Cayman Islands: ESMA Recommends Deferral Of AIFMD Passport Extension Decision

On 30 July 2015 the European Securities and Markets Authority ("ESMA") recommended  the deferral of the extension of the AIFMD passport to non-EEA alternative investment fund managers ("AIFMs") and alternative investment funds ("AIFs").

ESMA went on to advise that the EC wait until ESMA has delivered positive advice on a sufficient number of non-EEA countries before considering extending the passport to any non-EEA countries.

It is clear that ESMA has conducted a significant exercise in developing a framework to consider not only the 44 countries with which European regulators have signed Memoranda of Understanding in respect of the AIFMD ("MoUs"), but also seven other key non-EU jurisdictions that do not yet have MoUs in place.  The publications of 30 July 2015 are just the first step in this process.

While it is encouraging that two countries have been given positive recommendations (with a third very close to finalisation), 48 countries remain outstanding.  These include some significant jurisdictions and some of the largest investment manager and investment fund centres in the world, including Australia, Bermuda, Brazil, British Virgin Islands, Canada, Cayman Islands, Japan, Russia and the USA (China and India do not yet have MoUs in place).

ESMA's advice confirms that the Cayman Islands is by far the most prominent jurisdiction for funds being marketed into the EEA.

Based on an analysis of the criteria that ESMA has used in its assessment, and the Cayman Islands' recently announced AIFMD-consistent "opt-in" regulatory regimes, the Cayman Islands is expected to be ideally placed for a favourable recommendation from ESMA in due course.

ESMA also advised that, although the AIFMD was still in its early stages, as yet no major issues had been identified with the ongoing operation of the existing EEA national private placement regimes in conjunction with AIFMD (the "NPPRs").

While the ESMA advice is notable for a number of reasons, it will remain business as usual for managers looking at fund domicile options.

In terms of managers looking to access investors worldwide, both outside and inside the EEA, we see little in the ESMA publications of 30 July 2015 to alter the existing market approach of matching choice of domicile with the expectations and requirements of the relevant investor base.  Managers will continue to be able to market their Cayman Islands and British Virgin Islands funds in the EEA using the existing NPPRs.  The use of EEA domiciled funds (e.g. Irish QIAIFs) and EEA AIFMs will continue to be the best option for managers seeking to avail themselves of fully passportable AIFMD products and parallel offerings.

Opinion and Initial Advice

On 30 July 2015, ESMA issued an opinion of 95 pages (the "Opinion") and advice totalling 172 pages (the "Initial Advice") to the EC relating to the AIFMD.

The Opinion assessed the functioning of the AIFMD EEA passport and the NPPRs.

The Initial Advice reviewed the application of the AIFMD passport and whether it should be extended to non-EEA countries and, if so, which countries it should be extended to.

ESMA has taken a "country-by-country" approach in the Initial Advice, and singled out Guernsey, Hong Kong, Jersey, Singapore, Switzerland and the USA for initial assessment.

ESMA has, in addition to the countries assessed for the Initial Advice, 38 further non-EEA  countries (with MoUs in place) still to assess, including Australia, Bermuda, Brazil, British Virgin Islands, Canada, Cayman Islands, Japan and Russia.

This inevitably means that non-EEA jurisdictions will be considered by ESMA on a phased basis.  Going forward, we anticipate that additional advice and opinions will be issued by ESMA to the EC until ESMA's work on all 44 non-EEA jurisdictions (with MoUs in place) is complete.

Cayman Islands ready for ESMA Assessment

Annex 8 to the Initial Advice provides statistics which confirm the Cayman Islands as by far the most prominent jurisdiction for funds being marketed into the EEA (See Annex 8 of the Initial Advice).

It is worth noting that, according to the figures in Annex 8, the Cayman Islands is home to substantially more AIFs and AIFMs registered in the EEA under Articles 36 and 42 of the AIFMD than the rest of the six jurisdictions that were assessed by ESMA combined.

Although ESMA's statistical analysis highlights the significant numbers of Cayman Islands based funds being marketed into the EEA, ESMA has not yet assessed the Cayman Islands.

The Cayman Islands' recently announced AIFMD-consistent regimes should, based on an analysis of the criteria that ESMA is looking for as part of its assessment process, see the Cayman Islands ideally placed in due course for a favourable recommendation from ESMA and positive extension decision from the EC.

Assessed but Delayed

For many managers who use Cayman Islands based funds, an extension of the AIFMD passport to the Cayman Islands may not be of practical interest until the AIFMD passport is also extended to the jurisdiction in which the manager is based.

In relation to the USA, ESMA advises "the [EC] to delay their decision on the application of the passport to the U.S. until such time as conditions which might lead to a distortion of competition are addressed" and "notes that it could have benefited from having more time to assess the detailed information it received on the U.S. regulatory framework".

For Hong Kong, ESMA advises that "more time is needed to analyse the extent to which the potential differences between the Hong Kong regulatory framework and the AIFMD are material to the assessment" and that "it is...not clear whether there is a level playing field between EU and non-EU AIFMs as regards market access".

In relation to Singapore, ESMA advises the EC to "delay their decision on the potential application of the AIFMD passport to Singapore."

Other countries which are home to significant asset management industries, such as Australia, Brazil, Canada, Japan and Russia, are also yet to be assessed.

Extension by the EC likely to be Delayed

ESMA advised that the EC consider delaying extending the passport as follows:

"The European Council, Parliament and the Commission to which this advice is submitted pursuant to Article 67 of the AIFMD may wish to consider whether to wait until ESMA has delivered positive advice on a sufficient number of non-EU countries before triggering the [passport extension procedure]"

This suggestion not only recognises the size of the task involved in the assessment process that ESMA is undertaking, but also the need to avoid unintentionally affecting jurisdictional choice; ESMA specifically refers in the Initial Advice to the need to take into account "such factors as the potential impact on the market that a decision to extend the passport might have."

Status Quo on NPPRs

The Opinion refers to assessment of the functioning of the NPPRs being complicated by delays in the implementation and transposition of the AIFMD in some member states.

ESMA advised that although the AIFMD was still in its early stages, as yet no major issues had been identified with the ongoing operation of the existing NPPRs in conjunction with AIFMD.

Cayman's New AIFMD Regimes

One component of ESMA's assessment of each non-EEA jurisdiction is a review of the country's regulatory regime.

In preparation for ESMA considering the Cayman Islands, the Cayman Islands government ("CIG") issued an Industry Advisory on 15 May 2015  confirming that CIG and the Cayman Islands Monetary Authority ("CIMA") had been working on, and were close to finalising, two new AIFMD consistent regulatory regimes (together, the "New AIFMD Regimes").  CIMA issued a related Statement on the same day.

Following on from these announcements, CIG published two bills (the "Bills") on 10 July 2015 establishing the New AIFMD Regimes.  It is expected that the Bills will be approved by the Cayman Islands' Legislative Assembly during August 2015.

The Bills anticipate that the detail of the New AIFMD Regimes will be provided in regulations issued pursuant to each of the Bills (together, the "Regulations"), which are also expected during August 2015

The New AIFMD Regimes, once fully effective and operational, will see the Cayman Islands ideally placed for a favourable recommendation from ESMA and positive decision by the EC.

European Commission Decision

Although the Initial Advice is an important milestone, the actual decision on extension of the AIFMD passport to any non-EEA country rests with the EC rather than ESMA.  The EC has discretion whether to accept ESMA's advice in relation to any non-EEA country. 

The EC has three months from receipt of the Initial Advice to specify a date when rules relating to the third country passport should become effective for the jurisdiction(s) recommended by ESMA.

That timetable, which is set down by the AIFMD, would see any actual EC decision on AIFMD passport extension waiting until late October 2015 at the earliest.  ESMA's Initial Advice explicitly recommends that this deadline be put back until such time as a more significant number of non-EEA jurisdictions have been assessed.

Will the NPPRs be gone in three years?

It is unclear what the potential impact of any future EC decision to extend the passport to a non-EEA country would have on the broader decision as to retention of the NPPRs.

The AIFMD is drafted such that an extension to any one non-EEA country could result in NPPRs falling away across the EEA within three years.

The question of what any such extension will do to NPPRs, and whether any withdrawal of NPPRs will be on a blanket, or country by country, basis will hopefully be clarified by ESMA and/or the EC well in advance of the 2018 date set out in the AIFMD.

Cayman Well Placed for Extension

There has been long-standing reciprocity of access for EEA funds and managers to investors in the Cayman Islands.

The New AIFMD Regimes, combined with this established reciprocity, should place the Cayman Islands in a favourable position for consideration by ESMA and the EC.

The Cayman Islands is home to investment funds managed by the vast majority of the world's top investment fund managers from both within and outside of the EEA.

It follows that there are significant benefits for EEA investors in terms of diversity and product choice in having access to Cayman Islands based funds and managers.

All of this presents a compelling case for ESMA and the EC to properly and promptly consider extension of the AIFMD passport to the Cayman Islands.

Is there action to be taken immediately?

Although there is no action to be taken now, clients with Cayman Islands funds and/or managers with an EEA nexus should look out for further Maples and Calder updates once the Regulations are issued, which we currently anticipate will be during August 2015.

Footnotes

1. Alternative Investment Fund Managers Directive (2011/61/EU)

2. European Economic Area

3. European Parliament, Council and Commission

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Cayman Islands Government
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Cayman Islands Government
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions