For the past few years, the ongoing developments in Europe in relation to EU investor access to non-EU alternative investment funds or EU alternative investment funds managed by non-EU managers have been the source of great debate, mainly as a result of the introduction of the EU Alternative Investment Fund Managers Directive (AIFMD).
The Cayman Islands Government recently published two amendments to the existing Mutual Funds Law (MF Law) and the Securities Investment Business Law (the SIB Law) in order to provide for "opt-in" regimes in relation to AIFMD (the Opt-In Regimes).
The Opt-In Regimes provide clarity in relation to the approach adopted by the Cayman Islands and will assist managers and operators of Cayman funds in their plans to continue the marketing of their Cayman funds into the European Economic Area (EEA) under applicable national private placement regimes, whilst at the same time providing flexibility for those managers and operators who have no plans to raise capital in the EEA. The Opt-In Regimes will also ensure that the Cayman Islands are well positioned to receive a favourable recommendation from the European Securities and Markets Authority (ESMA) which will shortly provide its advice to the European Commission (EC) on whether an AIFMD passport should be made available to alternative investment fund managers from outside the EU. The deadline currently set for ESMA's recommendations is 22 July 2015.
It is important to note that whilst ESMA's deadline fast approaches, the EC then has a period of time in which to consider the recommendations made to it and make its own decisions. We understand that the actual extension of an AIFMD passport will be made on a country by country basis. As 44 countries are currently under consideration, it is also expected that jurisdictions will be phased in over time.
The amendments to the relevant Cayman legislation provide opt-ins for both funds and investment managers. The introduction of an opt-in is an important concept as it means that Cayman funds that (i) do not intend to raise capital in the EEA; or (ii) are not managed by managers located in the EEA will not need to take any action and so will be able to continue their operations without any additional regulatory requirements.
The MF Law is proposed to be amended to introduce the concept of an opt-in designation as a regulated "EU Connected Fund." This designation is available to a Cayman fund which is (a) managed from or marketed in the relevant EU or EEA country as contemplated under the AIFMD and (b) voluntarily elects to be regulated under the opt-in regimes. It should be noted that this designation is available to any type of fund, therefore a closed-ended fund could choose to fall within the regimes if it is willing to be subject to the forthcoming regulations and their compliance obligations.
A similar concept is to be introduced into the SIB Law and an opt-in designation of an "EU Connected Manager" will be available to investment managers who (a) fall within the scope of the existing SIB Law, (b) conduct management, marketing or depositary activities as contemplated under the AIFMD, and (c) voluntarily elect to be regulated under the opt-in regimes.
Funds and investment managers that opt in to the relevant regimes will be required to comply with certain obligations imposed by regulations which are due to be published very shortly. We expect that the regulations will introduce regulatory standards which are consistent with the AIFMD. CIMA's supervisory powers will extend to Cayman funds and investment managers that opt in, therefore, for example, a closed ended fund which opts in to be an EU Connected Fund will be subject to CIMA's supervision.
Existing Private Placement Regimes
There remains some uncertainty as to the way in which the AIFMD passport regime and existing national private placement regimes (NPPRs) in each EU or EEA jurisdiction will co-exist. Currently, the existing NPPRs are expected to continue until 2018, however the Opt-In Regimes will provide an alternative to NPPRs as and when the AIFMD passport regime becomes available for the Cayman Islands.
The Cayman Islands have traditionally been at the forefront of adapting to international initiatives and the introduction of the Opt-In Regimes continues to demonstrate the jurisdiction's ongoing commitment to doing so. This will place the Cayman Islands in as favourable a light as possible when under consideration by ESMA and the EC.
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