Both the BVI and Cayman Islands have been busy recently with changes to their AML regimes for investment funds.
As many of our readers will be very aware, existing Cayman Islands investment funds are getting ready to comply with the new anti-money laundering (AML) rules and new funds need to comply before they launch. So what is it all about? Continue reading
Offshore funds established in the Cayman Islands and BVI could be forgiven for thinking that European laws on data protection don’t apply to them. That all changed recently though after the General Data Protection Regulation (GDPR) came into force in Europe last Friday, 25 May.
What’s GDPR and when can offshore funds be caught?
GDPR is broad in scope and expands Europe’s earlier data protection laws, with an overall aim of improving European individuals’ rights over their personal data and how it’s collected, stored and processed. GDPR applies to data controllers and data processors established in the European Union but can also apply to controllers/processors when they’re based outside the EU, depending on their activities.
Offshore funds may be classed as data controllers, if they’re processing data about EU individuals and the processing is related to offering goods or services to individuals in the EU. In practice, this means that offshore funds with EU investors or who actively market their fund to EU investors may be in scope. Unfortunately whether a fund is being offered or actively marketed to EU investors under GDPR isn’t the same as whether it’s being marketed under AIFMD, so funds need to review their activities and investors again to see if GDPR applies. GDPR can also apply to offshore funds where personal data’s being processed outside the EU by controllers/processors established in the EU.
Service providers to funds, including administrators and IT providers who hold personal data caught by GDPR, may also be classed as data processors. Specific GDPR requirements for arrangements between controllers and processors may then mean that a fund’s administration and outsourcing agreements need reviewing.
With potential penalties of Euro 20 million or 4% of annual global turnover, whichever’s greater, offshore funds that may be in scope of GDPR need to take it seriously.
Here at Harneys our Cyprus team has been busy advising funds and their service providers on whether they’re in scope and if so what they have to do to make sure they’re compliant, with a handy flowchart as the starting point.
The detailed impact of GDPR on offshore funds in practice is likely to be a discussion point for the industry for months to come, despite it coming into force last week, with one commentator remarking that the legislation’s “woollier than a row of sheep”. Here in Europe there are many people who are simply relieved that their inboxes have stopped being swamped with updated privacy policies, many from companies they can barely remember being in contact with in the first place…
The Cayman Islands government kept funds lawyers busy over Christmas and into the New Year by publishing a draft of updated laws and regulations in December which affect Cayman Islands investment funds. This blog briefly summarises those changes, please let any of the blog team know if you’d like more information or advice on any of them or have a look at our more detailed client alerts in the links below.
Sometimes an investor fund dispute is unavoidable. So what strategies can fund managers deploy to resolve investor fund disputes? Sadly, there is no one-size-fits-all approach, but in this post I will highlight some effective and commonly-deployed tactics. Continue reading
Having worked as a funds lawyer through the 2008 financial crisis and advised various Cayman funds on the meltdowns that followed, it’s easy to agree with the opening remark in the Privy Council’s recent judgment in the Primeo case1 that “the path to redemption is not always smooth.” The Privy Council has provided helpful confirmation of the earlier decisions in the Cayman Islands Grand Court and the Court of Appeal that under Cayman Islands law “redemption” of shares means redemption in accordance with the terms set out in a fund’s articles of association. Once the redemption process in the articles has been complied with, the investor is taken to have redeemed its shares and become a creditor in respect of its redemption proceeds. Payment by the Company of the redemption proceeds is not an inherent part of redemption.
What was the Primeo case about and why does it matter for offshore funds today?
You may have heard that the BVI and the Cayman Islands are introducing registers of beneficial ownership. The good news is that, for the funds industry anyway, which is being engulfed by more and more regulatory red-tape, this should be one of the least onerous new developments to your business.
The BVI legislation in relation to the beneficial ownership register comes into force on 30 June 2017 and the Cayman legislation comes into force on 1 July 2017. Each requires information about the beneficial ownership of BVI business companies and Cayman Islands companies (including LLCs) to be uploaded onto a secure and private register maintained within the relevant jurisdiction.
I’m sorry if I got anyone’s hopes up with the title to this post. Unfortunately, this is not going to give fund managers magical insights on how to secure that crucial investment to launch a fund or take an existing fund to the next level. However, this post may help keep some fund managers out of trouble!
I am often approached by clients and contacts with queries about the marketing of their fund interests internationally. This may be because my business cards and email signature state that I am a “Practitioner of Foreign Law” – perhaps people think I am able to advise on the laws of every “foreign” jurisdiction!
The bad news for people with such queries is that I am usually not qualified to answer specific queries on marketing in particular jurisdictions – I only practice Cayman and BVI law. However, the good news is twofold:
1. Asking these types of questions is the right thing to do! All our fund manager clients are (hopefully) aware of the various laws, regulations and rules that govern marketing fund interests in their home country. What every fund manager should also know is that they need to tread very carefully when marketing fund interests overseas. My fellow Offshore Funds Bloggers have written some useful posts on the European Union’s Alternative Investment Fund Managers Directive here and here. Although the funds marketing regime in Europe can be considered one of the most stringent in the world, it is worth remembering that almost every other jurisdiction will have laws and regulations on how (and to whom) fund interests may be marketed there. For example, managers in the United States will be very familiar with the careful planning needed to ensure that their funds fall within the various exemptions and safe harbours of the Securities Act and Investment Companies Act (not to mention state-by-state blue sky filing requirements!). Continue reading
Don’t all rush at once with your XML files, but the Cayman Islands Tax Information Authority (TIA) confirmed last week that its automatic exchange of information (AEOI) portal is now open again for notification and some reporting functions. Those fund administrators who have taken on the task of processing the notification and reporting obligations for Cayman funds are now busy making sure that the funds are properly registered on the portal so that they can file the relevant reports later in the Summer under the Cayman legislation implementing US FATCA and the OECD’s Common Reporting Standard (or CRS as everyone knows it).
So, what are the key dates in 2017 for Cayman funds and AEOI?
|Early May 2017||New AEOI portal user guide for CRS/US FATCA was published here|
|Mid May 2017||CRS and US FATCA notification/registration function now available on AEOI portal, including variation in reporting obligation, and US FATCA XML reporting|
|June 2017||Updated AEOI portal user guide available with detailed CRS user guidance|
|Mid June 2017||CRS reporting function available on AEOI portal|
|30 June 2017||CRS and US FATCA notification/registration deadline for Cayman financial institutions|
|31 July 2017||CRS and US FATCA reporting deadline for Cayman reporting financial institutions, for the 2016 reporting year|
|31 July 2017||Deadline for correcting any errors for US FATCA reports for 2014 and/or 2015|
|31 December 2017||The review of Pre-existing Lower Value Individual Accounts and Pre-existing Entity Accounts for CRS must be completed|
What else should Cayman funds have done or be doing?
The real estate sector is ripe for international private equity fund managers – and offshore fund vehicles are just the ticket for investment in property portfolios.
When I volunteered to write a guest blog (for our funds team) this month, I must admit I was slightly filled with dread when they said yes with (in my view) rather inappropriate amounts of enthusiasm. What do I know about offshore funds as a corporate and commercial lawyer, who has more recently been turning her hand to corporate restructurings in a flattish transactions market? Well, the answer is in fact quite a lot about what offshore funds are being used for, particularly in the property market in the UK.
I regularly act for residential and commercial property investors and those who lend to them and I also have a (probably) slightly unhealthy interest in Rightmove’s sold property prices. What better credentials do I need?
With a real estate property magnate in the White House and the increase in property investment generally, the real estate sector is ripe for international private equity fund managers to tap into.
The United Kingdom served its Article 501 notice today, giving two years’ notice to leave the European Union. Managers of offshore funds, as well as everyone else here in the UK, now have more clarity on the Brexit timetable, with the UK scheduled to be out of the EU in March 2019. Much has been uncertain since the UK’s referendum in June last year, and that’s not likely to end until the final exit terms are agreed, but it’s clear that the effects of Brexit will be felt beyond the UK and Europe. Brexit negotiations are expected to be intense and politically complex (especially with French and German elections later in 2017 and Scotland’s demand for a further independence referendum before Brexit finally takes effect), with the UK’s stated aim, in its Article 50 notice, of agreeing a “deep and special partnership, taking in both economic and security co-operation” between the UK and EU post Brexit.
So what impact will Brexit have on offshore funds?
The short answer is yes, but there are caveats. Many investment fund commentators were all doom and gloom for 2016. Underperformance from some of the institutional fund managers, some institutional investors pulling out of institutional funds, over-regulation in the US, cyber-security and the SEC’s treatment of managers being some of the reasons why and leading to many journalists writing headlines such as “Is this the end of the hedge fund?”
Setting up a US fund and a Cayman fund is quick, easy and yes, seamless, provided that the manager chooses US and Cayman Counsel who, as part of their core businesses, structure investment funds. These are the folks who, if the manager chooses wisely, will become their trusted advisors for many years to come. If this is the case then US Counsel will work seamlessly with Cayman Counsel.
But before we get to the process, the manager needs to decide how their US Fund will work in conjunction with their offshore fund. In deciding which route to follow, US Counsel will walk the manager through the options.
This question is asked by start-up and emerging managers all of the time and for good reason. Generally it’s the manager who’s putting down their cash to set-up the Fund, albeit the set-up fees will be amortized at the Fund level when investors come-in. As such the manager needs to be extremely confident (show me a manager who isn’t extremely confident….) that they need a US Fund and the Offshore Fund, rather than one or the other. To make this decision, the manager needs to be focused and strategic with their marketing and to have discussed the pros and cons with their legal counsel. Otherwise the manager could well be wasting their own money. Let’s jump into why a manager should be setting-up a US Fund and the Offshore Fund at the same time.
The Brexit rollercoaster is showing no signs of nearing the end of the ride yet following the UK Supreme Court’s judgment on Tuesday this week. As has been widely reported, the Supreme Court confirmed that the UK government doesn’t have the power to give notice to withdraw from the European Union under Article 50 of the Lisbon Treaty without an act of Parliament authorising it to do so. The government can’t simply serve notice to leave, as it had hoped and argued before the UK’s highest court, and so it now has to put draft legislation before Parliament, which it published today, to give the government the authority it needs to serve notice.
Opposition parties have already made it clear that they may try to amend the draft legislation, which, with only one section authorising the Prime Minister to serve Article 50 notice, must win the prize for being one of the shortest pieces of legislation in recent years. Although it looks unlikely they’ll de-rail Brexit itself at this stage or even delay the government’s 31 March target deadline for serving Article 50 notice, MPs could try to take Theresa May’s strategy in a different direction from the principles she set out in her speech last week or make the government involve Parliament more in the negotiations, not just give them a vote on the final deal struck.
So what does the Supreme Court judgment mean for offshore funds?