The European Securities and Markets Authority approved the signing of memoranda of understanding with the Cayman Islands Monetary Authority during a meeting of ESMA’s board of supervisors on Wednesday, 22 May.
The agreements relate to the EU Alternative Investment Funds Management Directive and will facilitate the marketing of non-EU alternative investment funds in the European Union.
The directive, which will be implemented across Europe from 22 July, 2013, prevents alternative investment funds from non-EU jurisdictions, like Cayman hedge funds, to be marketed within EU countries unless certain conditions are met. One of these conditions is that cooperation agreements exist between securities regulators in the fund domicile country and the EU member state where the fund is marketed.
To date, CIMA only has a cooperation agreement with the UK Financial Services Authority.
In March, the Cayman Islands government passed an amendment to the Monetary Authority Law to allow Cayman’s regulator to enter into memoranda of understanding with its EU counterparts, using a model MoU developed by the European Securities and Markets Authority.
The memoranda of understanding set standards for cooperation on the supervision of investment funds, aim to protect investors and work toward global coordination of information sharing. The MoUs will also provide for regular reporting to the relevant EU regulator as well as cross-border on-site visits. Cayman Finance welcomed news that CIMA will sign the agreement with the European Securities and Markets Authority as part of Cayman’s preparations for the EU Alternative Investment Fund Managers Directive.
“The AIFMD, if not addressed, would pose some challenges for the marketing of Cayman Islands hedge funds in Europe, and we are very happy this step will be taken by CIMA to address concerns and enable the jurisdiction to continue to thrive as a leading funds domicile,” said Gonzalo Jalles, CEO of Cayman Finance.
Maintaining the jurisdiction’s links in Europe is key to the success of various Cayman Islands financial services providers and the wider economy, Mr. Jalles said.
“I see this signing as a proactive move and commend CIMA and the other stakeholders who have been working on it.”
Cayman meets the other two conditions for the marketing of non-EU funds in Europe, including that the domicile of the fund manager is not on the Financial Action Task Force list of non-cooperative jurisdictions and agreements are in place for the exchange of information for tax purposes between the EU and non-EU jurisdictions.
Cayman Islands Premier Alden McLaughlin said he is satisfied CIMA will soon sign MoUs with the European securities market regulator. “The international financial services sector is a critical pillar of the Cayman Islands economy. These MoUs will enable the continued marketing of Cayman Islands hedge funds throughout the European Union,” he said.
Mr. McLaughlin emphasised that Europe is a significant market for Cayman given that approximately 23 per cent of Cayman-regulated fund assets are managed by a European fund manager.
“With the enactment of the Mutual Funds Law, the Cayman Islands has become the leading jurisdiction for funds,” added Minister for Financial Services Wayne Panton.
“Despite continued volatility in the global financial markets, the Cayman Islands funds industry has performed exceptionally well, with 10,932 funds regulated by CIMA as of 31 March, 2013. The signing of the MoUs with ESMA members is an important step in maintaining our competitiveness in the European market,” he said.
Twenty EU authorities have already signed the MoU with CIMA, in the margins of the meeting of ESMA’s board of supervisors on Wednesday. On the same day, the ESMA board approved MoUs with 33 other non-EU authorities.
CIMA Managing Director Cindy Scotland, who signs the MoUs on the authority’s behalf said, “CIMA has been in discussion with ESMA on the model requirements since early 2012, and we are very pleased that arrangements are being put in place which will enable the Cayman Islands to remain a preeminent jurisdiction for hedge funds.”