BMA in talks with Germany on alternative funds agreement
Financial regulator the Bermuda Monetary Authority (BMA) is in talks aimed at allowing alternative fund managers based on the Island to market their investment products in Germany.
The confirmation of the talks comes after British newspaper The Financial Times (FT) reported that Germany was refusing to sign alternative investment cooperation agreements with Bermuda, Cayman Islands and the British Virgin Islands.
The paper suggested that “German political distaste for the offshore hedge fund industry has caused Europe's economic powerhouse to block Caribbean-based alternative managers from operating in the country.”
However, it has emerged that last Friday the Cayman Islands Monetary Authority (CIMA) signed a memorandum of understanding (MOU) with German regulator Bundesanstalt für Finanzdienstleistungsaufsicht (Bafin) that will allow the Caribbean territory's fund managers to sell their products in Germany — the 27th European Union country with which it has struck such an agreement.
Without such an MOU, non-EU hedge funds that fall under the remit of the recently implemented Alternative Investment Fund Managers Directive (AIFMD), a European framework aimed at improving standards in the hedge fund industry, cannot be marketed to German investors.
Asked about the FT's story, the BMA told The Royal Gazette: “The Bermuda Monetary Authority is currently in discussions with Germany regarding the signing of a bilateral agreement, with a view to confirming arrangements with the German regulator Bafin.
“Bafin has indicated that such bilaterals with non-EU countries will reflect the content of the AIFMD MMOU that Bermuda has already signed with 26 EU member states.”
The FT reported: “BaFin, the German regulator, says it will sign the agreements in jurisdictions where it finds ‘relevant cross-border activity either existent or planned'. The watchdog adds that it is in contact with several authorities ‘in order to determine the need to conclude an (agreement)'.”
The FT quoted Jake Green, senior associate at Ashurst, a law firm, as saying: “This is all political. I imagine that [the German regulator] views certain jurisdictions as being cheap in terms of regulation or tax, which is giving an unfair advantage to non-European domiciled funds. They want to level the playing field.”
German institutions tend to allocate a higher proportion of their investments to hedge funds (14 percent) than those in the UK (nine percent). Germany's institutional investor market is worth some $736 billion and is about one seventh the size of the UK's.
Last Friday, the Organisation for Economic Cooperation and Development (OECD), announced that it had assessed Bermuda as “largely compliant” in international tax transparency — the same rating given to Germany, as well as the UK and the US.