Gibraltar: The New Cayman For European Funds

Last Updated: 1 April 2014
Article by James Lasry

The Alternative Investment Funds Managers Directive ("AIFMD" and / or the "Directive") has dichotomised the funds industry into EU and non-EU funds jurisdictions. This has put Gibraltar which was one of a dozen such domiciles into a category of one of four European alternative fund domiciles. This is particularly significant because United Kingdom managers with AIFM licenses will be looking for European vehicles for their funds in order to market to European investors.

Until now, these managers tended to use Cayman vehicles which they will probably continue to use for their non-EU business. For those that wish to use their newly earned passporting rights it stands to reason that in their search for European vehicles for their funds, they should look to the jurisdiction which is closest legally, and in regulatory approach to what they are used to in the Cayman Islands. Gibraltar is the only European jurisdiction that allows for the pre-authorisation launch of a fund, as Cayman does.

Furthermore Gibraltar being a common law jurisdiction with the Privy Council as the alternate Court of Appeal and with English as its primary language, is likely to cause less of a culture shock for UK managers who have decided to use a European vehicle.

The Alternative Investment Fund Managers Directive

The AIFMD will operate alongside and create a separate European regulatory regime from UCITS IV and MiFID. Effectively, all European funds will fall under either the AIFMD or UCITS IV. All EU member states were supposed to implement AIFMD into their national laws by 22 July 2013, in fact only 13 jurisdictions did (including Gibraltar).

Since 22 July 2013, European AIFMs managing EU AIFs, such as Gibraltar AIFs, have been able to obtain authorisation under AIFMD and therefore benefit from the EU marketing passport provided for by the Directive. Such AIFMs will be able to market to professional investors freely within the EU. There is the possibility that managers from third jurisdictions such as those in the US, the Caribbean and the Channel Islands will be able to obtain authorisation and therefore access to the EU marketing passport under AIFMD subject to certain conditions but only as from mid-2015 at the earliest. There is some doubt in the industry which is probably justified as to the true willingness of the somewhat politically motivated ESMA to approve certain non-European jurisdictions particularly some of those in the Caribbean as authorised third jurisdictions under the Directive. At least one politician who was involved in the drafting of the Directive has expressed such doubts.

The issue for offshore jurisdictions is less related to any failings as to their means of undertaking business. There will no doubt remain a place for the better off-shore jurisdictions. The "if it ain't broke, don't fix it" attitude however is simply less relevant in an investment industry that has changed almost beyond recognition from that which existed just a few years ago.

Permissible Distinctions – Gibraltar's Advantage

The national Private Placement regimes, which under the Directive are supposed to be phased out by 2018, have already begun to be tightened by some of the member states. In Germany for example, a market which is not insignificant, it is nearly impossible for a non-European fund to use their private placement regime where as a European fund can even if it is out of scope of the Directive simply because of the fact it is domiciled in the EU. For this and other reasons, we are seeing UK managers setting up parallel or master AIFs (as opposed to feeder) in Gibraltar and other EU jurisdictions in order to assist with their European marketing efforts.

In their implementation of the Directive, Member States were free to decide how they exercise the derogations provided for in AIFMD. They also needed to decide whether they wished to "gold plate" the Directive by adding provisions to their national fund regimes that were not required by the Directive. Critical distinctions in implementation may exist in such topics as regulation of the national fund regimes for funds and managers that are below the de minimis thresholds of the Directive (i.e. €100million for open-ended funds and €500million for close-ended funds), including application of the depositary regime in the Directive to funds that are out of scope of the Directive and applicability of any private placement regimes.

The Gibraltar approach to the above issues, following an in-depth consultation involving a collaboration of Government, the Regulator, the Financial Services Commission ("FSC"), and the Gibraltar Funds and Investments Association ("GFIA"), the representative body of Gibraltar's funds and investment industries, retains as much flexibility as possible as is offered by the Directive. Accordingly Gibraltar has kept its EIF regime for those funds and managers that are out of scope of the Directive while allowing those that wish to, in order to avail themselves of the EU wide marketing passport, to opt in to the AIFM regime even if they are below the de minimis thresholds. Obviously those that opt in will have to abide by all the terms of the AIFM regime as if they had been "in scope".

Experienced Investor Funds ("EIFs") will therefore form the basis for the regulatory regime to be used as the "in scope" AIF. As they have to comply with the terms of the Directive they will essentially be "Super EIFs". This is very significant because, as mentioned below, this is likely to dramatically reduce the licensing time of "in scope" AIFs thus retaining Gibraltar's place as the European jurisdiction with the quickest potential for time to market for new funds.

AIFMs wishing to set up Gibraltar funds will be able to do so by establishing "Super EIFs" utilising the existing pre-authorisation launch process available to out of scope EIFs. In other EU jurisdictions, AIFMs wishing to establish in scope AIFs will have to undergo an authorisation process for those AIFs (which can take anywhere between a few weeks and several months depending on the fund and the jurisdiction). The Gibraltar process however is simply to establish and commence trading the EIF on the basis of the pre-authorisation launch process. This entails the submission of the EIF documentation to the FSC along with an opinion from Gibraltar Counsel stating that the fund has been properly established. At the same time the passporting notices can be submitted to the FSC. The FSC will then have up to 20 business days to consider the AIF documentation and the passporting notices.

The FSC is in the process of completing its approach to many of the key issues that are raised by the Directive such as remuneration, delegation and depositaries. Although these are yet to be finalised, the approaches seem to be that Gibraltar will follow the UK / FCA's proportionality approach in respect of remuneration. Furthermore, delegation will be permitted so long as overall supervision and responsibility remains within the jurisdiction. Depositary requirements are probably the most difficult of the three issues with many operational questions remaining open among all of the European jurisdictions. In any case, the depositary provisions have been deferred until 2017 so that any European depositaries may be used until that time.

Conclusion

Given that Gibraltar is the jurisdiction which is closest legally and in regulatory approach to the Cayman Islands, UK investment managers should seriously consider Gibraltar as a centre in which to domicile their funds.

www.gibraltarlaw.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions