Fund Director Note: Cayman To Introduce A Director’s Disqualification Act

By Alric Lindsay

According to a post-meeting summary of a meeting of the Cabinet that convened on Tuesday, October 15, 2024, the Cabinet approved the issuance of drafting instructions to develop a Director’s Disqualification Act and any necessary regulations.  Although the content of the proposed Director’s Disqualification Act is unknown, it does come as a surprise as there are currently no detailed provisions dealing with qualifications required of a person before they can act as a director of a Cayman fund under the existing Directors Registration and Licensing Act or the Mutual Funds Act. Additionally, there are other concerns since the Minister of Financial Services recently resigned, making it unclear who will bring the draft legislation to the Parliament or have competent discussions with stakeholders in the financial services industry to obtain valuable input.

What the Directors Registration and Licensing Act says

Cayman fund directors who are registered directors (i.e., those having less than twenty directorship appointments to funds registered with the Cayman Islands Monetary Authority) usually register by providing a small number of details, including their name and nationality, to CIMA to get registered.

Those with twenty or more directorship appointments to CIMA registered funds were required to register as professional directors.  Based on the Directors Registration and Licensing Act, CIMA would generally grant a professional director licence once it was satisfied of the following:

 (a) that the applicant has sufficient capacity to carry out the applicant’s duties as a professional director; and (b) that the applicant is a fit and proper person for licensing as a professional director. Determination of fitness and propriety.

In the case of professional directors, the Directors Registration and Licensing Act adds:

 In determining for the purposes of this Part whether a natural person is a fit and proper person, regard shall be had to all circumstances, including that person’s — (a) honesty, integrity and reputation; (b) competence and capability; and (c) financial soundness.

What the Mutual Funds Act says

In addition to the Directors Registration and Licensing Act, the Mutual Funds Act does not appear to contain any detailed provisions regarding the qualifications of persons to act as directors. 

In fact, it is only in the rare case of “licensed” mutual funds that the Mutual Funds Act states:

The Authority has no power to grant a Mutual Fund Licence until it has been satisfied by the applicant that (a) each promoter is of sound reputation; (b) the administration of the mutual fund will be undertaken — (i) by persons who have sufficient expertise to administer the mutual fund; and (ii) by persons who are fit and proper to be directors or, as the case may be, managers or officers in their respective positions; and (c) the business of the mutual fund and any offer of equity interests in it will be carried out in a proper way.

The above provisions would probably not impact many Cayman fund directors since they mostly act as directors for registered funds, administered funds, or private funds rather than licensed funds.

Director requirements largely left to CIMA

Based on the foregoing, there does not appear to be any detailed list of requirements for persons to act as directors of a Cayman fund. Instead, it appears that most of the discretion is left to CIMA regarding whether a person may be a registered or professional director or removed as such.

Stakeholder input required

Although CIMA has competent persons who can analyse applicants for fitness and soundness to be directors, input is needed from financial services industry members to ensure that appropriate provisions are included in the proposed Director’s Disqualification Act. Such input is also required to ensure that the director services industry does not become overregulated but, instead, maintains regulation in the right places.

In addition to obtaining stakeholder input, it is essential that the minister bringing the draft legislation to the Parliament is familiar with the director services industry and can adequately explain the proposed legislation and its impacts. Given the recent resignation of the Honourable André Ebanks, MP, as the Minister for Financial Services, it is now unclear who will bring and explain the draft legislation to the Parliament. 

Of course, the absence of a financial services minister is important not only for discussing the proposed Director’s Disqualification Act but also for considering future legislation, regulations, and amendments impacting the financial services industry between now and the 2025 general election.  

Notes to readers:

The author, Alric Lindsay, is a professional director registered with the Cayman Islands Monetary Authority. He acts as a director of mutual funds, private funds, and investment management companies. He can be contacted at [email protected].

Nothing herein is deemed Cayman Islands legal advice.  In all cases, persons interested in understanding more about existing Cayman Islands laws and proposed amendments must seek legal advice from persons registered in the Cayman Islands as attorneys. A list of licensed attorneys and firms is below:

Licensed Attorneys