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
What are the key concerns for OCTs in the light of the EU
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
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
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
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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