Marketing into the Cayman Islands – Q&A with regulatory expert Alastair Lagrange

In this Q&A, regulatory specialist Alastair Lagrange looks at the perimeter issues that most often arise when companies market into the Cayman Islands, including when activity may amount to establishing a place of business or carrying on business in the Cayman Islands and what that can mean in practice. He also covers three recurring scenarios: offerings by foreign issuers and funds, securities investment business and reverse solicitation.

Key takeaway: Most Cayman perimeter issues can be identified early by stress-testing whether the proposed approach involves a Cayman place of business or carrying on business in the Cayman Islands or, in the funds context, communications that amount to an invitation to the public in the Cayman Islands.

What does it mean, in practice, to be “marketing into the Cayman Islands”?

This phrase is not defined by Cayman Islands law and is used loosely to cover a wide range of conduct. At a high level, it refers to activities by a non-Cayman entity that promotes or offers services or securities to persons in the Cayman Islands. Whether that activity has regulatory consequences under Cayman law depends on a combination of factors including what is being offered, to whom and how closely the activity is connected to the Cayman Islands. A key consideration is whether the activity causes the non-Cayman entity to be regarded as having established a place of business in the Cayman Islands or to have commenced carrying on business there.  

What happens if a company establishes a place of business or commences carrying on business in the Cayman Islands?

If a non-Cayman company establishes a place of business in the Cayman Islands or is otherwise regarded as carrying on business there, it will generally be required to register as a foreign company under the Companies Act (Revised).

Once that occurs, the foreign company may be subject to Cayman Islands regulatory regimes on its worldwide operations. This includes regulatory regimes applicable to securities investment business, virtual asset services, banking, trust business, money services and insurance.  Accordingly, care should be taken to ensure that the activities of a non-Cayman company do not inadvertently bring it within the Cayman Islands regulatory framework. 

When will a company be treated as carrying on business in the Cayman Islands?

The analysis looks to the substance and context of the activity. The fact that a company deals with persons in the Cayman Islands is not, without more, sufficient. Cayman legislation expressly excludes certain activities from the concept of carrying on business, including amongst other things, activity that is undertaken solely in furtherance of business carried on outside the Cayman Islands and certain dealings in securities issued by Cayman exempted companies, as well as other limited statutory carve-outs.

Where an exclusion does not apply, the focus is on the nature of the activity and the extent of the company’s physical or operational presence in the Cayman Islands. Factors that tend to attract scrutiny include sending representatives to the Cayman Islands, using Cayman-based agents or intermediaries, negotiating or concluding contracts in the Cayman Islands, maintaining premises or staff in the Cayman Islands and conducting regular in-person meetings with Cayman counterparties. These kinds of activities may be enough to bring the company within the Cayman regulatory framework.

What types of activity are unlikely, on their own, to be problematic? 

General solicitation or advertising that takes place outside the Cayman Islands and is not directed at persons in the Cayman Islands is unlikely, without more, to amount to carrying on business in the Cayman Islands. The same is generally true where the material is not hosted by a Cayman Islands internet service provider and is not followed up by Cayman-specific contact.

In practical terms, this means that publicly accessible website content, presentations delivered at conferences outside the Cayman Islands, media interviews given outside the Cayman Islands and advertisements or press releases issued outside the Cayman Islands will not usually be problematic, provided they are not targeted at Cayman persons.

Are there particular issues where a foreign fund offers securities into the Cayman Islands?

Yes. Cayman law treats certain securities offerings differently from other forms of marketing. Under the Companies Act (Revised), the concept of carrying on business includes the sale by or on behalf of an overseas company of its shares or debentures in the Cayman Islands. In practice, whether a particular transaction engages that concept turns on the facts, including how the offer is made and the extent of any Cayman-directed selling activity, rather than simply on the fact that an investor happens to be based in the Cayman Islands.

In addition, under the Mutual Funds Act (Revised) (MFA) and the Private Funds Act (Revised) (PFA), restrictions apply to a foreign fund making an “invitation” to subscribe to “the public in the [Cayman] Islands”. Broadly, a foreign fund may not make such an invitation unless it does so through a person licensed under the Securities Investment Business Act (Revised) and the fund is either listed on a recognised securities exchange or regulated by a recognised overseas authority.

There are exclusions from what constitutes “the public in the [Cayman] Islands”, including high net worth persons, sophisticated persons, exempted companies and exempted limited partnerships. Foreign funds should ensure their the Cayman Islands approach falls within an available route or is limited to investors who are outside the “public in the [Cayman] Islands” concept.

When does the Securities Investment Business Act become relevant? 

The Securities Investment Business Act (Revised) (SIBA) regulates securities investment business, which includes acting as a broker-dealer, arranger, adviser or manager. Its application can be triggered where a non-Cayman company registers in the Cayman Islands as a foreign company, and it can also be triggered directly, without registration as a foreign company, where the company establishes a place of business in the Cayman Islands.

Importantly, if a person conducting securities investment business, such as a fund manager, wishes to market the securities of a foreign fund in the Cayman Islands, it should take care to observe the fund-level restrictions on making invitations to subscribe to the public in the Islands. 

It is also worth bearing in mind that the statutory definition of “securities” is intentionally broad. It covers not only traditional shares and debt instruments but also certain virtual assets that represent, or are capable of being converted into, securities or derivatives of securities. This breadth means that SIBA issues can arise in contexts that are not always obvious at first glance.

Is reverse solicitation recognised under Cayman Islands law?

Where the Cayman contact is initiated by the client or investor, reliance on reverse solicitation is generally permissible. There is, however, no formal or codified reverse solicitation safe harbour in the Cayman Islands.

Care is therefore required. The position can be undermined where the provider otherwise has a presence in the Islands or has engaged in prior conduct that makes it difficult to characterise the enquiry as genuinely unsolicited. 

In the investment funds context, the analysis is different. Because an “invitation” may be treated as made when offering and subscription documents are provided, reverse solicitation will not generally provide a route to subscriptions by persons who fall within “the public in the [Cayman] Islands”.

What is the practical message for firms marketing from outside the Cayman Islands? 

Whether a Cayman Islands regulatory issue arises will always depend on the facts. A firm operating from outside the Cayman Islands can nonetheless be treated as carrying on business in the Cayman Islands, or trigger sector-specific regimes, depending on the Cayman Islands nexus of its activities.

For that reason, these issues are best considered at an early stage, before the structure of the offering or the manner of engagement has been settled. Early analysis is usually simpler, and cheaper, than trying to unwind a position after the fact.

How Ogier can help

Ogier advises issuers, managers and service providers on Cayman Islands marketing and cross-border perimeter questions, including foreign company registration analysis, funds marketing restrictions under the MFA and PFA and SIBA perimeter issues.

We regularly support onshore counsel and institutional clients to structure offerings, stress-test distribution plans and align documentation and engagement approaches with Cayman Islands clients and targets. 

When to contact Ogier

We advise you contact Ogier for help when:

• you plan any Cayman-facing outreach, meetings or roadshows
• a Cayman-based intermediary or agent may be involved
• any contracts may be negotiated or signed in the Cayman Islands
• Cayman investors will receive fund offering materials
• you are relying on reverse solicitation or other fact-sensitive distribution constraints

For more information, contact Alastair via his contact details below.

About Ogier

Ogier is a professional services firm with the knowledge and expertise to handle the most demanding and complex transactions and provide expert, efficient and cost-effective services to all our clients. We regularly win awards for the quality of our client service, our work and our people.

Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found under Legal Notice