Ongoing developments in Europe in relation to EU investor access to non-EU alternative investment funds or EU alternative investment funds managed by non-EU managers have been the source of great debate, mainly as a result of the introduction of the EU Alternative Investment Fund Managers (AIFM) Directive and the planned introduction of the EU AIFM Directive passport regime.
The Cayman government recently published two amendments to the existing Mutual Funds Law and the Securities Investment Business Law in order to provide for 'opt-in' regimes in relation to the EU AIFM Directive.
The opt-in regimes provide clarity in relation to the approach adopted by the Cayman Islands and will assist managers and operators of Cayman funds in their plans to continue the marketing of their Cayman funds into the European Economic Area (EEA) under applicable national private placement regimes, while at the same time providing flexibility for those managers and operators with no plans to raise capital in the EEA.
The amendments to the relevant Cayman legislation provide opt-ins for both funds and investment managers. The introduction of an opt-in is an important concept as it means that Cayman funds that do not intend to raise capital in the EEA or are not managed by managers located in the EEA will not need to take any action and will thus be able to continue their operations without any additional regulatory requirements.
The Mutual Funds Law is proposed to be amended to introduce the concept of an opt-in designation as a regulated 'EU-connected fund'. This designation is available to a Cayman fund which:
- is managed from or marketed in the relevant EU or EEA country as contemplated under the EU AIFM Directive; and
- voluntarily elects to be regulated under the opt-in regimes.
This designation is available to any type of fund; therefore, a closed-ended fund could choose to fall within the regimes if it were willing to be subject to the forthcoming regulations and their compliance obligations.
A similar concept is to be introduced into the Securities Investment Business Law and an opt-in designation of an 'EU-connected manager' will be available to investment managers that:
- fall within the scope of the existing Securities Investment Business Law;
- conduct management, marketing or depositary activities as contemplated under the EU AIFM Directive; and
- voluntarily elect to be regulated under the opt-in regimes.
Funds and investment managers that opt in to the relevant regimes will be required to comply with certain obligations imposed by regulations which are due to be published shortly. The regulations will likely introduce regulatory standards which are consistent with the EU AIFM Directive. The Cayman Islands Monetary Authority's (CIMA) supervisory powers will extend to Cayman funds and investment managers that opt in. Therefore, for example, a closed-ended fund which opts in to be an EU-connected fund will be subject to CIMA's supervision.
Some uncertainty remains as to the way in which the EU AIFM Directive passport regime and existing national private placement regimes (NPPRs) in each EU or EEA jurisdiction will co-exist. At present, the existing NPPRs are expected to continue until 2018. However, the opt-in regimes will provide an alternative to NPPRs as and when the EU AIFM Directive passport regime becomes available for the Cayman Islands.
The Cayman Islands has traditionally been at the forefront of adapting to international initiatives and the introduction of the opt-in regimes demonstrates the jurisdiction's ongoing commitment to doing so. This will place the Cayman Islands in as favourable a light as possible when under consideration by the European Securities and Markets Authority and the European Commission for inclusion in the EU AIFM Directive passport regime.
For further information on this topic please contact Andrew Morehouse or Sean Scott at Harney Westwood & Riegels by telephone (+1 345 949 8599) or email (email@example.com or firstname.lastname@example.org). The Harneys website can be accessed at www.harneys.com.
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