 of the Regulations). A licence will be granted if the Authority is satisfied the applicant is a ‘fit and proper’ person. In determining whether a natural person meets this standard the Authority will consider all circumstances including the person’s (i) honesty, integrity, reputation; (ii) competence and capability; and (iii) financial soundness.
For Corporate Directors three references acceptable to the Authority are required on all directors and shareholders of the corporate director, information on all parent and subsidiary companies and evidence of adequate insurance (see below). A Corporate Director must also (i) be registered as an ordinary resident, exempted or foreign company in accordance with the Companies Law (Revised); and (ii) appoint to its board of directors at least two persons who are either Registered Directors or Professional Directors or a combination of both. Corporate Directors (and all members of the board of directors) must themselves be fit and proper persons as determined by the Authority in the same manner as for Professional Directors.
Exemptions from licensing. A director affiliated with a fund manager which is registered or licensed by an approved overseas regulatory authority does not need to be licensed as a Professional Director even if he or she is a director of 20 or more Covered Entities and should, instead, simply register as a Registered Director. To qualify for this exemption, the fund manager must be (i) registered or licensed by an approved overseas regulatory authority and serve as the manager of a Regulated Mutual Fund and (ii) the director must act as a director of a Covered Entity by virtue of his/her position in the fund manager.
Persons who are licensed under the Companies Management Law (Revised) or the Mutual Funds Law (Revised) as a mutual fund administrator and their directors, officers and employees are not required to be licensed by the Authority under the Law. However, such persons are still required to register as Registered Directors.
Insurance. Corporate Directors and Professional Directors must maintain insurance with an authorised insurer for a minimum aggregate cover of US$1.2m and a minimum cover of US$1.2m for each claim.
Publicly available information. The only information which will be publicly available (and searchable) is the name of a registered director, the type of registration or licence held, registration/licence number and the date of licence or registration.
Renewal. Directors must renew their registration or licence annually on or before 15 January in each year by (i) filing the prescribed annual return form; and (ii) paying the applicable annual fee.
Penalties. The DRLL provides for penalties of up to US$125,000, continuing penalties of up to US$12,000 per day in certain circumstances and/or up to 12 months imprisonment for failure to comply.
Implementation. Directors are being contacted by their registered office providers who will supply their individual identification number information and details of the web portal through which they will be required to register or submit their applications.
Jonathan Law is counsel at Campbells. He can be contacted on +1 (345) 949 2648 or by email: firstname.lastname@example.org.
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