Optional EU regulatory regime sought for Cayman funds

Government has released two bills that enable Cayman-based funds and managers connected with the European Union to elect a regime of prudential regulation consistent with the EU Alternative Investment Fund Managers Directive.  

The bills, which amend the Mutual Funds Law and the Securities Investment Business Law, may mean that the Cayman Islands qualifies for a so-called “third country passport” under the European directive. 

The passport would allow Cayman funds to be marketed to professional investors across the EU, rather than through private placement in each EU member state individually. 

The European Securities and Markets Authority will assess Cayman’s regulatory regime and its supervisory cooperation with EU regulators to provide advice to the European Commission by July 22 on which jurisdictions should be considered for a “third country passport.” 

Opening European markets 

The proposed amendments of the Mutual Funds Law introduce the concept of a “regulated EU connected fund” which is either managed from or marketed in a member state of the European Economic Area and elects to fall within the Cayman Islands Monetary Authority’s regulated EU connected fund regime. The AIFMD regime applies to both open and close ended funds. 

The bill amending the Securities Investment Business Law creates the “EU connected manager” designation for individuals who fall within the existing scope of the law, who conduct management, marketing or depositary activities as defined by the EU directive and who voluntarily decide to fall within CIMA’s new EU connected manager regime. 

EU connected funds and EU connected managers that opt in to the AIFMD regimes will be subject to CIMA’s enforcement powers under the respective amended laws. 

Non-EU connected funds or managers will not be affected should the bills become law because the AIFMD regimes are optional. 

Cayman Finance believes there is a compelling case for European Securities and Markets Authority and the European Union to consider extension of the AIFMD passport to the Cayman Islands.  

“The AIFMD regimes, combined with the long-standing reciprocity of access for EU funds and managers to investors in the Cayman Islands, will put Cayman in an excellent position to secure an extension of the AIFMD passport to the Cayman Islands,” Cayman Finance said in a statement. “This will be of particular interest to those seeking to market Cayman funds in the EU whether using existing national private placement regimes or, once extension to Cayman is approved, the AIFMD passport mechanism.”  

The organization added it would be of significant benefit to EU investors, given that the vast majority of non-European top managers are using Cayman vehicles in their fund structures and that Cayman is home to 11,000 investment funds. 

Cayman Finance CEO Jude Scott said, “The Cayman Islands government, the Cayman Islands Monetary Authority and the Cayman Islands financial services industry all recognize Cayman’s important role in the global investment funds market, and these new AIFMD regimes are the latest example of the jurisdiction continuing to evolve its legislation and regulation in a balanced and robust manner to meet the needs of investors and managers around the world.” 

The bills are expected to be passed into law in August. The detailed compliance obligations for EU connected funds and managers under the revised laws will be detailed in regulations set to be issued shortly after the laws come into force. 

However, the compliance requirements are not anticipated to be more onerous than the ones the vast majority of Cayman Islands investment funds are subject to. 

The European Union will decide within three months after European Securities and Markets Authority’s recommendations which jurisdictions will be granted “third country passports.” 

Jude-Scott
Mr. Scott
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