The Cayman Islands is the leading offshore domicile for hedge funds, and as regulators and investors have placed more stringent requirements on good governance and oversight, independent directors have taken up the mantle of supporting the asset management industry.
A thriving sector of Cayman’s financial services industry is the provision of independent directors on various structures, such as hedge funds, private equity funds, special purpose vehicles and insurance companies. Corporate Governance, in general, has become a major touch point in the financial services industry worldwide, following a number of high-profile cases where investors were defrauded, in part due to insufficient independent oversight. In addition, during the global financial crisis, independent directors from the Cayman Islands added significant value when hedge funds were faced with making difficult decisions, for example, ensuring that all decisions were made in accordance with the fund documents and that all shareholders were treated fairly. This has not been lost on the institutional investors who are, for the most part, making it one of their investment requirements that there is a majority of independent directors on the board.
In addition to the extra layer of oversight provided, a significant benefit of appointing a local Cayman director to a Cayman entity is that local service providers are current with all relevant legislation and can ensure that the structure is compliant with their legal requirements.
The Cayman Islands Government approved the Directors Registration and Licensing Act (DRLA) 2014, which requires all directors of mutual funds regulated under the Mutual Funds Act (As Revised) and directors of companies registered as excluded persons under the Securities Investment Business Act (As Revised), to register with CIMA. This law provides for the registration and licensing of individuals or companies appointed as directors of Cayman Islands mutual funds and entities carrying out securities investment business. This includes Cayman Islands incorporated or registered investment managers. The law requires an individual acting as a director on 20 or more entities to apply for a professional director’s licence unless they meet certain caveats. Professional directors are required to have insurance with a minimum aggregate cover of CI$1 million and minimum cover of CI$1 million for each and every claim. An amendment to the DRLA was passed in early 2020 as a consequence of amendments to the Securities Investment Business Act (SIBA).
The use of independent directors has been brought into increased focus following the implementation of the Economic Substance requirements, which came into effect in the International Tax Co-operation (Economic Substance) Act, passed in December 2018. This legislation does not currently apply to investment funds but requires all other relevant entities to prove that their ‘mind and management’ are in the Cayman Islands, and to allow them to claim the tax benefits of being domiciled in an offshore jurisdiction.
For a list of the top firms in the Cayman Islands who offer independent director services please see here:
