In 2018, the National Private Placement Regime pathway to access European investors is scheduled to be phased out. But given that ESMA is yet to approve the next wave of jurisdictions to qualify for the AIFMD third country passport, this seems an unlikely timeframe.
"Given that ESMA still has to review amendments to Cayman legislation and provide its approval, there is a long road ahead and 2018 really isn't that far away. I am of the view that NPRR will likely be extended a year or two to allow jurisdictions such as Cayman and the US to be properly considered by ESMA," opines Alex Brainis (pictured), Partner at Appleby (Cayman).
He observes that from a client perspective the majority of managers in the non-EU space have an interest in the AIFMD passporting option to access EU investors but the level of demand is not overwhelming specifically because they have the option of using National Private Placement Regimes in EU jurisdictions.
"The initial interest is therefore to understand what the AIFMD passport is, what its benefits are, and how it could be used alongside a manager's existing operations when the NPPR route gets phased out. However, there needs to be time to operate passporting for non-EU countries pari passu to NPPR in order to contrast and compare the two. That will take time so I would be surprised if the 2018 timeline is not extended to allow for such process," says Brainis.
When ESMA considered the Cayman Islands it initially stated that there were no significant obstacles impeding the application of the AIFMD passport but it did state that it would not be in a position to provide specific advice or recommendations on the eligibility of the jurisdiction until specific items were addressed and finalised. These include:
- A final version of the AIFMD-like regime to be implemented into the Cayman Islands.
- Legislative amendments to give CIMA the power to impose administrative fines for certain breaches of regulation.
- The development and implementation of a policy framework by CIMA to enhance systemic risk monitoring.
"Those items should be finalised in the next month or two," says Brainis. "Part of the legislative amendment process is to address the obligations of both regulated EU connected funds and regulated EU connected managers. The amendments being made should align Cayman with AIFMD equivalence."
Managers will have the option of whether or not to opt in to Cayman's AIFMD-like regime. The election to be treated as a regulated EU connected fund would be available to both open-ended funds and closed-ended funds, which are currently outside the scope of the Mutual Funds Law.
"For an initial period managers will, whilst still availing of the NPRR methodology, have the option of opting in to AIFMD in a specific jurisdiction i.e. Ireland. Upon opting in to that jurisdiction, the manager will be able to fully passport their fund(s) into the EU without having to individually register with each EU Member State.
"To qualify for an EU connected fund the manager would need to apply to CIMA for the correct license and be confirmed as AIFMD eligible. The relationship between the manager and the relevant regulator in the EU and CIMA would originate with the fact that the manager would be regulated by CIMA and would be granted the status to exercise their AIFMD opt-in," concludes Brainis.
