AIFMD passport inclusion decision expected by June

The Cayman Islands Monetary Authority (CIMA) said it is confident the European Securities and Markets Authority (ESMA) would complete its assessment of a second wave of nations for inclusion into the AIFMD passport system by June 30.

In a letter to ESMA last December, the EC had asked for a decision on its second wave of non-EU jurisdictions; which includes Australia, Bermuda, Canada, the Cayman Islands, the Isle of Man, and Japan, by the end of June.

If included, the decision would secure access to European investors for funds managed or registered in the six countries.

The Cayman News Service said Garth Ebanks, deputy head of CIMA’s Investments and Securities Division told an industry summit earlier this month that a decision on the Island’s inclusion in the EU’s AIFMD system is expected by the end of June.

Reverse solicitation

The Cayman Islands’ funds industry is keen for a decision to be announced, saying that most US managers currently avoid Europe altogether, or rely on ‘reverse solicitation’ to distribute their funds – where the investor contacts them – which raises questions over what is classed as ‘marketing’ in the various European countries.

“What we are looking for in reverse solicitation is some clarity on a jurisdiction by jurisdiction basis.”

However, the change in law would fail to provide relief for managers currently relying on reverse solicitation, which are understood to be the large majority, according to Emma Dickson, general counsel at US investment group Criterion Capital Management.

Under reverse solicitation, the manager can bypass the need to be registered by a European regulator because the investor seeks the relationship, rather than the manager.

That way fund managers can avoid the various European national private placement regimes – the other way non-EU funds can still be sold in Europe until the Alternative Investment Fund Managers Directive (AIFMD) passport takes over.

Raising problems

This is still expected to raise problems because the rules around what constitutes marketing differ between countries.

Dickson said: “What we are looking for in reverse solicitation is some clarity on a jurisdiction by jurisdiction basis. The UK is at the forefront of this and they have given some indication of [the marketing] activity that you can do.

“We are keeping our eyes on the various jurisdictions, where we see demand, to see if we can get any deeper knowledge from the regulator in that specific country about how they interpret these laws.”

The six countries still outside AIFMD were expecting a decision in summer 2015, but delays around some of the first wave of non-EU countries; namely Hong Kong, Singapore and the US, pushed back the timeline.

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