Why we are celebrating Cayman's new "opt-in" regime for funds
For those of us sitting on the Western side of the Atlantic Ocean, Europe tends to seem quite far away, somewhat off in the distance and (depending on whether you have to connect through certain airports on the East Coast) sometimes difficult to access.
However, some of you may actually be interested in providing access to your Cayman products for investors based in the European Union. After the financial crisis in 2008, the EU decided to introduce the Alternative Investment Fund Managers Directive (AIFMD). As is typical of EU legislation, this is a very dry piece of drafting but the effect is that Cayman funds have to meet certain regulatory requirements before EU investors are able to gain access to them.
A first glance of the AIFMD may cause you to think that you need to introduce the level of resources which the Allied Forces threw at the beaches of Normandy more than 70 years ago, however the current position is not as onerous as it might seem.
Currently, Cayman funds are permitted to gain access to EU investors provided that they are following the national private placement regimes in each EU country in which the fund is seeking to attract investors. You have to be careful as you are forced to use what is called “reverse solicitation”. Sounds painful but it’s not so bad. What you do have to watch is the fact that the rules in each EU country differ. What works in Greece doesn’t work in Germany (for example). If you want to access EU investors, then please do contact local counsel in the relevant country – we can help, we know many, many people in Europe and some of them are actually quite lovely.
There has however been a recent development in Cayman which is big news and has us celebrating in the streets (you won’t hear the sound of celebratory gunfire as that’s not our style – reggae at one of the local beach bars with rum in hand, more our style…)
The Cayman Islands Government recently published two amendments to the existing Mutual Funds Law and the Securities Investment Business Law in order to provide for an “opt-in” regime in relation to AIFMD. The background to this is that under the AIFMD, the European Securities and Markets Authority will shortly provide a list of recommended jurisdictions to the European Commission as to which non-EU countries will receive an AIFMD passport. If a country receives an AIFMD passport, the fund products of that country may then be sold to EU investors under the AIFMD thereby avoiding the need to comply with the national private placement regimes and avoiding the need to endure reverse solicitation.
We fully expect that Cayman will on the list of recommended countries, although we may have to wait for our turn as there are 44 countries under consideration and not everyone will get the badge up front. Some things take time but we’ll be there, don’t you fret. The adoption of the opt-in regime demonstrates that we are willing to take all efforts to make sure that our products have access to as wide a range of investors as possible. Cayman funds will continue to attract European monies.
If you want your Cayman fund to bring in EU investor money, then you’ll likely want to consider opting in. If you do not want to access EU investor money, then you don’t need to do anything – you can sit back, relax. Nothing will change for you. If you don’t opt-in, you don’t have to do a thing (other than attract capital from elsewhere and make massive returns on your investments, but you’re doing that anyway, right?).
Cayman funds that do opt in to the relevant regime will have to comply with additional obligations brought into play by regulations which are due to be published very shortly. We expect that the regulations will introduce regulatory standards which are consistent with the AIFMD. The supervisory powers of the Cayman Islands Monetary Authority will extend to funds and investment managers that opt in. Therefore, for example, a closed ended fund which opts in to be an EU Connected Fund (as it is delightfully termed in the legislation) will be subject to CIMA’s supervision.
We don’t have the detail of the regulations as yet but you can bet that as soon as they land on our desk, we’ll be summarising these for you. Stay tuned for more developments from the beaches of Europe...
The author of this post is no longer with Harneys. For more information on this topic, please reach out to the author listed above.