The European Securities and Markets Authority
(ESMA) has issued further advice to the European
Commission, the European Parliament, and the European Council
(EC) relating to extending the European
Alternative Investment Fund Managers Directive
(AIFMD) marketing passport to non-EU alternative
investment fund managers and alternative investment funds
established in non-EU third countries (Third
Countries) that are assessed as equivalent.
Extension of the "passport" system to Third Countries
will allow funds established in such countries to be marketed, and
managers established in such countries to provide services, across
the European Economic Area (EEA), rather than
applying for permission on a country by country basis.
ESMA's initial advice published on 30 June 2015 covered six
non-EU countries. This new advice from ESMA covers 12
countries, including Cayman. In its commentary, ESMA noted
there are no significant obstacles regarding competition and market
disruption impeding the extension of the AIFMD passport to Cayman.
However, with respect to investor protection, the assessment of the
effectiveness of enforcement and the monitoring of systemic risk,
ESMA stated that it could not give definitive advice in relation to
extending the passport to Cayman as one of the Third Countries
until (i) the final version of the proposed Cayman AIFMD-like
opt-in regime is available; (ii) a legislative amendment has been
implemented that will give Cayman's regulator, the Cayman
Island Monetary Authority (CIMA), the power to
impose administrative fines for breaches of regulatory laws,
regulations, and rules; and (iii) CIMA's proposal for
implementation of a macro-prudential policy framework (which is
expected to enhance its current systemic risk monitoring) is put in
We at Ogier are encouraged by this advice. It subjects
ESMA's definitive advice relating to extending the passport to
Cayman to objective criteria that we believe Cayman will be in a
position to satisfy in short order. The Cayman Government and
CIMA have been working closely with ESMA for some time now on the
required amendments to its regulatory framework relating to funds
and the Cayman Government has confirmed that the jurisdiction is
only a few short months away from finalising such framework.
We therefore do not view this as negative advice from ESMA but
simply a delay in the eventual extension of the AIFMD marketing
passport to Cayman funds.
Furthermore, ESMA stated that it will continue to work on its
assessment of other Third Countries, not covered in its advice to
date, with a view to delivering further submissions in the future
and reiterated its advice to the EC that they may wish to consider
waiting until ESMA has delivered positive advice on a sufficient
number of Third Countries before extending the passport to any
Third Countries, taking into account the potential impact on the
market that a decision to extend the passport might have (amongst
other factors). It is therefore not certain when the
extension of the passport to any Third Countries eventually will
Delay on the extension of the AIFMD passporting to Third
Countries is not all bad news: in the interim Cayman funds (and
indeed funds established in the other non-EU jurisdictions that
Ogier covers – BVI, Guernsey, and Jersey) will still be able
to market into the EEA via national private placement regimes
(NPPRs), which for most fund managers continues to
be the preferred route for marketing into the EEA in our
experience. Although in principle the phasing out of such
NPPRs is due for consideration in 2018 under the AIFMD, it is
unlikely that NPPRs will be phased out until such time as AIFMD
passports become mandatory, so any delay will assist in extending
the period during which clients will be able to market into the EEA
using their preferred route, the NPPRs.
Two of Ogier's other non-EU jurisdictions, Guernsey and
Jersey, were included in the five jurisdictions given an
unqualified ESMA assessment. Our advisory on the position for
Guernsey and Jersey can be found
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guide to the subject matter. Specialist advice should be sought
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