The Directive on Alternative Investment Fund Managers (Directive 2011/ 61/EU or "AIFMD"), regulates the management and marketing of Alternative Investment Funds ("AIFs") and aims to provide for and harmonise an internal market for Alternative Investment Fund Managers ("AIFMs") within the EU. AIFMD currently offers a marketing passport ("Passport") to compliant EU AIFMs of EU AIFs. The AIFMD contemplates that this Passport can be extended to non- EU AIFs, and to non-EU AIFMs from 2015. The extension of the Passport is subject to the acceptance by European Parliament, Council and Commission of positive advices from the European Securities and Markets Authority ("ESMA").

ESMA has now published further advice in relation to the application of the Passport to non-EU AIFMs and AIFs ("Advice") together with its opinion on the functioning of the passport for EU. For the first time, the Advice considered specifically the extension of the Passport to the Cayman Islands.

Cayman Assessment

ESMA examined Cayman's suitability under 4 areas including satisfaction of Memoranda of Understanding ("MoU") per Articles 35 and 37 of AIFMD, cooperation between Cayman Islands Monetary Authority ("CIMA") and foreign regulators, obstacles to competition, and monitoring of systemic risk.

The Advice states, inter alia, that there have been "no reported negative experiences" with regard to cooperation between CIMA and relevant national competent authorities ("NCA"), and notes that it is of the view that "there are no identified competition issues" between Non-EU-AIFMs wishing to establish business in the Cayman lslands and national (EU) AIFMs.

In its assessment of systemic risk, ESMA notes Cayman's existing framework for addressing systemic risk, the current work being undertaken by CIMA on a macro-prudential policy framework, and the implementation timeframe of 12 -18 months for the framework (the "Framework"). The Advice also addresses enforcement in Cayman, and notes in particular the proposed legislative amendment giving powers to CIMA to impose administrative fines for breaches of regulatory rules (the "Amendment").

The Advice gives most pause to its consideration of investor protection under the assessment of cooperation between CIMA, NCAs and foreign regulators. Noting that the current regime in Cayman is significantly different from AIFMD, the Advice recognises the proposed introduction of an AIFMDlike regime in Cayman, planned for completion in 12 -18 months (the "New Rules"). In advance of the New Rules being finalised however, ESMA notes that it could not give a complete assessment of the New Rules but noted that the drafts of same "seem to show that the new AIFMD-like regime would be broadly similar to the AIFMD framework".


Having confirmed that it is of the view that there are "no significant obstacles regarding competition and market disruption" impeding the extension of the Passport to the Cayman Islands, ESMA has stated that it cannot provide definitive Advice with regard to investor protection until the New Rules are introduced. Similarly, Advice cannot be given on the effectiveness of enforcement until the Amendment is adopted, or on systemic risk until the Framework is in place. In effect the Passport cannot be extended to the Cayman Islands until such Advice can be given.

Impact for Cayman Funds

The status quo for Cayman Funds will remain until such time as ESMA updates its Advice to consider the implementation of the New Rules, the Framework and the Amendment. That is, (and excluding any sale by reverse solicitation), where a Cayman Fund is being sold in the EU it will be done by way of private placement and in particular the relevant NPPRs of the member state in which the target investor is based.

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