The Cayman Islands Government ("CIG") published two bills ("Bills") on 10 July 2015 which will establish two new "opt in" regulatory regimes for the Cayman Islands which are consistent with the Alternative Investment Fund Managers Directive ("AIFMD"). 

It is anticipated that the Bills will be approved by the Cayman Islands' Legislative Assembly during August 2015.

These new AIFMD consistent regulatory regimes (together, the "New AIFMD Regimes") will be of particular interest to managers and funds looking to access European investors, whether using existing national private placement regimes ("NPPRs") or looking to keep open the option of using an AIFMD passport at some point in the future.

For all other Cayman Islands based funds, and their managers, the fact that the New AIFMD Regimes are wholly optional means that the current Cayman Islands regulatory framework won't be affected and it will be business as usual.

ESMA Recommendation

Clients will be aware that the European Securities Markets Authority ("ESMA") is due to provide its recommendation to the European Commission ("EC") as to which non-EEA[1]jurisdictions should be eligible for a "third country passport" under AIFMD on 22 July 2015 (the "Initial Recommendation"). 

ESMA has decided to take a "country-by-country" approach to the extension of the passport and is likely to single out certain jurisdictions in the Initial Recommendation.  Noting that ESMA currently has 44 jurisdictions (including the Cayman Islands and the USA) to consider it is unlikely that all can be covered by the Initial Recommendation and jurdisditions will instead be considered on a phased basis.  We anticipate that additional advice and recommendations will be issued by ESMA to the EC shortly after the Initial Recommendation until the work on all 44 jurisdictions is complete.

Given the upcoming Initial Recommendation, clients will have been reassured to see that the CIG issued an Industry Advisory on 15 May 2015[2] confirming that CIG and the Cayman Islands Monetary Authority ("CIMA") had been working on, and were close to finalising, the New AIFMD Regimes.  CIMA issued a related Statement on the same day.[3]

The publishing of the Bills is the next step in the process to implement the New AIFMD Regimes in the Cayman Islands.

European Commission Decision

The decision on extension of the passport to any third country rests with the EC rather than ESMA and the EC has discretion whether to accept ESMA's advice.  The EC has three months from receipt of the Initial Recommendation 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 an EC decision on the first non-EEA countries to have the AIFMD passport extended to them by October 2015 at the earliest.

New AIFMD Regimes

The Bill amending the Mutual Funds Law introduces the concept of an opt in designation as a "regulated EU Connected Fund" (the "EU Connected Fund Regime"). The EU Connected Fund Regime is available to any type of investment fund (whether open-ended or closed-ended) which: (i) is either managed from or marketed in a Member State of the EEA as contemplated under AIFMD and (ii) elects to fall within CIMA's new EU Connected Fund Regime.

The Bill amending the Securities Investment Business Law introduces the concept of an opt in designation as an "EU Connected Manager" (the "EU Connected Manager Regime"). The EU Connected Manager Regime is available to a person who: (i) falls within the existing scope of the Securities Investment Business Law; (ii) conducts management, marketing or depositary activities as contemplated under AIFMD; and (iii) elects to fall within CIMA's new EU Connected Manager Regime.

Under the New AIFMD Regimes, it is anticipated that regulated EU Connected Funds and EU Connected Managers will be able to opt in to new regulatory standards which are consistent with AIFMD.  The Bills make clear that the existing supervisory duties and powers of CIMA under the Mutual Funds Law and Securities Investment Business Law will extend to regulated EU Connected Funds and EU Connected Managers which opt in to the New AIFMD Regimes.

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 expected to follow shortly.

How will NPPRs be Affected?

Clients will be aware that there is still uncertainty as to how the third country passport regime under AIFMD will work if and when extended to any one or more countries by the EC, and in particular it is unclear what the potential impact of any decision to extend the passport to third countries will have on the decision as to retention of the NPPRs.

The question as to what any such an 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 and will, we anticipate, secure extension of the AIFMD passport to the Cayman Islands in relatively short order.

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.