On 13 October 2015 Steven Maijoor, the Chair of the European Securities and Markets Authority ("ESMA") confirmed to the European Parliament that ESMA would begin to assess a second group of non-EU jurisdictions, which includes the Cayman Islands, with a view to making a recommendation as to whether the AIFMD1 passport should be extended to such non-EU jurisdictions.
As noted in our previous client update, on 30 July 2015 ESMA issued an opinion and advice (the "First Recommendation") to the EC2 relating to the application of the AIFMD passport and whether it should be extended to non-EU jurisdictions. ESMA has taken a "country-by-country" approach and the First Recommendation considered six non-EU jurisdictions and gave positive recommendations to two of those (with a third very close to finalisation), but delayed their decision in respect of the other three jurisdictions assessed, being Hong Kong, Singapore and the USA.
In its First Recommendation, ESMA recommended the deferral of the extension of the AIFMD passport to non-EU alternative investment fund managers ("AIFMs") and alternative investment funds ("AIFs") until a larger number of jurisdictions had been assessed by ESMA. At the Economic and Monetary Affairs Committee ("ECON Committee") session on 13 October 2015, representatives of the EC indicated their agreement with this approach. It is expected that ESMA will be given a deadline of approximately March 2016 for its next opinion and advice which will include its recommendation on the second group of non-EU jurisdictions (the "Second Recommendation").
In his submission to the ECON Committee at the European Parliament on 13 October 2015, the ESMA Chair confirmed that as part of the Second Recommendation ESMA will continue its assessment of Hong Kong, Singapore and the USA with a view to reaching a definitive conclusion on whether to extend the AIFMD passport to those jurisdictions. He also confirmed that the second group of non-EU jurisdictions to be assessed by ESMA consisted of the Cayman Islands, Australia, Canada and Japan, among others.
Position in Respect of the NPPRs
At the ECON Committee session, representatives of both ESMA and the EC indicated that, should the AIFMD passport be extended to non-EU jurisdictions, both the passport and existing national private placement regimes ("NPPRs") are expected to function in parallel for at least three years, following which there would be another assessment by ESMA and the EC as to whether the dual system should cease to exist. In particular, it is expected that the extension of the AIFMD passport to non-EU jurisdictions will not result in the automatic withdrawal of the NPPRs at the end of the three year period (especially in view of the fact that the assessment in respect of the AIFMD passport extension is conducted on a "country-by-country", rather than global, basis).
Cayman Islands Well Placed for Extension
One element of ESMA's assessment of each non-EU jurisdiction is a review of its regulatory regime.
The Cayman Islands is currently in the process of enhancing its regulatory laws in order to introduce two new AIFMD consistent regulatory regimes ("New AIFMD Regimes") which will enable Cayman Islands AIFs and AIFMs to take full advantage of the AIFMD once the AIFMD passport is extended to the Cayman Islands. In August 2015, the necessary amendments to the Mutual Funds Law and Securities Investment Business Law required to implement the New AIFMD Regimes were passed, and the relevant supporting regulations which will set out the detail of the New AIFMD Regimes are expected in the coming weeks.
Given: (i) the New AIFMD Regimes; (ii) the extensive network of cooperation agreements and tax information exchange agreements with the relevant EU member states (or EU regulators, as appropriate) to which the Cayman Islands is a party; and (iii) the reciprocity of access for EU AIFs and AIFMs to investors in the Cayman Islands, it is anticipated that the Cayman Islands will be well placed to receive a favourable assessment from ESMA as part of the Second Recommendation.
1 Alternative Investment Fund Managers Directive (2011/61/EU)
2 European Parliament, Council and Commission