Legislative amendments establish AIFMD opt-in framework

| 02/10/2015 | 0 Comments
CNS Business

Legislative Assembly, George Town

(CNS Business): Some key amendments to financial services legislation have taken the Cayman Islands a step further towards participating in the EU’s Alternative Investment Fund Managers Directive (AIFMD), while Cayman awaits confirmation from European regulators that it will receive its AIFMD passport for full future access to the EU market.

The changes in the Mutual Funds Law, which mainly affect hedge funds, and the changes to the Securities Investment Business Law, which covers investment managers, creates a framework for both funds and fund managers to voluntarily ‘opt-in’ to the AIFMD system when marketing to investors in the European Union.

The law was introduced because non-EU countries, like the Cayman Islands, will require a passport to operate under the AIFMD and for funds to be sold in Europe, once the current arrangements are phased out. The ‘opt-in’ regime is being implemented in Cayman to satisfy the European Securities and Markets Authority (ESMA), which will soon determine which, so called, ‘third countries’ will be granted a passport for full access to European investors.

Despite some initial speculation that it would be excluded from the passport, Cayman is still yet to be assessed by ESMA, which has some 50 non-EU jurisdictions to consider. Its first report this summer evaluated an initial group of six and advised extending the passport to Guernsey and Jersey, as well as Switzerland, pending some legislative changes, with no decisions taken yet on the US, Hong Kong and Singapore.

“Cayman is the world’s leading domicile for alternative investment fund and the EU market is estimated at US$2.25 trillion,” said Richard Addlestone, partner with law firm Solomon Harris. “In an era of limited investment returns, European institutions and pension funds will need access to Cayman investment vehicles and investment structures just as much as Cayman funds need access to European investors. At present, investment funds from non-EU countries are marketed in the EU under national private placement regimes, and that will continue at least until 2018, and possibly beyond, but it will be brought to an end at some point. For the future, the Cayman Islands government has made preparations, in consultation with the EU regulator ESMA, to ensure it qualifies to receive the non-EU AIFMD passport.”

Addlestone noted that the Cayman government has signed all the required co-operation arrangements with the major EU investment securities regulators, as well as the necessary tax information exchange agreements with EU governments and now we have the opt-in regime for ‘EU connected’ funds and fund managers.

“Accordingly, there should be no obstacle to the EU extending the passport to Cayman to ensure that Cayman alternative investment funds will still be able to be marketed to investors in Europe, once the private placement regimes have ended,” he said.

The changes to the law introduce the concepts of EU-connected funds and EU-connected managers, so where a fund or manager will be active in the EU, it will need to be licensed or registered with CIMA as EU-connected. Once registered, a fund must inform CIMA if it is marketing in a territory within the European Economic Area (EEA) within the relevant timescales, or could face a fine of CI$ 5,000. The laws also give CIMA the power to request information so that it may comply with any obligations under the AIFMD.

Alongside these amendments to the funds regime, changes have also been ushered in to the Companies Law, which affect requirements over the time period in which notifications of changes to the register of directors and officers must be made.

The new system provides more time for companies to make the notifications to the Registrar of Companies. All companies are required to produce and maintain a register of directors and officers and while new companies are now required to file this document within 60 days instead of the previous 90, the timescale for updating the Registrar on any changes to the register has increased to 60 days from 30 days.

Further changes include a reduction in the penalty fee (from CI$1,000 to CI$500) for failure to comply with these requirements, while multiple breaches of the rules will be treated as one breach, attracting just one penalty, provided the Registrar is notified of all changes on the same day. Additionally, where there has been a failure to make notification in respect of five or more companies then the total penalty will be capped at CI$2,500. The penalties have been increased for cases where breaches have been knowingly and willfully permitted, with fines also extended to each director and officer.

These changes will be particularly welcomed by managers responsible for large groups of companies, where the fines imposed for missed notifications can stack up considerably where numerous corporate entities are involved. By inadvertently failing to inform the Registrar of one change of director, it could affect numerous corporate entities, so the additional time provided will help avoid these situations.

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Category: Finance, Financial Services, Law

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