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
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
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.
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.
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