Deputy Premier and Minister for Financial Services, The Hon. Rolston Anglin, JP

Cayman’s Readiness for the Implementation of the Alternative Investment Fund Managers Directive (AIFMD)

Friday, 15 March 2013 | Cayman Islands Legislative Assembly

Madam Speaker, in late 2010, the European Union proposed a Directive affecting alternative investment fund managers.  Among the various features of this directive, were requirements that affect the ability of non-EU funds to be marketed within the EU. Much debate and discussion has surrounded this Directive, and the Cayman Government sent a delegation under the leadership of the former Premier to make representation on behalf of our industry. The Monetary Authority has also been actively involved in the process leading up to implementation of this directive.

Madam Speaker, the European Union’s Alternative Investment Fund Managers Directive (AIFMD) is due to become fully effective in July of 2013.

Alternative investment funds, like Cayman hedge funds, from non-EU jurisdictions will not be able to be marketed within EU countries unless certain conditions are met. Given an estimate that around 26% of relevant Cayman Islands funds would be affected if this eventuality were to arise, meeting the conditions of the AIFMD is imperative.

Madam Speaker, the conditions relevant to Cayman are that:

1.   There is in place a cooperation agreement with third country fund domicile and home member state;

2.   Third countries  (domicile of manager or fund domicile) are not on the FATF list of non- cooperative jurisdictions;

3.   Agreements for exchange of information for tax purposes are in place between the EU and non-EU jurisdictions.

Of these three conditions, the only point of concern is that CIMA does not currently have cooperation agreements with most EU securities regulators (except with the UK FSA). However, the European Securities Markets Authority (“ESMA”) has developed a model MoU which will be used by all EU jurisdictions in entering into MoU’s with third country jurisdictions.

Madam Speaker, CIMA has been in discussion with ESMA since early 2012 on the requirements of the ESMA model MOU for entering into cooperation agreements with its EU counterparts. These discussions, while confidential, have been cordial and constructive. CIMA’s Board of Directors has approved that CIMA may enter into agreements with the relevant EU regulators based on the EU model MoU subject to certain amendments to the Monetary Authority Law (MAL).

Madam Speaker, while much of the process that is being led by ESMA is confidential, the passage of the Monetary Authority (Amendment) Bill, 2013 last week Friday will allow CIMA to fully participate in this process.

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.

 

Cayman Amendment Paves Way for AIFMD Compliance

George Town, Grand Cayman – 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 (ESMA).

The Monetary Authority (Amendment) Law, 2013, is in response to the EU’s Alternative Investment Fund Managers Directive (AIFMD). The directive requires certain conditions to be met before non-EU countries can market alternative investment funds – such as hedge funds – in the EU.

Government passed the amendment on Friday, 15 March. AIFMD is set to become fully effective this July.

‘Without the amendment to the law, about 26% of Cayman’s funds would have been blocked from being marketed in the EU’, explained the Minister for Financial Services, the Hon. Rolston Anglin.

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 (CIMA), 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 that 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.

Minister  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.

 

From Wikipedia

The Alternative Investment Fund Managers Directive COM (2009) 20 is a proposed European Union law which will put hedge funds and private equity funds under the supervision of an EU regulatory body. These kinds of business vehicle have not been subject to the same rules to protect the investing public as mutual and pension funds. In general, the lack of financial regulation is seen by some to have contributed to the severity of the global financial crisis. The European Parliament voted through a final text of the Directive on 11 November 2010. The proposals have to be written into national statute books by 2013, and will be effective from this date.

The AIFMD proposal includes the following reforms.

A private equity fund must appoint an independent valuer and an independent custodian.

A private equity fund with EU investors must disclose its business plan for a portfolio company to that          company, its other shareholders and employees, and make that information public.

Investors would not be able to invest outside the EU unless it was under an “equivalent” regime.

Imposes limit to leverage for one time the amount of capital across a fund.

The right-wing think tank Open Europe has estimated that the hedge fund and private equity industry contribute €9.2 billion in tax revenues to the EU economy every year, which would come under threat if the EU’s AIFM directive would have been passed in its original flawed form.

According to a study conducted by Deloitte, most of the UK-based asset managers think that the AIFM Directive could reduce the competiviteness of the EU’s alternative investment funds industry because of the compliance the regulations impose on the industry. In addition, these managers from the hedge fund, private equity and real estate sectors believe that the directive will reduce the number of non-EU managers operating within the EU.