Cayman snubbed by ESMA over funds passport

| 20/07/2016 | 4 Comments

CNS Business(CNS Business): The Cayman Islands is facing yet another challenge to its financial services sector after the long anticipated decision from the European Securities and Markets Authority Tuesday not to recommend that the Alternative Investment Fund Managers Directive (AIFMD) passport to non-EU alternative investment fund managers be extended to the jurisdiction. ESMA said it “could not give definitive advice” on Cayman because it was still implementing its new regulatory regimes.

Although government officials and the industry were quick to point out that ESMA has acknowledged that Cayman has frameworks in place to address systemic risks, the repeated touting of Cayman’s credibility and financial standards by government and industry stakeholders on the international stage has not swayed ESMA, which did clear Switzerland, Jersey and Guernsey, among other jurisdictions.

Cayman’s investment funds currently are marketed in the EU under national private placement regimes (NPPRs). This will continue until at least 2018, by which time ESMA will have decided, and acted upon, whether or not the passport regime should replace it.

Cayman Islands Financial Services Minister Wayne Panton said he believed Cayman would be ready to join the passport regime long before then, as ESMA has noted that the Cayman Islands Monetary Authority is developing and implementing a macro-prudential policy framework that would enhance its current systemic risk monitoring.

In the meantime, government is hoping that prior to activating the passport to the jurisdictions that received a greenlight this week, the European Commission, Parliament and Council will wait until ESMA has delivered positive advice on more non-EU countries before introducing the passport to avoid any adverse market impact that a decision to extend it to just a few countries might have.

Cayman Finance CEO Jude Scott said that, given the large number of alternative investment funds domiciled in Cayman, it plays a critical role in the global economy and the jurisdiction is recognized as a strong partner of EU members in combatting corruption, money-laundering and tax evasion, exceeding global regulatory standards.

“Our leadership on international standards compliance includes the introduction of the tax information exchange and co-operation agreements with EU regulators required by the AIFMD, as well as the development of our own new AIFMD-compliant legislation,” Scott said. “We had hoped that this exceptional record should have been sufficiently good grounds to enable Cayman to be favorably reviewed by ESMA at this point in time.”

Scott echoed Panton’s sentiments, however, that CIMA and government could address the points raised in a shorter timeframe than ESMA suggested. “We are confident that Cayman can satisfy those points and be deserving on any objective basis of an extension of the AIFMD passport to the Cayman Islands in the near future,” he added.

In the advice ESMA said it was optimistic that it would be in a position in the not too distant future to provide a full and positive assessment for the Cayman Islands and Bermuda. But the watch-dog has deferred giving an unqualified opinion on seven out of the twelve countries that were part of the first round of consideration and there are concerns now that Brexit (the departure of the UK from the European Union) may have influenced the advice.

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Category: Finance, Financial Services

Comments (4)

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  1. Anonymous says:

    Once an Article 50 notice is served and the UK has no influence or rights in EU decision making Cayman can expect pretty much across the board blacklisting.

  2. Anonymous says:

    The bigger story is “Who cares?” The EU and ESMA are becoming less and less relevant in the world. They are determined to regulate themselves into oblivion.

  3. Anonymous says:

    Cayman wasn’t “snubbed”. Equivalency was not expected at this stage. Cayman has draft rules and regulations to effect the full provisions of the AIFMD regulatory regime that will need to get finalized before equivalency can be achieved. ESMAs review of the draft rules and regs suggest they will be equivalent upon issuance.

    The EU passport wont be available to any non-EU nation until 2018 at the earliest (although most expect this to get pushed by at least a year), and the draft rules and regulations will be final well before then.

    The rules and regulations that will apply to only this specific class of investment fund (which will be only a small subset of all Cayman funds) will be easy to implement and without opposition. Its just an added layer of regulations for these funds.

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