2023 Corporate Governance for Regulated Entities: What You Need to Know

The New Measures come into effect fully on 14 October 2023 (the “Effective Date”), bringing about enhanced internal control, corporate governance and board support requirements for all types of regulated entities, and introducing elevated guidance for mutual funds and private funds.

What is different about the New Measures compared to previous guidance?

The New Measures include both a Rule and also a Statement of Guidance (“SOG”). A Rule is a CIMA directive creating a regulatory obligation, the breach of which may lead to a fine or regulatory action, while a SOG is a measure for CIMA to assess compliance with a Rule or applicable law.

The New Measures now bring regulated private funds into scope of the corporate governance requirements for the first time.
Under the New Measures, a regulated entity’s corporate governance framework must address, at a minimum, the following:

• Objectives and strategies;
• Structure and governance of the governing body;
• Appropriate allocation of oversight and management responsibilities;
• Independence and objectivity;
• Collective duties of the governing body;
• Duties of individual directors;
• Appointments and delegation of functions and responsibilities;
• Risk management and internal control systems;
• Conflicts of interest and code of conduct;
• Remuneration policy and practices;
• Reliable and transparent financial reporting;
• Transparency of communications;
• Duties of senior management; and
• Relations with CIMA.

The new Rule and SOG – Internal Controls for Regulated Entities (the “IC Rule and SOG”) is divided into two parts.  Part I contains general rules and guidelines for all regulated entities (including regulated mutual funds and private funds) and Part II contains sector specific rules and guidelines, in particular in relation to fiduciary service providers (e.g. trust companies, company managers and corporate services providers) and securities investment business.

The new IC Rule and SOG provides that the governing body of a regulated entity is ultimately responsible for ensuring that an adequate and effective system of internal control is established, documented and maintained.

CIMA recognises that application of these New Measures is proportionate and may vary subject to the size, complexity, structure, nature of business and risk profile of the regulated entity.  CIMA also acknowledges that regulated entities may rely on their service providers or group-wide frameworks in respect of their corporate governance framework and internal controls assuming such relied upon practices satisfy the regulated entity’s regulatory obligations.

What steps should regulated entities take to ensure compliance with the New Measures?

The New Measures include a number of reporting and documentation requirements, including the minuting of governing body meetings and a requirement for the governing body of a regulated entity to meet at least once annually.

Regulated entities, including regulated investment funds, required to comply with Cayman Islands anti-money laundering laws and regulations (“Cayman AML Regulations”) often outsource their compliance requirements, including the requirement to appoint an AML Compliance Officer, a Money Laundering Reporting Officer (“MLRO”) and Deputy MLRO.  Under the New Measures, each of these roles is considered a material outsourced function, and as such, the governing body of a regulated entity must carefully consider its outsourcing arrangements and conduct adequate due diligence before engaging such an outsourced service provider.  Individuals appointed to serve as AML officers must be suitably qualified, with relevant experience and adequate knowledge of Cayman AML Regulations and the wider financial services industry.

Regulated entities should actively review the New Measures in detail to ensure that they are in compliance with all requirements from 14 October 2023.

How the Maples Group can help

As the leading offshore service provider, the Maples Group has the largest dedicated Company Secretarial and Board Support Services team in the Cayman Islands with extensive qualifications and experience in providing the highest level of corporate governance, board meeting management and reporting and investor relations support.

Although there is no “one-size fits all” approach, governing bodies of regulated entities will need to meet at least once annually to review and revise, as necessary, aspects of their regulated entity’s corporate governance practices and framework, to ensure the adequacy of their arrangements and compliance with the New Measures. The circulation of an agenda prior to the meeting and carefully minuted proceedings will be keystones in demonstrating ongoing compliance.

The Company Secretarial and Board Support Services team within the Maples Group is well placed to assist with the ongoing corporate governance obligations for all types of regulated entities.

The Maples Group partners with clients to create a bespoke offering to fit their size, structure, and risk assessment profile, so that companies can focus on their core business, rather than on administrative work. The result is a streamlined reporting system easily accessed by key stakeholders, including authorised representatives and regulatory bodies and an integrated institutional governance structure that allows all parties to rest assured that their corporate governance requirements are being met.

Additionally, the Maples Group’s AML Compliance Team consists of knowledgeable and highly experienced individuals to perform required AML functions, supported by a team of analysts – continuously monitoring and assessing risks – as well as leveraging the group’s institutional infrastructure and renowned expertise in alternative investment funds.

Get in touch with our Cayman Corporate Secretarial team.