The potential impact on Cayman’s financial services sector of Brexit, tax transparency proposals and financial market regulatory reforms were high on the agenda when a leading advocate for the global hedge fund industry visited the island recently.
Jiri Krol, deputy CEO and Global Head of Government Affairs for the Alternative Investment Management Association (AIMA), The global trade body for the alternative investment sector, told a gathering of senior industry figures that structural changes and tax transparency reforms in Europe could have implications for Cayman.
Krol is a former European Commission official who helped to frame the hedge fund industry’s contribution to the policy discussions that followed the global financial crisis of 2007-2008.
He focused in particular on four issues and themes: the European Union Directive on Alternative Investment Fund Managers (AIFMD), which has regulated hedge fund, private equity and venture capital fund managers in the EU since 2014; the EU’s updated Markets in Financial Instruments Directive (MiFID II), the cornerstone of European securities law that comes into effect in January 2018; the U.K.’s pending exit from the EU; and tax transparency proposals.
On the first of those, Krol said that the future extension of the EU-wide “passport” to Cayman-domiciled funds and investment management outsourcing provisions appear to have been placed on hold for the foreseeable future due to Brexit, although that is not the official line from the European authorities.
In terms of the European Union’s MiFID II, Krol explained that many of the rules, including payment for research, transparency requirements and position limits, will have global impact, affecting managers established outside the EU.
On tax transparency, he said the European Commission’s examination of what it regards as “noncooperative” jurisdictions could have an impact on Cayman and other international financial centres. A list is expected to be published before the end of 2017. It is not clear what the immediate implications would be for jurisdictions deemed to be noncooperative, but it is certain that, gradually, jurisdictions on the list would end up losing access to EU investors and markets. Krol said AIMA would continue to engage with the commission on the issue and urged the Cayman industry and government to intensify their efforts during the assessment phase.
Krol’s comments were made at AIMA Cayman’s annual luncheon at The Ritz-Carlton, Grand Cayman during the GAIM Ops Conference, one of the global hedge fund industry’s largest events.
“This was a timely debate and we are very grateful to Jiri for taking the time to brief the local industry about these developments, which clearly have the potential to impact Cayman for years to come,” said AIMA Cayman’s chairman, Colin MacKay, the managing director of Intertrust Cayman, a trust and corporate services provider.
“We look forward to working closely with AIMA globally, as well as government and Cayman Finance and other industry representative bodies to ensure Cayman’s position as the preferred domicile for international capital aggregation is secured,” he said.
Dominic Tonner is global head of communications at AIMA.