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HedgeCo.net (West Palm Beach) – A study by Dennis S. Ryan and Sonia Xavier of offshore law specialist, Conyers Dill & Pearman has come out ‘Cayman Islands Funds – Entering the Gateway to Capital Markets in India.’ The team describes the history and challenges of what Cayman Islands domiciled investment funds have faced when seeking to invest into Indian capital markets.
One of the major hurdles in this regard has been addressed by the 10 June 2009 admission of the Cayman Islands Monetary Authority (CIMA) as an ordinary (i.e., full) member of the International Organization of Securities Commissions (IOSCO), according to the report.
By way of background, the IOSCO Objectives and Principles of Securities Regulation were endorsed by its member regulators of various securities and futures markets in 1998, and generally are viewed by securities regulators as the key international benchmark on sound principles and practices for securities regulation. Currently, IOSCO members regulate the vast majority of the world’s securities markets.
To access the Indian markets, an investment fund must register as a Foreign Institutional Investor (FII) with The Securities and Exchange Board of India (SEBI). In the past, since CIMA was not a member of IOSCO, SEBI often engaged in extensive due diligence and inquiries before allowing registration of a Cayman fund as a FII. As a result, few Cayman Islands funds have registered with SEBI. CIMA’s admission to IOSCO looks set to change this trend in favour of Cayman Islands funds.
The timing could not be better, the report says, with emerging markets competing to attract liquidity, the Cayman Islands, with over 9,000 CIMA registered investment funds, a proven track record with investors and an excellent and sophisticated service infrastructure, has a great deal to offer India and investors that wish to access its markets.
One remaining challenge is that the Cayman Islands do not currently have a tax treaty with India, the law fim asid. Mauritius, on the other hand, has long been the preferred jurisdiction for investment into India as a consequence of the favourable double taxation agreement between those countries (the Mauritius-India DTAA), contributing to around 44% of foreign direct investment (FDI) into India.
Investment funds from non-tax treaty jurisdictions have developed a structure involving a wholly owned Mauritius subsidiary for purposes of Indian investment. Typically, this structure requires a Cayman Islands (or other non-treaty jurisdiction) investment fund to register with SEBI as a FII. The Mauritius subsidiary fund will then be registered with SEBI as a sub-account of the FII, permitting it to invest directly in Indian securities via SEBI.
The Mauritius fund will be set up as a Global Business Company Category 1 (GBC1) that is resident in Mauritius for tax purposes. As a Mauritius tax resident, this fund is subject to tax on income at the flat rate of 15%. However it is entitled to claim a credit for foreign tax on income not derived from Mauritius against the Mauritius tax payable, resulting in an effective tax rate generally ranging between 3% and nil. As a tax resident GBC1, the fund is also entitled to take advantage of Mauritius’ network of tax treaties, including the Mauritius-India DTAA, the report concluded.
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Caymen Net News – Local hedge fund experts have reacted favourably to last week’s proposals by the Inspector General of the US Securities and Exchange Commission (SEC) to increase fund regulation.
The SEC has proposed that regulation of hedge funds and other investment advisors should be tightened in the wake of the SEC’s failure to stop Bernard Madoff’s $65 billion Ponzi scheme.
Don Seymour, former Head of the Investment Services Division of the Cayman Islands Monetary Authority (CIMA) and Managing Director of dms Management Ltd, said:
“These are meaningful suggestions that are worth consideration. If implemented, they would both enhance protections to investors and respect the privacy of private investment funds, in stark contrast to recent disclosure proposals put forward locally by individuals that do not address systemic risks and betray the private nature of investment funds.”
Caymen Net News – The Cayman Islands Financial Services Association (CIFSA) has addressed efforts to boost disclosure of information about hedge funds, and has cautioned that the move must be widely agreed and equally applied.
Meanwhile, regulators at the Cayman Islands Monetary Authority (CIMA) said it hoped the changes, contemplated for later this year, if approved, would aid industry transparency, improving global views of Cayman’s financial services industry as it struggles for approval from the Organisation for Economic Cooperation and Development (OECD).
“The most crucial aspect of this is to ensure that there is a comprehensive approach so that every regulated hedge fund is covered,” said CIFSA chairman Anthony Travers. “This should be achieved first. There is a real risk that disclosing partial information may colour the debate going forward and may not present Cayman in its best light.
West Palm Beach (HedgeCo.net) – The Cayman Islands Government signed a Tax Information Exchange Agreement (TIEA) with Ireland at a ceremony held at the British Embassy in Berlin.
Signing the agreement on behalf of the Cayman Islands was the Leader of Government Business/Premier Designate and Minister for Financial Services, the Hon. McKeeva Bush, OBE, JP.
“The Cayman Islands is pleased to sign this agreement today with Ireland, marking another important step towards our ongoing commitment to international cooperation and OECD standards for transparency and exchange of information on tax matters. This signing will commemorate the beginning of what I am sure will be a highly productive and mutually rewarding relationship between the Cayman Islands and Ireland,” Bush said.
He added, “Our newly formed ‘Negotiation Team’ has worked tirelessly to secure technical agreements quickly. Our signing last week of a Double Taxation Agreement with the UK together with today’s signing is a direct result of their commitment and hard work. We look forward to continuing these efforts and I am confident that we will be on the OECD’s white list very soon.”
The Cayman Islands delegation, which was led by Mr. Bush also included the Minister of District Administration, Works, and Gender Affairs the Hon. Julianna O’ Connor-Conolly, JP; Chief Secretary the Hon. George McCarthy, OBE, JP; Financial Secretary the Hon. Kenneth Jefferson, JP; Chief Officer for Ministry of Financial Services Carson Ebanks, OBE, JP; Senior Assistant Secretary Michelle Bahadur; Senior Political Assistant Richard Parchment; Cayman Islands Monetary Authority General Counsel/Deputy Managing Director Langston Sibblies and Paul Byles.
Signing on behalf of the Irish Government, Martin Mansergh, TD, Minister of State at the Irish Department of Finance said, “We are very pleased to be here to sign this TIEA with the Cayman Islands. This is concrete evidence of the significant progress that has been made in recent months. Ireland welcomes the commitment of the Cayman Islands to implement the OECD standards of transparency and exchange of information in tax matters and their willingness to enter into tax information exchange agreements. The signing of this agreement represents a new chapter in relations between Ireland and the Cayman Islands.”
The Cayman Islands now maintains ten bilateral tax information agreements with the following countries: United States, United Kingdom, Denmark, Faroe Islands, Finland, Greenland, Iceland, Ireland, Norway and Sweden.
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Reuters UK – The Cayman Islands, home to most of the world’s hedge funds, is planning to reveal more information about them, the country’s regulator told Reuters, as pressure on the secretive industry rises.
The Cayman Islands Monetary Authority (CIMA) could make available data such as a fund’s directors, manager, auditors and administrator, an executive said.
Earlier this month, the offshore centre joined the global regulatory body IOSCO (the International Organisation of Securities Commissions), which on Monday backed compulsory registration of hedge fund managers.
West Palm Beach (HedgeCo.net) – The Cayman Islands Monetary Authority (CIMA) was formally admitted as the 189th member of the International Organization of Securities Commissions (IOSCO) at the meeting of the Presidents’ Committee at IOSCO’s 34th Annual Conference in Tel Aviv, Israel.
With the admittance, CIMA also officially becomes a party to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation, Cooperation and the Exchange of Information. CIMA signed the MMOU, which is the benchmark for international cooperation among securities regulators, on 24 March 2009.
"Some countries either do not allow investment vehicles from non-IOSCO member countries to be sold in their jurisdictions or will require greatly enhanced due diligence which makes it more difficult to do business with those jurisdictions." CIMA’s Deputy Managing Director, Mr. Langston Sibblies said, "IOSCO membership will remove these impediments and open up these markets for Cayman-domiciled securities providers. This is a development our private sector has looked forward to for a long time. It will be welcomed by the private sector."
IOSCO is the principal global standard setting body for the regulation of securities markets. Its objectives encompass cooperation and information exchange, standard setting and surveillance, and mutual assistance.
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Caymen Net News- On Monday, 21 July, lawyers representing PricewaterhouseCoopers filed a formal petition in Grand Court to put the liquidation of several failed hedge funds under court supervision.
Chief Justice, Anthony Smellie, granted all of the petitions, which will now put the court in charge of overseeing the liquidation of the four collapsed funds. The lawyers said that it would be in the “public’s interests” to have the liquidation be under court supervision.
In June the Cayman Islands Monetary Authority (CIMA) confirmed that the “Grand Island” funds were put into voluntary liquidation by the funds’ shareholders. Three of the four funds involved were registered with CIMA in 2006 and one other was an unregulated fund, not registered with CIMA.
When lawyers representing PwC commented to Chief Justice Smellie about the media attention being given to the case he replied simply, “It’s not every day a local fund gets into trouble.”
