The statement establishes key principles of good governance which must be observed by funds which CIMA regulates. Many funds will not be phased by the requirements of the statement for their governance models will exceed the standards which the statement demands, though others may find the statement challenging and should seek to improve their governance standards accordingly.

The statement is neither rigid nor prescriptive (and not exhaustive either). Instead, it sets out key principles to be interpreted and applied in the specific context of each fund, taking into account factors such as the fund’s structure, complexity and size. It aims its requirements at the ‘governing body’ of a fund (I.e. its governing mind and will and the body responsible for overseeing and supervising the activities and affairs of the fund) as well as at its ‘operators’ i.e. the members who, together, comprise the fund’s governing body).

Beyond fiduciary duties: a regulatory overlay

It is clear from the statement that CIMA seeks to ensure that fund governance not only becomes a focus beyond common law fiduciary duties but also that it is contextually relevant.

CIMA also wishes to say who bears responsibility for governance and concedes that its supervisory glare falls upon a broad community (hence the different treatment in the statement of the fund’s operators from its governing body) which must have regard to broader principles than those established as rules of common law or guidelines established in Weavering Macro Fixed Income Fund Limited (in liquidation) v Stefan Peterson and Hans Ekstrom (2011).

The oversight principle. The requirement of the statement for effective supervision and oversight of a fund’s activities and affairs by its governing body is entirely consistent with the general requirements of supervision imposed by common law (and highlighted in the Weavering judgment as being absent in the case of the Weavering fund). In many ways this is at the heart of the statement and underpins the other principles which it establishes, and includes a requirement that the governing body of a fund should meet at least twice per year or more frequently if the circumstances of the fund require it to do so in order to fulfil its responsibilities effectively.

The documents principle. The statement highlights the need for funds to ensure that they provide investors with accurate and sufficient disclosure of matters such as the fund’s investment strategy, relevant conflicts of interests and descriptions of the equity interests being offered to investors. In large measure these replicate the requirements of the Mutual Funds Law, though the statement goes further in requiring that internal documents are maintained which record fully, accurately and clearly the proceedings at meetings of the fund’s governing body.

The communication principle. The statement notes that communication between the operators of a fund and its service-providers (as well as between funds and CIMA) should contain reports about compliance with the rules of the fund as well as with applicable law and regulation and should also allow investors to see this information whenever disclosure to them is appropriate.

The risk management principle. the statement requires a fund’s risks to be appropriately managed and mitigated and discussed at the (at least) biannual meetings of the fund’s governing body.

The enforcement dilemma

The statement may be a double-edged sword for CIMA; much as it encourages good governance among fund operators and governing bodies, investors are bound to expect that compliance with it will be policed and shortcomings dealt with. Whether CIMA will in fact do this remains to be seen; for the time being, it lacks a specific statutory right of enforcement in the event of failure by fund operators and governing bodies to adhere to the terms of the statement. However, any conclusions which CIMA reaches about bad behaviour will colour the way it exercise its of its statutory power of substitution where fund operators fall short of what CIMA considers to be fit and proper.

* Neal Lomax is the managing partner in Mourant Ozannes’ Cayman office. He can be reached on +1 345 814 9131 or at neal.lomax@mourantozannes.com