The financial industry and many
other members of the public will be aware that the European Union Tuesday
approved rules that would significantly increase the requirements for hedge
funds based outside of the union. Further details of the Alternative Investment
Fund Manager Directive still have to be worked out before it goes to the EU
Parliament in July for final approval.
The EU’s rationale for the AIFMD is
to provide harmonised regulatory standards for all alternative investment fund
managers within its scope and to enhance transparency. As those who have been
following the issue are aware, a number of countries, including the UK and USA
opposed the draft directive, arguing that the requirements would be extremely
onerous and have the effect of discriminating against non-European funds.
The rules would require those funds
inside the EU to comply with restrictions on bonuses, leverage and investment
strategies, among other things.
In addition, the AIFMD places
conditions on investments in funds from non-EU jurisdictions. Under the
directive, the marketing of funds from non-EU countries would be allowed if
certain criteria are met. As it currently stands, these criteria include
equivalence in relation to regulatory oversight, anti-money laundering and
countering terrorist financing, and compliance standards. They also involve
having regulatory and tax information exchange agreements between relevant
non-EU and EU authorities, as well as market access for EU based funds.
We believe that Cayman, on an
objective assessment, meets these criteria. However, we are still seeking
clarification on the specifics (some of which the EU is still working out) and
on the process that they will put in place to assess whether the criteria are
Let me point out that since the
draft rules were first proposed in April 2009, the Cayman Islands Monetary
Authority has been studying them, and the responses and counter-proposals to
them, taking into consideration the possible impacts on the Cayman Islands’
hedge funds industry. As an extension of that, both CIMA and government
representatives have had discussions with various people (including regulators)
in the UK and Europe with regard to the proposals.
CIMA’s Managing Director, Cindy
Scotland, and other senior managers of CIMA have been working with Sidley&
Austin LLP, which the Government recently retained as our advisors on
international relations, to set up meetings between EU representatives and a
wider government-CIMA delegation. We are targeting those discussions for as
early as the first part of June. The delegation will be led by me as premier
and minister of finance. It will also include CIMA’s Chairman George McCarthy;
Mrs. Scotland, and the Deputy Managing Director – General Counsel, Langston
I will be able to provide a further
update on developments once we hold these meetings.
Premier McKeeva Bush