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  • Writer's pictureCV5 Capital

Cayman Hedge Funds meeting CIMA's rules on corporate governance and internal controls


CIMA Corporate Governance and Internal Controls for Cayman Funds
CIMA Corporate Governance and Internal Controls for Cayman Funds

The Corporate Governance Rule and the Internal Controls Rule and SOG apply to all CIMA regulated entities (including private funds regulated under Cayman's Private Funds Act and mutual funds regulated under Cayman's Mutual Funds Act (together, Regulated Funds)).


CIMA has two separate rules relating to corporate governance and internal controls. The first is a governance rule, which requires all regulated entities (so all funds) to establish a corporate governance framework.


Corporate Governance Rule

The Corporate Governance Rule requires all regulated entities, including Regulated Funds, to establish, implement and maintain a corporate governance framework that is commensurate with the size, complexity, structure, nature of business and risk profile of their operations and which addresses, at a minimum:


  1. Objectives and strategies of the Regulated Fund

  2. Structure and governance of the Governing Body

  3. Appropriate allocation of oversight and management responsibilities

  4. Independence and objectivity

  5. Collective duties of the Governing Body

  6. Duties of individual directors of the Governing Body

  7. Appointments and delegation of functions and responsibilities

  8. Risk management and internal control systems

  9. Conflicts of interest and code of conduct

  10. Remuneration policy and practices

  11. Reliable and transparent financial reporting

  12. Transparency of communications

  13. Duties of senior management

  14. Relations with CIMA


A key requirement of the Corporate Governance Rule is that a Regulated Fund's Governing Body should, at least annually, meet to review and amend (as necessary), certain elements of such Regulated Fund's corporate governance framework, including (without limitation): (a) the composition and collective skill set, experience and expertise of the Governing Body of the Regulated Fund; (b) the internal controls of the Regulated Fund, to ensure they are operating effectively and that any deficiencies are addressed; and (c) the implementation of risk assessment and risk management systems to ensure that all significant risks are being adequately measured, monitored and mitigated.


The Corporate Governance Rule also requires all conflicts of interest to be disclosed to the Governing Body on at least an annual basis, via a written annual declaration (and for any changes to such declaration to be communicated throughout the year). The Governing Body of a Regulated Fund should ensure that these, and all other applicable governance matters, are added to their standard agenda for consideration by the Governing Body on at least an annual basis. As a Regulated Fund's Governing Body should already be reviewing and approving such Regulated Fund's audited financial statements and NAV Calculation Policy on an annual basis, this may provide a suitable opportunity for the Governing Body to meet in order to review and evaluate the Regulated Fund's corporate governance matters; and to ensure that these are in line with all applicable Cayman requirements.


Internal Controls Rule and SOG

The Internal Controls Rule and SOG applies to all regulated entities, including Regulated Funds, subject to the same proportionate application as outlined above with respect to the Corporate Governance Rule.

The Internal Controls Rule and SOG is comprised of two parts. Part I sets out general rules and guidelines for all regulated entities covering five components of internal control, namely: control environment; risk identification and assessment; control activities and segregation of duties; information and communication; and monitoring activities and correcting deficiencies in internal controls; and Part II provides sector specific rules and guidelines (which are not specific to Regulated Funds).


CIMA Enforcement powers

Unlike the Corporate Governance SOG (which contains recommendations as to how Regulated Funds should operate and represents a measure against which CIMA will assess their regulatory compliance), the Corporate Governance Rule and the Internal Controls Rule and SOG create binding obligations on all CIMA regulated entities in respect of which a breach may lead to the imposition of a fine or a regulatory action being taken against a regulated entity (and/or its Operators, where applicable) by CIMA pursuant to the exercise of its powers under the relevant regulatory acts. CIMA has expressed that where a regulated entity is of the view that a particular provision (or application of a provision) of the Corporate Governance Rule is not applicable to such entity based on the size, complexity, structure, nature of business and risk profile of its operations, it is the responsibility of such entity to ensure this can be comprehensively demonstrated to CIMA, as may be required.


CV5 Capital Approach and Support

Both the CV5 and CV5 Digital regulated turnkey platforms enable fund managers to to focus on running their hedge funds and building an audited track record while we focus on the governance, compliance and operational matters pertaining to each fund in line with CIMA' s guidance and rules. Contact us for more information: info@cv5capital.io



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