Cayman Finance intervenes in EU directive debate

Cayman Finance has intervened in
the debate over the EU Alternative Investment Fund Manager Directive in a
letter to the EU parliament’s rapporteur on the Directive Jean-Paul Gauzès.

The letter by Cayman Finance
Chairman Anthony Travers said its intention was to correct “a misunderstanding
about the nature of the transparency which exists in relation to the Cayman Islands
hedge funds industry and the manner in which Cayman
Islands hedge funds operate”.

It is in response to comments made
earlier by Mr. Gauzès that seemed to indicate the hedge-fund legislation would
significantly restrict the ability of funds based in offshore financial centres
to attract European investments. The proposal would create a “black list” of
jurisdictions that European hedge fund investors are prohibited from investing
into. To avoid being blacklisted, countries would have to comply with four or
five criteria, said Mr. Gauzès.

The attempt to explain Cayman’s
hedge fund regime came just days before the EU parliament’s economic and
monetary affairs committee is scheduled to vote on the proposed directive. The
vote was initially planned for Monday 10 May but had to be postponed by a week
to include several amendments proposed by the parliament’s legal affairs
committee. The EU council is also set to vote on its version of the directive
on 18 May.

In the letter Mr. Travers detailed
how the Cayman Islands already meets regulatory and transparency requirements
for hedge funds jurisdictions.

He specifically highlighted
Cayman’s “full pro-active tax reporting for all European Union residents with
the relevant Treasury department of each of the 27 European Union members” under
the European Union Savings Tax Directive. Although therefore technically
unnecessary, the Cayman Islands has also
signed a number of tax information exchange agreements with EU members under
the OECD regime, Mr. Travers wrote. 

In addition the Cayman
Islands has full IOSCO membership. As such it operates full
regulator to regulator disclosure and in principal expects all Cayman Islands regulated funds to operate on the basis of
full transparency, Mr. Travers said.

At the same time the anti money
laundering legislation of the Cayman Islands
is evaluated by both the International Monetary Fund and the Financial Action
Task Force. Cayman’s anti money laundering regime itself “is found to be superior
to that of most EU jurisdictions when evaluated in relation to the Vienna principles,” the
Cayman Finance chairman said.

He further told Mr. Gauzès:”A
Cayman Islands hedge fund may have fund managers investing its assets in a
number of onshore jurisdictions but no Cayman Islands
hedge fund can therefore invest otherwise in accordance with the laws and regulations
that are of application to each such fund manager in its jurisdiction of residence
and operation.”

Mr. Travers said no objection
exists to European financial institution establishing operations and undertaking
trading activity from within the Cayman Islands.

“The Cayman
Islands financial services industry operates to access and pool
funds from the international capital markets and directs those funds into
investment opportunities in G20 jurisdictions,” he wrote.

“Whilst in terms of [assets under
management] the favoured locations for investment managers of Cayman funds are
the United States and Asia,
the Cayman Islands industry would welcome any opportunity to establish with you
a regime that would enable European Union based fund managers to continue to
benefit from investment by Cayman Islands investment
vehicles,” Mr. Travers concluded. 

Mr. Travers statements echoed a
letter to the editor of the Wall Street Journal by Maples and Calder Global
Managing Partner Henry Smith regarding an article that implied the AIFM directive
could put the Cayman Islands on a new “black
list”. Mr. Smith pointed to a compromise text produced by Mr. Gauzès that aims
to apply established global standards, when assessing the suitability of
third-country funds for marketing to European investors. “Any objective
analysis demonstrates that the Cayman Islands
are well-placed to satisfy the criteria put forward by Mr Gauzès,” wrote Mr.
Smith, who also listed Cayman’s efforts to comply with international standards
on tax information exchange and regulation.

“If this still leaves the Cayman
Islands on a black list for European investors, then they will be in the
company of global powers such as the US
and China,”
Mr. Smith said.

He expressed hope that EU policy
makers will not discriminate against the Cayman Islands,
“which is currently home to a wide range of investment products, including
those for EU pension funds, and others that rely on European capital to support
vital infrastructure and micro loans in developing countries”.