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Walkers: EU’s AML list has limited impact on Cayman

(CMR) There is no immediate or direct impact to private equity or hedge funds formed in the Cayman Islands as a result of the Cayman Islands being added to the EU AML list, Walkers has said. Cayman was placed on the EU's preliminary list last month.

Walkers explained that no penalties or sanctions for Cayman Islands entities would arise from the Cayman Islands' placement on the EU AML list as the EU AML List is unrelated to the EU's tax blacklist.

The law firm explained that the inclusion of the Cayman Islands on the EU AML List would require EU financial institutions to apply enhanced due diligence measures, to the extent they do not already, to relationships or transactions involving the Cayman Islands. Many EU financial institutions already do this in practice.

The inclusion of the Cayman Islands on the EU AML List would also prevent EU financial institutions from establishing new tranched securitization vehicles in the Cayman Islands. This is because Article 4 of the EU Securitisation Regulation states that securitization special purpose entities (SSPEs) “shall not be established” in a non-EU jurisdiction which is on the EU AML List by an EU financial institution.

EU investors will also be precluded from investing in securitization deals with Cayman Islands issuers which will affect EU Risk Retention compliant transactions (particularly in the CLO space) and those deals with EU-based equity investors.

The Securitisation Regulation does not expand further and does not impose restrictions on EU investors who have invested in existing SSPEs and closed transactions before the 13 March 2022 date.

Walkers explained that this has no impact on most Cayman Islands securitization vehicles without an EU nexus. The EU Securitisation Regulation diverges from the UK Securitisation Regulation, which references the FATF list of “high-risk jurisdictions,” which does not include the Cayman Islands.

However, Walkers said it has prepared for every outcome. Should there be a need to use an alternative jurisdiction to the Cayman Islands, it said it could provide the same level and scope of service in each of its Bermuda or Jersey offices with additional options Guernsey and Ireland.

The choice of an alternative will be driven by client preference taking into account time zones, jurisdictional familiarity through other products, and rating agency comfort.

“We have migrated Cayman Islands entities to and incorporated new entities in each of Bermuda and Jersey as a response to this issue so are well-versed in the process and able to seamlessly guide our clients through the steps required as well as the ongoing maintenance of the entities,” Walkers stated

Walkers said it will continue to monitor the situation and will advise further in the event of any developments or updates as the Cayman Islands Ministry of Financial Services will continue discussions with EU officials.

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Renae Stampp

Renae Stampp

A regional writer with almost 10 years of experience working in various news media including two major media houses in Bermuda and Jamaica. Renae provides professional content for our regional and international audience.

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