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
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
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
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
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
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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During a recent appearance on BBC, Cayman Finance CEO Jude Scott
highlighted the Cayman Islands' dedication to upholding the
standards and expectations of a premier financial jurisdiction
through transparency and a strong compliance culture.
Gibraltar implemented Protected Cell Company legislation in 2001 and was the first European jurisdiction to do so. Since then Malta has implemented a PCC Act and the UK itself has introduced its own regime for Open Ended Investment Funds.
Any copies of records provided by the firm must be provided in an unencrypted form so that they can be easily analysed when requested by the client, competent authority, or other competent third party.
Investment funds with high net worth individuals as investors will need to have a client agreement with their high net worth investors.
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