The Cayman Islands' Legislative Assembly will consider amendments this August to two laws in order to establish an opt-in regime for regulating Cayman-domiciled investment funds and managers connected to the European Union.

The laws in question are the Mutual Funds Law and the Securities Investment Business Law. The amending Bills are designed to set up two separate opt-in regimes (in line with the EU's Alternative Investment Fund Managers' Directive) for the prudential regulation of both EU-connected funds and EU-connected managers. These new AIFMD regimes will give Cayman-based funds and managers the option of electing for an additional layer of regulation (consistent with the AIFMD) to apply where certain types of marketing in the EU, or managing of EU funds, or depositary activity is contemplated.

The vague outline of the AIFMD regimes is to be found in the Bills, but the specifics will be set out in detailed regulations. These are still being finalised and will probably be issued shortly after the changes made by the Bills come into force. Whoever wishes to market Cayman funds in the EU will then be able to use either the AIFMD passport mechanism or existing national private placement regimes or NPPRs.

New opt-in AIFMD regimes

The Bill to amend the Mutual Funds Law introduces the concept of an opt-in process for a "regulated EU Connected Fund", being any type of investment fund (whether open-ended or closed-ended) which (i) is either managed from or marketed in a member-state of the European Economic Area ("EEA") as contemplated under the AIFMD and (ii) elects to fall within the Cayman Island Monetary Authority's new regulated EU Connected Fund regime.

The Bill to amend the Securities Investment Business Law introduces the concept of an opt in designation as an "EU Connected Manager", being a person who: (i) falls within the existing ambit of that Act; (ii) conducts management, marketing or depositary activities as contemplated under the AIFMD; and (iii) elects to join CIMA's new EU Connected Manager regime.

Under the AIFMD Regimes (i) both open ended and closed ended EU Connected Funds will be able to elect to be regulated by CIMA, but under a new regime tailored to EU Connected Funds, and (ii) EU Connected Managers will be able to elect, despite being "excluded persons" under the Securities Investment Business Law, to become fully licensed in accordance with that Act and, what is more, to be governed by new regulatory standards that are consistent with the AIFMD.

Both Bills make it clear that the existing supervisory duties and powers of CIMA under the two Acts will extend to EU Connected Funds and EU Connected Managers which opt into the AIFMD Regimes.

ESMA's recommendations

On 22 July 2015, the European Securities Markets Authority is due to tell another organ of the EU which jurisdictions it thinks ought to be considered for a "third country passport" under the AIFMD. This organ, the European Commission, will then have three months to reach a decision about all the countries on the list.