Cayman Islands introduce opt-in regime for AIFMD compliance

News | 2015-07-24

The Cayman Islands Government has recently published two amendments of the key legislation regulating Cayman Islands funds and asset managers in preparation for European Securities and Markets Authority’s (“ESMA”) advice to the European Commission (“EC”) on whether the European Union (“EU”) Alternative Investment Fund Managers Directive (“AIFMD”) passport should be extended to non-EU managers that manage and/or market non- EU funds in the EU.

The initiative to amend the Mutual Funds Law (“MF Law”) and Securities Investment Business Law (“SIB Law”) is to ensure that the Cayman Islands is best positioned to receive a favorable recommendation from the ESMA, which will assess the Cayman Islands’ regulatory regime, levels of supervisory cooperation, investors protection, competition and the monitoring of systemic risk. The advice will be issued to the EC, which will consider whether the EU AIFMD passport will be made available to the alternative investment managers from outside the EU on a voluntary opt-in basis.

The introduction of opt in regimes would be of a particular importance to both the investment managers and funds. The Cayman funds that are not intending to raise capital in the European Economic Area (“EEA”), or are not managed by managers located in the EEA, will be able to continue their operations without any additional regulatory requirements.

In particular, the amendment of MF Law introduces a provision for the regulation of the investments funds that elect to be regulated by Cayman Islands Monetary Authority (“CIMA”) for AIFMD passport purposes. The fund that makes such an election will be referred to as “EU Connected Fund”. This designation is available to open-ended funds as well as closed-ended funds.

The amendment that is to be implemented into the SIB Law makes provision for the regulation of the funds managers. The designation is referred as ‘EU Connected Manager” and it will enable the investment managers who fall within the scope of the existing SIB Law to conduct management, marketing or depositary services as contemplated under the AIFMD as well as to voluntary elect to be regulated under the opt-in regimes.

Having said the foregoing, there still remains some uncertainty as to the way in which the AIFMD passport regime and existing national private placement regimes (“NPPRs”) in each EU or EEA jurisdiction will co-exist as they are expected to continue until 2018. In particular, it is unclear what the potential impact of any decision to extend the passport to third countries such as the Cayman Islands, will have on the decision as to retention of the NPPRs.