Rule on Corporate Governance for Regulated Entities (April 2023)

Summary

This document is a formal Rule issued by the Cayman Islands Monetary Authority (CIMA) under section 34 of the Monetary Authority Act, setting out mandatory corporate governance standards for all entities that CIMA regulates. It replaces general guidance with binding requirements directed at the "Governing Body" of a regulated entity (i.e., its board of directors, general partner, LLC manager, or board of trustees, as applicable), and is meant to be read alongside sector-specific instruments, including the Statement of Guidance on Corporate Governance for Mutual Funds and Private Funds.

The Rule requires every regulated entity to establish, implement and maintain a documented corporate governance framework covering the following matters:

• Objectives and strategy
• Board structure
• Allocation of oversight versus management responsibilities
• Independence
• Conflicts of interest
• Risk management
• Remuneration
• Financial reporting
• Relations with CIMA

It also sets detailed minimum expectations for the Governing Body's composition, conduct, meeting frequency, and record-keeping, as well as individual duties for Directors and Senior Management:

• Directors' duties: Acting in good faith, exercising due care, avoiding undue influence, and declaring conflicts of interest.
• Senior Management's duties: Accountability to the Governing Body, sound risk management, and timely reporting.

Application is proportional: the framework must be commensurate with the entity's size, complexity, structure, nature of business and risk profile, and group entities may rely on a group-wide framework if it meets Cayman legal requirements. CIMA retains supervisory discretion to assess adequacy of a regulated entity's governance framework and expects entities to justify to CIMA any departure from a particular rule based on proportionality. Breach of the Rule is addressed through CIMA's Enforcement Manual and other statutory powers. The Rule takes effect within six months of its Gazette publication date.

Key obligations

• Establish, implement and maintain a documented corporate governance framework providing sound and prudent management oversight (para 5.1.1).
• Establish a Governing Body responsible for a framework addressing, at minimum, strategy, board structure, allocation of responsibilities, independence, conflicts of interest, risk management, remuneration, financial reporting, transparency, Senior Management duties and relations with the Authority (para 5.1.2).
• Notify the relevant regulator by email within ten days of any substantive issue that could materially affect the regulated entity (para 5.6.1(a)).
• Comply promptly and fully with CIMA's requests for information (para 5.6.1(b)).
• At least once per year, review and re-adopt strategic objectives, evaluate progress, review Governing Body composition and skills, conduct self-assessments, review risk management/internal controls, and review Senior Management remuneration policy where applicable (para 5.6.2).
• Confirm to Non-Executive Directors, at the beginning of each financial year, the ongoing minimum time commitment expected of them (para 5.7.1).
• Require Directors and Senior Management to declare actual or potential conflicts of interest as and when they arise (para 5.3.1(e)).
• Hold regular Governing Body meetings, at least annually, and prepare detailed minutes documenting attendance, dissensions, conflicts declared and substance of matters considered (paras 5.13.3-5.13.6).
• Establish sub-committees, where used, with a documented charter/terms of reference covering mandate, scope, accountability and reporting (para 5.8.1(a)).
• For Portfolio Insurance Companies (PICs), assess at least every two years (or annually in writing if the majority of directors/senior managers are shared with the Segregated Portfolio Company) whether the relationship with the SPC serves policyholders' best interests (footnote 3).
• Be able to demonstrate to CIMA, upon request, the adequacy and effectiveness of the entity's corporate governance framework, and justify any claimed inapplicability of a rule based on proportionality (paras 6.1-6.2).

Applies to

regulated entities, mutual funds, private funds, insurers (Class A, B and C), Portfolio Insurance Companies (PICs), trust businesses

Deadlines

• within six months of the date of Gazette publication: The Rule comes into effect.
• within ten days: Governing Body must notify the relevant regulator by email of any substantive issue that could materially affect the regulated entity.
• at least once per year: Governing Body must review strategic objectives, evaluate progress, assess its own composition/performance, review risk management and internal controls, and review remuneration policy.
• at the beginning of each financial year: Governing Body must confirm to Non-Executive Directors their ongoing minimum time commitment.
• at least annually: Governing Body must hold regular meetings.
• at least every two years (annually in writing if majority of directors/senior managers overlap): PIC Governing Body must assess whether its relationship with the SPC is in the best interests of policyholders.