To facilitate the marketing of Cayman hedge funds in the European Union, the Cayman Islands government has passed an amendment that allows the jurisdiction’s regulator to enter into memoranda of understanding with its EU counterparts, using a model MoU developed by the European Securities Markets Authority.
The Monetary Authority (Amendment) Law, 2013, comes in response to the EU’s Alternative Investment Fund Managers Directive. The EU directive, which is set to become fully effective this July, prevents alternative investment funds from non-EU jurisdictions, like Cayman hedge funds, to be marketed within EU countries unless certain conditions are met.
These conditions include that the domicile of the fund manager is not on the Financial Action Task Force list of non-cooperative jurisdictions, agreements are in place for the exchange of information for tax purposes between the EU and non-EU jurisdictions and that cooperation agreements exist between securities regulators in the fund domicile country and the EU member state where the fund is marketed.
Of the three requirements, CIMA has to date no cooperation agreement with EU securities regulators except with the UK FSA.
“Without the amendment to the law, about 26 per cent of Cayman’s funds would have been blocked from being marketed in the EU,” explained the Minister for Financial Services Rolston Anglin.
Government passed the amendment on Friday, 15 March.
Members of the EU will use the ESMA model when entering into MoUs with ‘third-country’ jurisdictions, meaning any jurisdiction that is not an EU member state, including countries such as the US, Canada, Brazil and Hong Kong.
Cayman’s financial services regulator, the Cayman Islands Monetary Authority, has been in discussion with ESMA since early 2012 on the model MoU requirements. The amendment will allow CIMA to use the ESMA model when entering into any additional cooperation agreements with EU securities regulators.
Minister Anglin said with the amendment, Cayman now complies with the three AIFMD conditions that are of particular relevance to the jurisdiction. He noted that the condition of compliance with Financial Action Task Force standards, and of Cayman having agreements in place with EU member states for the exchange of information for tax purposes, had been met previously.
Mr Anglin confirmed that in addition to those agreements that have been signed, Cayman’s negotiations with other EU member states for the exchange of information for tax purposes are now underway.
“I know that industry will take confidence that the passage of this amendment has paved the way for the jurisdiction to be fully compliant with the conditions of the AIFMD before July 2013,” he said.