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Cayman Seeks AIFMD Passports For Fund Industry

by Mike Godfrey, Lowtax.net, Washington
04 August, 2015

Cayman lawmakers are to consider changes to financial services laws to establish an opt-in regime, compatible with the EU's Alternative Investment Fund Managers Directive, that would enable funds and fund managers to obtain a "third country" passport.

At present, Cayman Islands investment funds may be marketed in the EU under national private placement regimes that require, among other things, that the home state's regulator – in Cayman, the Cayman Islands Monetary Authority (CIMA) – must have concluded memoranda of understanding with individual EU member states.

The AIFMD was introduced to improve oversight of funds marketed to EU consumers, and a transitional period ended on July 22, 2014. EU managers marketing EU Alternative Investment Funds (AIFs) are required to obtain an EU-wide passport to market their funds to professional investors. Non-EU Alternative Investment Fund Managers (AIFMs) or non-EU AIFs managed by EU AIFMs will be unable to obtain a passport until at least 2016, and have instead marketed their funds through a National Private Placement Regime (NPPR).

From 2018, the European Securities and Markets Authority (ESMA), which is charged with overseeing AIFMD compliance, will consider whether or not the passport regime should replace national private placement regimes. Until such time, the two approaches will continue in parallel.

The two pieces of legislation that will be considered in August are the Mutual Funds (Amendment) Bill, 2015, and the Securities Investment Business (Amendment) Bill, 2015.

The Mutual Funds (Amendment) Bill makes provision for the regulation of Cayman investment funds that elect to be regulated by CIMA for AIFMD passport purposes. In the bill, a Cayman investment fund that makes such an election is referred to as a "regulated EU connected fund," a category available to both open-ended and closed-ended funds.

The Securities Investment Business (Amendment) Bill makes provision for the regulation of Cayman fund management entities that engage in certain EU connected activities, as specified in the bill; and elect to be regulated by CIMA for AIFMD passport purposes. In this bill, a Cayman fund management entity that makes such an election is referred to as an "EU Connected Manager," a category available to both current licensees under the Securities Investment Business Law and entities that are currently not required to be licensed under such law.

After undertaking its first assessment, of six jurisdictions, recently – Hong Kong, Jersey, Guernsey Singapore, Switzerland, and the US – the ESMA concluded that "no obstacles exist to the extension of the passport to Guernsey and Jersey, while Switzerland will remove any remaining obstacles with the enactment of pending legislation. No definitive view has been reached on Hong Kong, Singapore, and the USA due to concerns related to competition, regulatory issues, and a lack of sufficient evidence to properly assess the relevant criteria."

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