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CP86 2.0 – Worth the wait?

The Central Bank’s Fund Management Companies – Guidance (the “Guidance”) took effect on 1 July 2018 for entities in existence at the time of its publication following the completion of an extensive period of consultation (CP86) with industry between September 2014 and August 2016. The Guidance is applicable to Irish authorised UCITS management companies, AIFMs and self-managed UCITS and AIFs (“FMCs”) and details the Central Bank’s expectations in relation to the governance of FMCs, how they should comply with their regulatory obligations and its ability to supervise FMCs without undue constraint and in times of crisis.

Swiftly following implementation, on the 5 July 2018, the Central Bank announced its intention to begin assessing how FMCs “have implemented and embedded the new requirements and related guidance in their organisations”. The review, which covered all 358 active FMCs, consisted of three phases comprising of an industry questionnaire, a desk-based review and culminating with onsite reviews. It focused on three aspects of FMCs’ responsibilities - investment management, risk management and organisational effectiveness.

On 20 October 2020, the Central Bank issued a letter to the chairperson of the board of directors (the “Board”) of all FMCs accompanied by a high level findings document (the “Industry Letter”) setting out the findings of their review and identifying actions that FMCs need to take immediately.

Click to view advisory

Majority Ruling of UK Supreme Court Sheds Light on Questions Concerning Law of Arbitration Agreements

In arbitration proceedings, the question as to which law governs the arbitration agreement when the agreement itself is silent on the issue has been the subject of a long standing debate. A recent judgment of the UK Supreme Court has fortunately provided some clarity on this issue.

In the case of Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, the Supreme Court held (by a majority decision of 3-2) that where the law of the seat had the closest and most real connection with the arbitration agreement, the law of the seat rather than the governing law of the main contract, would apply to the arbitration agreement.

The background to this case is that the Appellant, Chubb, had submitted that the arbitration agreement should be governed by Russian law, which was consistent with the governing law of the underlying contract. In this case, the arbitration agreement provided for an arbitration seated in London under the rules of the International Chamber of Commerce. The Respondent, Enka, disagreed, arguing that the applicable law for the arbitration agreement ought to be English law, consistent with where the arbitration was seated.

Supreme Court's Decision

The majority of the Supreme Court ruled that although it agreed with the Appellant that in most cases the law of the main contract ought to also be the law of the arbitration agreement, based on the facts applicable to this case, the relevant law was the law of the seat, i.e. English law. This was because in their view, a proper construction of the contract did not show either an express or implied choice of Russian law. In contrast, in line with Article 4 of the Rome I Regulation, the arbitration agreement had a much closer connection with the seat, meaning that English law should apply.

On the other hand, the minority of the Supreme Court agreed with the Appellant that since the law of the main contract had clearly been selected to be Russian law, and the surrounding facts of the case (which involved a power plant construction project in Russia) also involved a close connection with Russia, then the law of the arbitration agreement should therefore follow suit. The minority further argued that there should not be a general rule that if there is no choice of law provision in the main contract, the law of the seat will apply. This is because in commercial matters, parties would generally expect the law of the arbitration agreement to mirror the governing law of the main contract.

Relevance of Decision

Although the Supreme Court judgment constitutes a binding decision, the fact that it was not unanimous suggests that there may be ongoing debate as to whether it reflects the right one. It should also be recognised that the decision of the Supreme Court was understandably influenced by the particular facts of the case. In other words, it should not necessarily be construed to mean that the seat of the arbitration will always dictate the law of the arbitration agreement, where the latter is silent.

The decision could well be relevant in the Cayman Islands which presently lacks a designated arbitration institution, the consequence of which being that many Cayman arbitrations are seated abroad. The decision also serves as a helpful reminder for parties who are contemplating using arbitration as a dispute resolution mechanism that it is preferable to expressly state what the law of the arbitration agreement is so as to avoid any ambiguities in this regard and to hopefully reduce the risk of potentially lengthy and costly jurisdiction challenges before the resolution of the main dispute even occurs.

Updates to the Cayman Islands Companies Law and LLC Law

The Companies Law (as amended) and the Limited Liability Companies Law (as amended) of the Cayman Islands have been amended to provide that certain information in respect of Cayman Islands companies and Cayman Islands limited liability companies (“LLCs”) be made available by the Cayman Registrar of Companies (the “Registrar”) for inspection from 1 October 2020. 

These amendments address a Financial Action Task Force recommendation and are in line with global developments.

The information will be made available through the Cayman Islands registry, subject to such conditions as may be imposed by the Registrar and the payment of a prescribed fee.

The information available for inspection in relation to an exempted company as well as to an LLC is outlined in the below advisory. 

Click to view advisory

BMA Releases Insurance Sector Operational Cyber Risk Management Code of Conduct

The Bermuda Monetary Authority (“BMA”) has released its Operational Cyber Risk Management Code of Conduct (“the Code”) for the insurance sector. The purpose of the Code is to promote the stable and secure management of information technology systems of registered insurers, insurance managers and intermediaries (collectively, “registrants”), highlighting the critical nature of a registrant’s confidentiality, integrity and availability of information to its daily operations.

 

Click to view advisory

EU recognition of Cayman Islands tax cooperation and removal from Annex I list

The European Union (“EU”) has announced that the Cayman Islands has been removed from Annex I of the EU’s list of non-cooperative jurisdictions for tax purposes (“Annex I”) following a meeting of the EU’s Economic and Financial Affairs Council (“ECOFIN").

The Cayman Islands' continued commitment to implement tax good governance was confirmed in an official statement from the European Council, which recognised that the jurisdiction has appropriate measures in place.

The Cayman Islands Premier Alden McLaughlin said that the listing had been in relation to investment funds supervision and that “Cayman responded positively by expanding the scope of our funds regime to ensure that the Cayman Islands Monetary Authority, our financial services regulator, has the legal mandate to supervise all Cayman-based investment funds”.

Premier McLaughlin reaffirmed that Cayman remains fully committed to international tax good governance standards, and noted that the EU has joined the OECD in positively recognising Cayman’s tax regime. The Cayman Islands’ economic substance legislation was evaluated in June 2019 by the OECD’s Forum on Harmful Tax Practices as “not harmful”, which is the highest rating possible. In addition, the jurisdiction is party to multiple bilateral tax information exchange agreements and was one of the earliest adopters of FATCA, CRS, CbCR and the OECD’s BEPS economic substance requirements.

The Cayman Islands is a leading centre for financial services and has a robust, internationally recognised regime and market leading regulatory framework. The Cayman Islands has continued to be the jurisdiction of choice for global investment funds and other financial sector businesses.

Please contact your usual Walkers contact or any of the contacts mentioned below for more information.

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