The European Securities and Markets Authority decided this month to delay a recommendation to the European Commission on whether to grant a third country passport to Cayman Islands Alternative Investment Fund managers.
Passporting would allow fund managers in Cayman to do business throughout the European Union. In order to be granted a passport for alternative investment funds, a country has to have suitable protection for investors and enforcement measures in place that comply with EU rules. Without a passport, fund managers have to apply to each EU country to do business there.
For Cayman and Bermuda, the regulator said in a statement, “ESMA cannot give definitive advice with respect to the criteria on investor protection and effectiveness of enforcement since both countries are in the process of implementing new regulatory regimes and the assessment will need to take into account the final rules in place.”
Jude Scott, CEO of Cayman Finance, said in a press release, “Given the large number of alternative investment funds domiciled in Cayman, we play a critical role in the success of the global economy. Cayman has also been recognized for decades as a strong partner of EU members and other states in combatting corruption, money-laundering and tax evasion, because we meet or exceed all globally accepted standards for transparency and cross border cooperation and regulation.”
He added, “We had hoped that this exceptional record should have been sufficiently good grounds to enable Cayman to be favorably reviewed by ESMA at this point in time.”
Mr. Scott said he expects the EU to continue to allow Cayman funds to continue to be marketed in Europe through the existing national private placement regimes.
The authority advised the broader European Commission to grant passports to Canada, Guernsey, Japan, Jersey and Switzerland. It deferred decisions on the Cayman Islands, Bermuda, United States, Hong Kong, Australia, Singapore and the Isle of Man.
Cayman’s Financial Services Ministry sent out a statement shortly after the authority announced the delay. The ministry said the current national private placement regime will stay in place until at least 2018, designed to coexist with the new passport regime.
Minister Wayne Panton said in the statement that Cayman should be “a few short months away from finalization” for EU passporting.
Mr. Scott said, “Having reviewed the advice, we believe the Cayman Islands Monetary Authority and government can work constructively with ESMA and address the points that ESMA has raised in a much shorter time frame than ESMA suggested in its advice. We are confident that Cayman can satisfy those points.”
In the authority’s decision to defer a passport for Cayman, the regulator notes that it is awaiting two changes from the Cayman Islands Monetary Authority. First is a legislative amendment to give CIMA the power to impose administrative fines for regulatory breaches without having to bring the matter to court. The second change noted by the EU regulator is that CIMA is currently working on a better system for risk monitoring.