Cayman can handle new rules

(CNS): As a clearer time frame for new international regulations for hedge funds finally emerges, the implications for the industry in Cayman are positive, according to industry experts. During a panel discussion at this week’s GAIM Ops 2011 conference, members discussed the implications of the new regulatory landscape for the hedge fund industry and looked at two specific pieces of proposed legislation: America’s Dodd-Frank Act and the European Union’s Alternative Investment Fund Managers Directive (the AIFMD).

Michael G Tannenbaum, co-founder & partner with US lawyers Tannenbaum Helpern Syracuse & Hirschtritt, moderated the panel discussion at the specialist conference currently underway at The Ritz-Carlton, Grand Cayman and said that America’s Securities and Exchange Commission (SEC – the entity tasked with creating the new Dodd-Frank rules) would have the legislation finalised by 21 July of this year, with a most likely implementation date of the end of the first quarter of 2012.

The AIFMD, on the other hand, would not properly have any impact until 2015, according to panellist speaker Ingrid Pierce, Partner and Head of Cayman Hedge Fund Practice at Walkers.
The Dodd-Frank Act will impact hedge fund managers as the rules will change as to when a hedge fund manager will have to register with the SEC. Those US hedge fund managers who want to sell their products to European investors will also be affected by the AIFMD as they will be required to comply with the new directive.

“Cayman legislation has been pretty level in the past few years and people have been pleased on the regulatory front as to how the regime has reacted here,” Pierce said. She went on to say that whatever happens internationally, the Cayman Islands regulatory regime will be able to respond swiftly and robustly with its own set of rules.

As far as the AIFMD was concerned, Pierce said that compliance with the Cayman Islands regime would actually be easier than before because once an investment manager had undertaken the proper procedures with regard to compliance and registered themselves accordingly, the information that would then be required by Cayman’s regulatory overseer, the Cayman Islands Monetary Authority, would be straightforward.

Pierce’s concern was the fact that all these new pieces of legislation did not appear to be co-ordinated and that if an investment manager wanted to be broad in his approach they would need to ensure compliance with various regimes, which would be a lot to keep up with.
Pierce also suggested that investment managers might consider outsourcing the compliance burdens to administrators or other third parties to ensure that resources were best spent in areas of expertise.

“Areas that fund managers will need to think about include valuation, remuneration, depositaries and limits on leverage,” she confirmed.

Another panel speaker, Stuart J Kaswell, Executive VP & Managing Director, General Counsel Managed Funds Association, said that fund managers would have to think a great deal more about registering with the SEC than simply the process of registering.

“An entire compliance programme needs to be put in place that includes a system of oversight and review,” he explained, noting that previously the SEC has geared up its inspections of newly registered fund managers so it was important to have everything in place initially, before registration takes place.

Panellists agreed that there was at least a good amount of time allocated for consultation before the new legislation became effective.