The statutory audit filing requirements is prescribed by the corresponding Cayman funds legislations (i.e. Mutual Funds Act (as revised) of the Cayman Islands and Private Funds Act (as revised) of the Cayman Islands (PFA)) as well as the following various regulatory policies (Regulatory Policies) and FAQs issued and updated by CIMA from time to time.
- The Regulatory Policy: Exemption from Audit Requirement for a Regulated Mutual Fund issued on July 2020
- The Regulatory Policy: Exemption from Audit Requirement for a Private Fund on March 2022
Maintaining Good Standing
A Cayman regulated fund shall remain in good standing so as to operate compliantly or before it could apply for deregistration. From a CIMA regulatory perspective, “good standing” requires, among others:
- payment of all prescribed fees with CIMA;
- submission of all required audited financial statements and Fund Annual Return (FAR) forms along with FAR fee; and
- no outstanding queries or regulatory filings with CIMA.
Audit Period Extension
CIMA may allow extensions to a regulated fund’s audit period in specific scenarios, such as during initial registration or de-registration. CIMA will accept requests for audit period extensions on behalf of a regulated fund from the service providers designated for this responsibility, typically its Cayman legal counsel.
First Audit Period Extension
The first audit period for a Cayman regulated fund is generally the period from the fund’s date of registration with CIMA to its first financial year-end. In addition, CIMA may contemplate extending the fund’s initial audit period by up to 18 months from the registration date. On CIMA’s website FAQs, CIMA provides that if the auditor consent letter provided during its registration process explicitly stated that the regulated fund’s first audit period will exceed 12 months, the fund would not be required to provide an administrator’s letter to confirm the commencement of its trading activity at its first audit period extension application.
Where the fund does not commence business from the date of registration, consideration for extending the fund’s first audit period is also given from the date the fund launched, provided that, the fund’s administrator also provides a letter confirming the start of activity (i.e. subscription/contribution monies received from investors and commencement of trading).
Last Audit Period Extension
A regulated fund planning to cease carrying on business and deregister with CIMA must notify CIMA within 21 days of ceasing to carry on business as a fund or of a decision being made that the fund has ceased to trade.
Upon de-registration, the fund is required to submit audited financial statements covering the period from the end of the last financial year for which an audit was submitted to one of the following dates:
- the date of final distributions to investors; or
- the date of the final Net Asset Value (NAV) calculation, with the subsequent events note confirming that final distributions have been made to investors.
To avoid incurring CIMA annual fees for the upcoming year, a regulated fund must plan early and file its de-registration application by 31 December. However, if operational, administrative, or financial reasons necessitate additional time to complete the winding-down process beyond the last financial year, an application should be made to CIMA for extending the fund’s final audit period for a maximum of 18 months from the last financial year-end for which an audit has been submitted. If the last audit period has exceeded 18 months, the fund must file two separate audits to ensure compliance with regulatory requirements.
Private Funds That Have Not Received Capital Contributions
Pursuant to section 3(2) of the PFA, private funds that have not received capital contributions from investors for the purposes of investment are exempt from Part 3 of the PFA. Consequently, the Regulatory Policy does not apply to private funds that have not received capital contributions and such private funds are not required to submit an audit waiver application to CIMA. Notwithstanding, the Private Funds (Amendment) Regulations requires a declaration to be filed with CIMA that attests to the private fund not being in receipt of capital contributions.
Audit Waiver
CIMA grants audit waivers only in exceptional circumstances, evaluated on a case-by-case basis, as outlined in its Regulatory Policies. In our experience, the most common scenarios for a waiver include: (1) when a mutual fund has not launched, meaning it has not accepted investor subscriptions, admitted investors, or commenced trading, but does not wish to deregister; and (2) when a private fund or a mutual fund has launched but has been unsuccessful in raising sufficient capital for sustainability.
In order to de-register, funds must also submit audited financial statements for the stub period covering the period from the last financial year-end (for which audited statements have been filed) to the date of final distributions to investors or to the date of the final net asset value calculation, with the subsequent events note confirming that final distributions have been made to investors.
In lieu of submitting audited financial statements for the stub period, fund operators may opt for a stub-period audit waiver. Such waiver applications are subject to CIMA’s discretionary review on a case-by-case basis.
Applications for audit waivers are to be submitted through the Regulatory Enhanced Electronic Forms Submission (REEFS) portal using the form FWV-161-22. Effective 27 May 2024, all new audit waiver applications are to be filed via the REEFS portal.
Audit Filing Deadline Extension
A Cayman regulated fund is required to send its audited accounts in respect of each financial year of the fund to CIMA within six months of the end of that financial year or within such extension of that period as CIMA may allow.
If the fund is unable to meet the six-month deadline for filing its audited accounts, it must seek an extension from CIMA before the audit submission deadline (i.e. 30 June if the last financial year end is 31 December). Audit filing extensions are considered on a monthly basis, up to a maximum of 3 months post the original audit filing deadline. For any subsequent extension requests, a letter from the fund’s auditor must be included, comprehensively explaining the reason for the audit filing delay.
New Audit Filing System Updates
CIMA has recently released a revised version of the REEFS form (form FXT-162-22-02 has been replaced with form FXT-162-22-03), which is now used for requesting an extension on audit filings.
The new REEFS form has been upgraded to enable registered private funds, in addition to regulated mutual funds, to access CIMA’s REEFS portal for submitting requests to extend their audit filing deadlines. In addition, the new form enables a fund to submit multiple extension requests within one application, allowing for one, two, or even three extensions (covering up to three months past the original audit filing deadline). A fee continues to be payable in respect of each extension request. The previous form only allowed one extension request per application.
Conclusion
Compliance with CIMA’s audit requirements is essential for Cayman regulated funds to maintain good standing and facilitate compliant operations or de-registration.
Appleby’s Asia Investment Funds team advises on a full spectrum of open-ended and closed-ended investment funds on all aspects, including fund formation, fund ongoing regulatory compliance, fund listings, fund finance, fund restructuring and winding up and termination. If you have any questions to these topics, please feel free to reach out to us.
