Background to the proposed Cayman Islands AIFMD Regime
Cayman Islands based investment funds and investment managers are regulated by the Cayman Islands Monetary Authority ("CIMA") under the Mutual Funds Law ("MFL") and Securities Investment Business Law ("SIBL") respectively. The Cayman Islands government has recently proposed amendments to these laws1 in order to create a Cayman Islands regulatory regime which is consistent with the standards of regulation under the Alternative Investment Fund Manager Directive ("AIFMD")2. It is hoped that by introducing a regime in the Cayman Islands which is consistent with the AIFMD (a "Cayman AIFMD Regime"), the European Securities and Markets Authority ("ESMA") and European Commission ("EC") will consider the Cayman Islands for an AIFMD passport extension when it carries out its forthcoming country by country review later this year. Currently, Cayman Islands entities are able to operate within the national private placement regime under the AIFMD but this regime is anticipated to stay in place only until 2018.
Amendments to the Mutual Funds Law
It is anticipated that the proposed amendments to the MFL will facilitate the management and marketing of Cayman Islands investment funds under the AIFMD in the European Union ("EU") Member States3.
The amendment to the MFL will introduce a concept of an opt in designation as a regulated "EU Connected Fund", being an investment fund (whether open-ended or closed-ended) carrying on business in or from within the Cayman Islands which: (i) is either managed by a person whose registered office is in a Member State or marketed to investors or potential investors in a Member State of the European Economic Area ("EEA") as contemplated under AIFMD, and (ii) elects to fall within the Cayman AIFMD Regime.
Amendments to the Securities Investment Business Law
It is further anticipated that the proposed amendments to SIBL will allow the regulation of a Cayman Islands investment manager who manages an EU Connected Fund, markets the shares, trust units or partnership interests of an EU Connected Fund or acts as a depositary of an EU Connected Fund.
The proposed amendments to SIBL will introduce a concept of an opt in designation as a licensed "EU Connected Manager", being a person who: (i) falls within the existing scope of SIBL; (ii) conducts management, marketing or depositary activities for an EU Connected Fund as contemplated under AIFMD; and (iii) elects to fall within the Cayman AIFMD Regime.
Who can elect to be under the Cayman AIFMD Regime?
It is proposed that (i) both open-ended and closed-ended EU Connected Funds will be able to elect to be regulated by CIMA under the Cayman AIFMD Regime; and (ii) EU Connected Managers will be able to elect, notwithstanding they may be an "excluded persons" under SIBL, to become fully licensed under SIBL and be subject to the Cayman AIFMD Regime.
What will the Regulatory Standards of the new Cayman AIFMD Regime be?
In addition to the foregoing, new regulations will be made under the MFL and SIBL that will set forth new regulatory standards, consistent with AIFMD, to be followed by regulated EU Connected Funds and EU Connected Managers, respectively. These new regulations are expected to be released shortly after the amendments to the MFL and SIBL come in to force.
Cayman AIFMD Regime will be Optional
Electing to be under the ambit of the new Cayman AIFMD Regime will be optional for Cayman Islands investment funds and Cayman Islands investment managers and as such, there will be no change to the normal regulation of Cayman Islands investment funds and Cayman Islands investment managers who do not elect to fall within the Cayman AIFMD Regime.
We will provide further guidance on the legal requirements once the amendments are passed into law and the regulations setting out the new regulatory standards are issued. Please look out for our further update at this time.
1. The Mutual Funds (Amendment) Bill, 2015 and The Securities Investment Business (Amendment) Bill, 2015 were each gazetted in the Cayman Islands Gazette on Friday 10 July 2015.
2. AIFMD means the Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010.
3. Member State for this purpose means a state which is a member of the EU or a part of the EEA which the AIFMD has been implemented.
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.