Regulatory Policy - Exemption from Audit Requirement for a Regulated Mutual Fund

Summary

This is a CIMA Regulatory Policy (dated June 2016) explaining the circumstances under which the Authority may exempt a regulated mutual fund from the statutory requirement to have its accounts audited annually under section 8 of the Mutual Funds Law. It clarifies that CIMA expects all regulated mutual funds to obtain annual audits as a general rule, and that audit waivers or extensions will only be granted in exceptional circumstances, assessed on a case-by-case basis with full CIMA discretion.

The policy lists specific scenarios in which an exemption may be considered. For each scenario, the document sets out the supporting documents (affidavits, liquidator reports, investor resolutions, etc.) that must accompany an exemption request, plus payment of the prescribed application fee.

• Funds that have not launched
• Funds that have launched but failed to raise sufficient capital
• Funds affected by bankruptcy or regulatory enforcement
• Funds in compulsory or voluntary liquidation
• Funds transferring to another jurisdiction or dissolving via merger within six months of their last audited financial year end
• Funds where all (ten or fewer) investors agree to waive an audit for part of a financial year

The policy also notes that repeated (two consecutive years) exemption requests may trigger additional information requests from CIMA, and that where an exemption is sought alongside deregistration, the fund must also comply with the separate Rule and Regulatory Procedure on Cancellation of Licences/Certificates of Registration.

Key obligations

• A fund's operator must provide written confirmation that an audit exemption will not contravene the fund's constitutive documents/offering document or prejudice investors and creditors.
• The prescribed application fee under the Monetary Authority Law must be paid upon submission of an audit waiver application.
• Each exemption request must be accompanied by an explanation of the fund's inability to complete an audit, plus the specific supporting documents required for its circumstance (e.g., operator affidavits, administrator/liquidator confirmations, third-party liquidator reports, investor resolutions).
• A fund not yet launched but not seeking deregistration must submit an operator affidavit explaining the non-launch, reasons for not deregistering, and confirming no subscriptions were received.
• A fund not launched and being liquidated/deregistered must submit an operator affidavit and written confirmation from the administrator/registrar/transfer agent/liquidator that no subscriptions were accepted.
• A fund unsuccessful in raising capital must submit an operator affidavit confirming insufficient capital, cessation of subscriptions, and return of all subscription monies.
• A fund unable to obtain audited accounts due to bankruptcy or enforcement action, or in compulsory liquidation, must submit agreed-upon procedures and liquidator 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 review, bank reconciliations, shareholder register agreement, fee recalculation, creditor review, solvency review, and compliance reporting.
• A fund transferring to another jurisdiction or dissolving via merger within six months of its last audited financial year end must submit the information required under the Regulatory Procedure (and, for merging funds, accounts covering the pre-dissolution period; surviving regulated funds must submit audited financials incorporating the dissolved fund's data).
• Where all investors (ten or fewer) agree to forego an audit for part of a financial year, the requestor must submit an operator affidavit and signed investor resolutions acknowledging the risks of foregoing an audit.
• If a fund requests an exemption for two consecutive years, it may be required to provide additional information to CIMA about its inability to produce audited accounts.
• Funds seeking an audit waiver combined with deregistration must submit the documents and fee specified in the Regulatory Procedure on Cancellation of Licences/Certificates of Registration.

Applies to

regulated mutual funds

Deadlines

• within six months of the end of that financial year: Statutory deadline (Mutual Funds Law s.8(2)) for a regulated mutual fund to send its audited accounts to CIMA, unless an extension or exemption is granted.
• maximum of 18 months from the date of registration: Possible extension period CIMA may allow 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: Possible extension period CIMA may allow for a fund's last audit period.
• within six (6) months of its last financial year end for which an audit has been filed: Condition for a fund transferring to another jurisdiction or dissolving by merger to qualify for consideration of an audit waiver.
• not more than six (6) months: Maximum part-financial-year period for which all investors (ten or fewer) may agree to forego an audit.