Regulatory Policy - Exemption from Audit Requirement for a Regulated Mutual Fund (July 2020)

Summary

This is a CIMA regulatory policy (July 2020) explaining when the Authority may exercise its statutory discretion under section 8(4) of the Mutual Funds Law to exempt a regulated mutual fund from the annual audit requirement in section 8(1), and from the related requirement to file audited accounts within six months of financial year end under section 8(2). It applies to funds registered or licensed as regulated mutual funds under the Mutual Funds Law that are otherwise required to be audited.

The policy states that CIMA expects all funds to be audited and will only consider an exemption in exceptional circumstances, assessed case by case. It lists specific scenarios where an exemption may be considered, and for each scenario specifies the documents (such as affidavits, liquidator confirmations, or third-party liquidator reports) that must accompany an exemption request.

• An unlaunched fund not wishing to de-register.
• An unlaunched fund being liquidated or de-registering.
• A launched fund that failed to raise sufficient capital.
• A fund unable to obtain audited accounts due to bankruptcy or enforcement action.
• A fund in compulsory liquidation.
• A fund in voluntary liquidation with a third-party liquidator.
• A fund transferring to another jurisdiction.
• A fund dissolving via merger.

The document also addresses extensions of the first or last audit period (up to 18 months), fee payment on application, and heightened scrutiny through additional information requests where a fund seeks exemptions in two consecutive years. It cross-references the Rule and Regulatory Procedure on Cancellation of Licence/Certificate of Registration for funds seeking an audit waiver alongside de-registration.

Key obligations

• A fund seeking an audit exemption must pay the application fee prescribed under the Monetary Authority Law upon submission of the application.
• An operator of the fund must provide written confirmation that the exemption will not contravene the fund's constitutive documents or offering document, and will not prejudice investors or creditors.
• Each exemption request must be accompanied by an explanation of the reason for the fund's inability to complete an audit, plus the specific supporting documents required for the applicable circumstance (e.g., operator affidavits, administrator/liquidator confirmations of no subscriptions, third-party liquidator's report covering specified review areas).
• Where a fund applies for an exemption for two consecutive years, it (via its operator or administrator) may be required to provide additional information explaining its inability to produce audited accounts.
• A fund unable to obtain audited accounts due to bankruptcy, legal/regulatory enforcement action, or compulsory liquidation must submit agreed-upon procedures and liquidators' reports in lieu of audited accounts.
• A fund in voluntary liquidation with a third-party liquidator must submit a liquidator's report covering subscriptions/redemptions, bank reconciliations, shareholder register agreement, fee recalculations, creditor/accrual review, solvency review, and compliance matters.
• A fund transferring to another jurisdiction or dissolving via merger must provide the information set out in the Regulatory Procedure on Cancellation of Licences, and, where applicable, audited financial statements incorporating the terminating fund's data.
• A fund seeking an audit waiver in conjunction with de-registration must submit the documents and fee outlined in the relevant Regulatory Procedure.

Applies to

regulated mutual funds

Deadlines

• within six months of the end of that financial year: Statutory deadline under section 8(2) of the Mutual Funds Law for a fund to send its audited accounts to the Authority, absent an exemption or extension.
• maximum of 18 months from the date of registration: Maximum extension the Authority may consider for a fund's first audit period.
• maximum of 18 months from the date of the last financial year end for which an audit has been filed: Maximum extension the Authority may consider for a fund's last audit period.
• within six (6) months of its last financial year end for which an audit has been filed, or is due to be filed: Timeframe within which a fund transferring to another jurisdiction, or dissolving by merger, may qualify for audit exemption consideration under this policy.