The Cayman Islands Government (CIG) confirmed on 25 March its continuing implementation of measures which will ensure that the Cayman Islands Monetary Authority (CIMA) will be ready for the July 2013 implementation of Europe’s Alternative Investment Fund Managers Directive (AIFMD).

The AIFMD seeks to create a harmonised regulatory regime which addresses the management and distribution of alternative investment funds within the European Union (EU), whether or not the funds or the managers in question are themselves established within the EU. As part of the new regime, AIFMD requires that non-EU member states (third countries) satisfy certain key requirements as a precursor to funds which are domiciled in, or which are managed by investment managers domiciled in, those third countries being marketed to investors in the EU.

Two preliminary hurdles which third countries must satisfy are:

The third country in which the investment manager and/or fund is domiciled must not be on the Financial Action Task Force’s (FATF) list of non-cooperative jurisdictions.

The Cayman Islands is not on the list of non-cooperative jurisdictions maintained by the FATF, and its anti-money laundering and anti-terrorist financing regime is one of the most stringent among leading international financial centres.

The financial regulatory body in the relevant third country must have in place a cooperation agreement with its counterpart in the relevant EU member state in which it is proposed that a fund would be marketed.

CIMA has been engaged in dialogue with the European Securities and Markets Authority (ESMA) for over a year to seek agreement on the form of a memorandum of understanding which could be entered into between national regulators within the EU and those in third countries as a precursor to fully-fledged cooperation agreements being entered into. In parallel with these negotiations, CIMA has maintained open communication with the financial regulators in a number of key EU member states in connection with AIFMD (and other matters of mutual interest).

An additional requirement, which will only become relevant from 2015 when the EU passporting regime within AIFMD is extended to third country funds, will be for agreements for exchange of information for tax purposes to be in place between the relevant EU members state and the third country. The Cayman Islands continues to extend its network of tax information exchange agreements, both within and outside of Europe, and earlier this month CIG signed its 31st such agreement following settling terms with the government of Brazil; further agreements are in process and await signing. One third of the tax information exchange agreements which CIG has entered into are with EU member states – including, significantly, France, Germany, Italy and the United Kingdom.

The changes to the Monetary Authority Law which the CIG has announced will enable CIMA to enter into memoranda of understanding and cooperation agreements with financial regulators in EU member states (as well as with ESMA). It is worth noting not only that CIMA’s board of directors has approved CIMA’s entry into agreements with the relevant EU regulators based on the ESMA model memorandum of understanding, and that these changes to the Monetary Authority Law simply pave the way for these agreements to be concluded, but also that ESMA has confirmed that it is currently in contact with non-EU authorities that are members of IOSCO (as CIMA is) and is continuing to negotiate cooperation arrangements with a view to having these in place before July 2013.

As the CIG and CIMA continue to implement the Cayman Islands’ response to AIFMD, we will keep clients and contacts informed of material developments. Meanwhile, if you have any specific questions or concerns please contact any of the partners listed and they will be very happy to assist you.

See front page story in today’s (27) iNews Cayman “AIFMD to be implemented by Cayman Islands”