Today two draft bills (the "Bills") were published by the Cayman Island's Government which make certain amendments to the Mutual Funds Law ("MFL") and Securities Investment Business Law ("SIBL").
- The Cayman Islands has published bills for the amendment of key legislation regulating Cayman Islands funds and asset managers. The bills have been published in preparation for ESMA's advice to the European Commission on whether the EU AIFMD passport should be extended to non-EU managers that manage and/or market non-EU funds in the EU
- The Mutual Funds Law is to be revised to allow Cayman Islands funds marketed into the EU or managed by an EU manager, including closed ended funds, to submit voluntarily to regulation by CIMA
- The Securities Investment Business Law is to be revised to accommodate voluntary licensing of Cayman Islands managers conducting investment management, marketing or depositary services with respect to EU connected funds, and which mayotherwise have been exempt from licensing
- The new regimes to be introduced through the amended laws will be on an 'opt-in' basis
- The primary legislation and the detailed Regulations are expected to come into force in August 2015
The Cayman Islands, a key international domicile for investment funds, has introduced bills to amend its Mutual Funds Law (the "MF Law") and Securities Investment Business Law (the "SIB Law") in order to ensure it is best positioned to receive a favourable recommendation from the European Securities and Markets Authority ("ESMA"), which faces a deadline of July 22nd 2015 to issue its advice to the European Commission on whether the European Union ("EU") AIFMD passport may be made available to alternative investment fund managers from outside the EU on a voluntary opt-in basis.
ESMA has announced that its advice will not treat all non-EU countries as a single block, and instead will distinguish between non-EU countries to extend the benefit of the passport.
In order to issue its advice, ESMA will assess the Cayman Islands' regulatory regime and levels of supervisory cooperation with EU regulators, with a view to getting comfortable that they present no significant obstacles regarding investor protection, market disruption, competition or the monitoring of systemic risk. It is expected that the introduction of the revisions to the MF Law and SIB Law will assist ESMA with this assessment.
Amendments to the Mutual Funds Law
The MF Law will be revised primarily to introduce a concept of an 'EU Connected Fund', and to give such funds the option to be registered or licensed under the MF Law; and secondly to extend CIMA's enforcement powers to cover EU Connected Funds. The revisions will also allow existing registered or licensed Cayman Islands mutual funds to transition to being regulated as EU Connected Funds under the revised MF Law.
The 'EU Connected Fund' concept will relate to both Cayman Islands domiciled open and closed ended funds (noting that the MF Law has historically only sought to regulate open ended funds) which are either (a) managed by an EU-based manager (including EEA jurisdictions in which the AIFMD has been implemented), or (b) marketed to investors in EEA jurisdictions in accordance with local law requirements.
The detailed compliance obligations to be imposed on EU Connected Funds under the revised law are to be introduced through Regulations which are expected to come into force in August 2015. It is anticipated that the obligations will not be any more onerous than those applicable under the 'registered' fund regime currently applicable to the vast majority of Cayman Islands mutual funds.
Amendments to the Securities Investment Business Law
The SIB Law will be revised primarily to introduce a concept of 'EU Connected Manager', and allows such managers to apply to CIMA for a licence to conduct regulated management activities pursuant to the SIB Law.
'EU Connected Manager' means a Cayman Islands entity or a foreign entity registered in the Cayman Islands that carries on a securities investment business in respect of (a) managing EU Connected Funds (b) marketing EU Connected Funds in the EEA or (c) acting as a depositary of an EU Connected Fund.
The revisions to the SIB Law will also extend CIMA's enforcement powers with respect to 'EU Connected Managers'. This second group of revisions is key to ensuring that CIMA is able not only to give full effect to its enforcement obligations, in relation to EU Connected Managers, but also to enhance compliance with its information sharing obligations, imposed under the memoranda of understanding CIMA has in place with various EEA regulators.
As with the MF Law amendments above, the detailed compliance obligations to be imposed on EU Connected Managers, which apply to be licensed under the SIB Law, are to be introduced through Regulations expected to be made in August 2015. At a minimum, it is anticipated that the current obligations of a licensee under the SIB Law will apply. These obligations include, in summary, the segregation of the manager's accounts from those of the funds it manages, audited accounts to be filed annually with CIMA, directors of EU Connected Managers will need to be registered with CIMA, a requirement to maintain at least two directors or managers and a CIMA pre-approval requirement for change of auditor, issuance or transfer of interests in the manager, change of name or change of senior officers.
Adopting an 'opt-in' approach is intended to smooth the transition from marketing of funds based on the current EU National Private Placement Regimes ("NPPRs") to full compliance under the passport, and thus it is anticipated that managers that intend to continue to market Cayman Islands funds into the EU under the NPPRs will not opt in, whereas managers seeking to apply for a passport will opt in to the regime in connection with the passport application.
The revisions to the MF Law and SIB Law are important steps to ensure that the Cayman Islands will be considered in the best possible light by ESMA when it gives its advice to the European Commission later this month. As with all things, the devil is in the detail – the Regulations expected to be published in August 2015 will contain full details of the compliance obligations for funds and managers seeking regulation under these revised regimes.
Clients who view the EU as an important source of capital may wish to consider opting-in to the new Cayman Islands regime early in order to gain access to the EU passport as soon as it becomes available. Walkers' attorneys can assist with explaining the revised laws and also more generally the compliance obligations arising under the AIFMD passport regime. Walkers will be publishing a further detailed advisory covering the compliance obligations once the final Regulations are released.
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