ABS Market Flying High

The number of lessors accessing the aircraft ABS market and the issuance of aircraft ABS has surged in recent years and this trend continued in 2019. Ongoing strength in air traffic growth, continued credit performance and syndicated equity transaction structures has increased investor sponsorship of aircraft ABS.


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Cayman Islands: Withdrawal of Fifteen Investor Exemption

On 8 January 2020, the Mutual Funds (Amendment) Bill, 2020 was published (the "Bill"). We expect the Bill will become law by the end of January 2020.

The Bill amends the Mutual Funds Law to remove the 'fifteen investor exemption', which permits funds with fifteen or fewer investors to avoid registration as a mutual fund, subject to certain conditions.

Funds currently relying on the fifteen investor exemption will therefore need to register with the Cayman Islands Monetary Authority ("CIMA") in due course, although the timing by which they will need to do so has not yet been confirmed. Where these funds have master funds established in the Cayman Islands, these master funds may also be required to register with CIMA.

Directors of registered mutual funds are required to be individually registered or licensed under the Director Registration and Licensing Law.

For further information about the consequences of being a registered mutual fund for the fund and its directors, please see the following Client Memoranda:

If you manage or operate a fund that is currently relying on the fifteen investor exemption, or if you have any other questions, please do get in touch with your usual Walkers contacts to discuss the next steps.

Introduction of Registration Regime for Closed-Ended Funds

On 8 January 2020, the Private Funds Bill, 2020 was published (the "Bill"). We expect the Bill will become law by the end of January 2020. While the timetable for implementation of the Bill and certain other key questions are still to be confirmed, this advisory summarises its key features and its likely impact on closed-ended funds and their managers.

This advisory is based on the Bill as published, and many of the practical details of the regime it introduces will need to be confirmed in due course in regulations and guidance. While we do not expect the text of the final law to differ in any material respect from the Bill, this advisory is necessarily a preliminary summary of how we expect the Bill to affect closed-ended funds. Walkers has been a leading part of the industry consultations and will remain closely involved in any consultations on ancillary regulations and guidance. As any of the matters discussed in this advisory develop in the coming months, we will publish additional advisories and guidance.


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Cayman: Introduction of Registration Regime for Closed-Ended Funds Summary

The New Year heralds the introduction in the Cayman Islands of the registration and regulation of closed-ended funds. As the jurisdiction of choice for the establishment of such funds outside of the US, the Cayman Islands remains at the forefront of legal and regulatory developments in this area. We expect fund sponsors, investors and regulators to benefit from the alignment of law and best market practice in this regard.

On 8 January 2020, the Private Funds Bill, 2020 was published (the “Bill”), and we expect that the Bill will become law by the end of January 2020. Whilst the timetable for implementation of the Bill is yet to be determined, and certain points of detail remain to be confirmed by regulations and guidance, the key provisions relevant to fund sponsors and investors are now sufficiently settled for clients to begin to make the substantive arrangements necessary for compliance with the new regime. We expect that ample time will be provided to permit any necessary compliance steps to be undertaken in a measured way.

In addition to this summary, we have published a more detailed client advisory that describes the scope and application of the new regime. Please click here to access that advisory.

Both this summary, and the more detailed client advisory, are based on the Bill as published. We do not expect that the final form of the legislation will deviate materially from the Bill. Walkers will continue our work with the Cayman Islands Government, the Cayman Islands Monetary Authority (“CIMA”) and other key local professionals, and we will provide updated summaries and client advisories as matters progress.

Which funds does this apply to?

The Bill applies to ‘private funds’, by which it means only the primary investor-facing vehicle offered to investors in closed-ended funds, including most private equity, infrastructure and real estate fund structures.

Alternative investment vehicles are recognised as not requiring duplicative oversight or reporting, and the Bill exempts more structural entities and certain other 'non-fund arrangements' from its application. The exact scope of these non-fund arrangements is expected to be clarified in further rules and/or guidance issued by CIMA in due course.

The key features of the Bill 

  • New private funds will be required to register with CIMA prior to calling capital for purposes of investment, and to pay a modest annual fee.
  • Existing private funds will be required to register with CIMA in due course.
  • We expect that registration will follow the well-established online submission procedure that is applicable to open-ended hedge funds.
  • Audited accounts will have to accompany an annual return to CIMA, which accounts will require confirmation by a local audit firm. Composite "whole fund" audits should be acceptable.
  • Private funds will be subject to requirements in relation to:
    • valuation
    • custody
    • cash management and the identification of certain securities
In practice we expect that most fund sponsors will be able to discharge these obligations with minimal impact on their existing operations, relying on their internal capabilities and making certain straightforward disclosures to investors.

Bermuda Economic Substance Update – Key Amendments Enacted

Following continued discussions with the EU’s Code of Conduct Group and the OECD, Bermuda has passed amendments to its economic substance laws to more closely align Bermuda’s regime to that of other 2.2 jurisdictions.

The Economic Substance Amendment (No. 2) Act 2019 and the Economic Substance Amendment (No. 3) Regulations 2019 came into force on 24 December 2019 and have introduced substantive changes to Bermuda’s economic substance laws, which are summarised below. Our full advisory with an overview of Bermuda's economic substance requirements can be viewed here.

Holding entities
One of the key changes is to the definition of the relevant activity of engaging in business as a ‘holding entity’ which now means only ‘pure equity holding entity’. The definition of pure equity holding entity has also been revised such that an entity will only be engaged in business as a pure equity holding entity if, as its primary function, it acquires and holds shares or an equitable interest in other entities, performs no commercial activity and holds or controls alone, under an agreement with others, a majority of voting rights or has the right to remove or appoint the board of directors (or equivalent).

Financing and Leasing
Bermuda has amended the previously separate relevant activities of ‘financing’ and ‘leasing’ into one relevant activity of ‘financing and leasing’ and have revised the definition such that it now only covers entities which provide ‘credit facilities’ of any kind for consideration (including by way of interest) and where the provision of credit may be made by way of instalments for which a separate charge is made in connection with the supply of goods by hire purchase, financial leasing (excluding land and interests in land) or conditional sale or credit sale. The definition expressly excludes activities that fall under banking, insurance or fund management.

A significant change to the definition of shipping has been made with the result that entities which merely own ships but do not operate them will be out of scope. The revised definition now captures the operation of a ship anywhere in the world (excluding Bermuda) for transporting by sea, passengers or animals, goods or mail for a charge, renting and chartering a ship for such purposes; the sale of tickets and ticket related services connected with the operation of a ship; use, maintenance or rental of containers for transportation by sea; and functioning as a private seafarer recruitment and placement service.

The amendments now make it clear that insurance managers and other insurance intermediaries are not in scope and that the relevant activity of engaging in insurance business is limited to licensed (re)insurers.

Revised Guidance on the General Principles relating to Bermuda’s economic substance laws is also expected to be issued following the amendments.

Entities that were previously in scope of Bermuda’s economic substance laws but now fall out of scope as a result of these amendments will not be required to make any notification or report in respect of the period in which they were in scope and will not be subject to Bermuda’s economic substance laws.


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