E-Alert June 2014

CAYMAN ISLANDS THE DIRECTORS REGISTRATION AND LICENSING LAW, 2014

The Directors Registration and Licensing Law, 2014 (the "Law") was passed by the Cayman Islands Legislative Assembly on 11 April 2014 and came into force on 4 June 2014.

KEY POINTS

The Law applies to all directors of:

  1. companies regulated by the Cayman Islands Monetary Authority ("CIMA") as mutual funds under the Mutual Funds Law (2013 Revision) (the "Mutual Funds Law"); and
  2. companies registered with CIMA as "excluded persons" under certain heads** of the Securities Investment Business Law (2011 Revision) ("SIBL") (together, "Covered Entities")


** This refers to companies registered as ‘excluded persons’ under either paragraphs 1 or 4 of Schedule 4 of the SIBL, which include:

  1. companies within a group of companies carrying on securities investment business exclusively for one or more other group companies; and
  2. persons carrying on securities investment business exclusively for sophisticated persons, high net worth persons or entities whose own investors are either sophisticated persons or high net worth persons


All directors of Covered Entities will need either to:

  1.   be registered with CIMA; or
  2.   apply to be licensed by CIMA where -
  • such director acts for 20 or more Covered Entities; or
  • is a corporate director, subject to certain exceptions given below.

 

WHO MUST REGISTER AND BY WHEN?

NATURAL PERSON

All natural persons who are directors of any Covered Entities must register, whether or not they are resident in the Cayman Islands unless they fall within the Professional Director category.

Existing directors of Covered Entities must apply to register within 3 months (ie. by 3 September 2014). Meanwhile, they can continue in office until the registration application is approved. A director of an existing Covered Entity must cease to act if the application is rejected. However, an appeal process is available where an application is rejected.

No new appointments of directors after 4 June 2014 to the board of a Covered Entity are permissible until a director is duly registered.


To register, the director is required to submit:

  • an application form via CIMA’s on-line registration system; and
  • payment of non-refundable application and registration fee of CI$700 (approximately US$854)


Information required in the application form for registration, includes inter-alia:

  • Full name, date of birth, nationality and country of birth of the applicant;
  • Applicant’s principal residence address and postal address (if different);
  • Details of any criminal convictions involving fraud or dishonesty;
  • Details of any adverse finding, financial penalty, sanction or disciplinary action by a regulator, self-regulatory organization or professional regulatory body;
  • Names and registration numbers of the Covered Entities for which the applicant acts or proposes to act.


CIMA may request for additional information in order to process a registration, and may generally refuse an application, if the applicant has been:

  • convicted of a criminal offence involving fraud or dishonesty; or
  • is the subject of an adverse finding, financial penalty, sanction or disciplinary action by a regulator, self-regulatory organization or a professional regulatory body.


CIMA currently anticipates that registration application will be processed within 48 hours of working days.

 

WHO MUST BE LICENSED AND BY WHEN?

PROFESSIONAL DIRECTOR

All natural persons who are directors of 20 or more Covered Entities, unless they are a director, an employee, a member, an officer, a partner or a shareholder of:

  1. an entity which holds a company management licence issued pursuant to the Companies Management Law (2003 Revision) or a mutual fund administrators licence issued pursuant to the mutual fund laws in the Cayman Islands; or
  2. an entity which is a ‘fund manager’ ie. provides investment management services, investment advisory services or acts as a promoter and is registered or licensed by a specified overseas regulatory authority and such director appointment arises by virtue of the relationship with the fund manager.

In the case of (1) and (2) above, the Professional Director simply needs to register as opposed to apply for a licence.

Existing directors of 20 or more Covered Entities must apply for a licence within 3 months (ie. by 3 September 2014). Meanwhile, they can continue in office until the registration application is approved. A director of an existing Covered Entity must cease to act if the application is rejected. However, an appeal process is available where an application is rejected.

No new appointments of directors after 4 June 2014 to the board of a Covered Entity are permissible until a professional director is licensed.


For licence application, the director is required to submit:

  • an application form via CIMA’s on-line system;
  • certain supporting materials (reference, evidence of insurance etc.); and
  • payment of non-refundable application and licence fee of CI$3,000 (approximately US$3,659)


Information required in the application form and supporting documentation, includes inter-alia:

  • Full name, date of birth, nationality and country of birth of the applicant;
  • Applicant’s principal residence address and postal address (if different);
  • Personal details questionnaire;
  • Not less than 3 references, including one character reference, one reference verifying good financial standing and a police clearance certificate (or equivalent);
  • Names and registration numbers of the Covered Entities for which the applicant acts or proposes to act;
  • Evidence of insurance coverage (please see below)


CIMA may request for additional information in order to process a licence application, but will generally have regard as to whether the applicant is a fit and proper person, giving regard to that person’s

  1. honesty, integrity and reputation,
  2. competence and capability,
  3. financial soundness.


If approved, CIMA may issue a licence that is subject to such conditions as it considers appropriate.

CIMA currently anticipates that confirmation of licensing should be issued within 4 weeks.


CORPORATE DIRECTOR

Any body corporate that is appointed as a director of a Covered Entity is required to be licensed unless it holds a companies management licence or a mutual fund administrators licence (as outlined above for Professional Directors). Any overseas company would also be required to register in the Cayman Islands as a foreign company before applying for a licence.

Existing corporate directors of Covered Entities must apply for a licence within 6 months (ie. by 3 December 2014). Meanwhile, they can continue in office until the registration application is approved. No new appointments of directors after 4 June 2014 to the board of a Covered Entity are permissible until a corporate director is licensed.

For licence application, the director is required to submit:

  • an application form via CIMA’s on-line system;
  • certain supporting materials (reference, evidence of insurance etc.); and
  • payment of non-refundable application and licence fee of CI$18,000 (approximately US$9,756)


Information required in the application form and supporting documentation, includes inter-alia:

  • Names and addresses of one or more persons authorized to accept service of process or notice on behalf of the applicant where it is a foreign company;
  • Evidence of the applicant’s incorporation;
  • Names and registration numbers of the Covered Entities for which the applicant acts or proposes to act;
  • Full names, addresses and nationalities of all directors, managers and officers of the applicant;
  • Full names, addresses and nationalities of each shareholder who holds more than 10%. of the applicant’s issued share capital or total voting rights;
  • a personal details questionnaire for each (i) director, manager and officer, (ii) shareholder and beneficial shareholder who holds more than 10% of the applicant’s issued share capital or total voting rights;
  • not less than 3 references, including one character reference, one reference verifying good financial standing and a police clearance certificate (or equivalent) for each (i) director, manager and officer, (ii) shareholder and beneficial shareholder who holds more than 10% of the applicant’s issued share capital or total voting rights;
  • a copy of the applicant’s M&A or equivalent charter document together with a statutory declaration made by one director;
    the names and addresses of the principal and registered offices of all parent companies and all subsidiary companies;
  • a certificate of good standing from all overseas regulatory authorities that regulate the applicant;
    evidence of insurance coverage (see below).


CIMA may request for additional information in order to process a licence application, but will generally have regard as to whether the applicant is a fit and proper person, giving regard to that person’s

  1. honesty, integrity and reputation,
  2. competence and capability,
  3. financial soundness.

If approved, CIMA may issue a licence that is subject to such conditions as it considers appropriate.

 

INSURANCE COVER REQUIREMENT

Professional Directors and Corporate Directors must also maintain a minimum of CI$ 1,000,000 insurance cover with an authorized insurer, ie. an insurer that is licensed under the Insurance Law, 2010 or any other insurer acceptable to CIMA.

 

ONGOING REQUIREMENTS

Each registered or licensed director must:

  • pay the applicable annual licence fee by 15 January each year (US$854 for registered director, US$3,659 for professional director and US$9,756 for corporate directors); and
  • Update CIMA within 21 days of any change of the information previously provided

Licensed directors must also:

  • maintain insurance against loss from civil claims in connection with their business as a licensed director, with minimum aggregate cover of US$1 million and minimum cover per claim of US$1 million; and
  • if a corporate director, obtain CIMA’s approval before appointing any new or additional board members

 

NON-COMPLIANCE?

Failure to register or obtain a licence if required is an offence with penalties of up to US$60,976 and/or up to 12 months imprisonment for failure to register and up to US$121,951 for failure to obtain a licence and/or up to 12 months imprisonment in each case.

Late payment of annual fees will incur monthly penalties equal to one-twelfth of the annual fee, and failure to update CIMA of changes with 21 days is an offence with penalties of up to US$25,000.

CIMA has broad powers to require access and information from persons it suspects of acting in breach of the law or having relevant information about any such breach, and failure to co-operate with CIMA in its exercise of those powers is itself an offence with penalties of up to US$125,000 (on top of penalties for the breach itself), while knowingly providing false or misleading information to CIMA is another offence with penalties of up to US$125,000 and/or imprisonment for up to 5 years.

The directors and managers of any corporate body found guilty of an offence under this law, will also be guilty of the same offence unless they can prove it was committed without their consent or connivance.

 

The information in this document is not advice of any kind but general information only and should not be relied on as legal advice. Kensington Trust Group recommends seeking professional advice on legal or tax issues affecting you before relying on it. While Kensington Trust Group tries to ensure that the content of this document is accurate, adequate or complete, it does not represent or warrant, express or implied, its accuracy, correctness, completeness or use of any of the information. Kensington Trust Group does not assume legal liability for any loss suffered as a result of or in relation to the use of this document. To the extent permitted by law, Kensington Trust Group excludes any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this document.