What impact will the UK vote to leave the EU have on the UK's Overseas Territories?
Bermuda, the BVI and the Cayman Islands are each Overseas Country and Territories of the EU (OCTs) under the Treaty of Rome and successive EC/EU treaties, by virtue of being Overseas Territories of the United Kingdom. They are not, however, direct members of the EU, and EU law does not apply directly to them.
Following the UK's vote to leave the EU on 23 June 2016, nothing has changed for these jurisdictions as they each have their own separate legal systems and it is very much business as usual for them as leading international finance centres. Although the UK government has now announced that it will formally give notice to leave the EU under Article 50 of the Lisbon Treaty by the end of March 2017 (and once it does give notice that process will take 2 years to formalise the UK's exit from the EU), we do not expect there will be any direct impact on these jurisdictions' existing legislation or stability as a result of the referendum.
What are the key concerns for OCTs in the light of the EU referendum result?
Given the importance of the financial services industries to Bermuda, the BVI and the Cayman Islands economies, one potential area of concern for these OCTs is the likely decline in the UK's influence over EU financial services legislation and policy following the referendum vote and subsequent Brexit. Although these jurisdictions are not members of the EU and EU law does not apply directly to them, there could be indirect effects on them following the referendum result. This could include in relation to the likely process of the EU in creating its 'common EU list of problematic tax jurisdictions' by the end of 2017. The political element of this is extremely high and the probable absence of the UK as an influential voice increases the likelihood that this may become an attack on low tax rates. This obviously raises concerns for Bermuda, the BVI and the Cayman Islands, notwithstanding their full compliance with the OECD's transparency requirements.
Another area of potential concern is whether the AIFMD passport for marketing alternative investment funds will be extended to include OCTs such as Bermuda and the Cayman Islands. Although ESMA's recent advice noted that there are no significant obstacles regarding competition and market disruption impeding the application of the AIFMD passport to Bermuda and the Cayman Islands, ESMA delayed its definitive advice on the basis that both countries are in the process of implementing new AIFMD-like regulatory regimes and other legislative changes. It is hoped that once those regimes and changes are in place, the third country passport regime will then be extended to Bermuda and the Cayman Islands once it is introduced, along with other jurisdictions like Jersey and Guernsey which have already been approved by ESMA, regardless of the referendum result and Brexit.
Are there any issues you think lawyers who deal with Cayman should consider at this stage?
Cayman Islands law remains unchanged as a result of the EU referendum result. We do not expect there will be any significant impact on Cayman's existing legislation or stability following a UK exit from the EU, as EU law does not apply directly in the Cayman Islands.
To the extent that Cayman entities have entered into contractual arrangements which include references to EU regulations, there may be implications for their lawyers to consider with relevant onshore counsel.
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