Cayman Islands expecting CLO transaction increase after grey list removal & anticipated EU blacklist removal

The financial services community in the Cayman Islands collectively welcomed last week’s update from the Financial Action Task Force (FATF), which confirmed that the jurisdiction has been removed from FATF’s grey list.

Kareem Robinson, Head of Capital Markets at Ocorian in the Cayman Islands, has analysed the implications of the removal:

“The Cayman Islands’ removal from FATF’s grey list is great news for the jurisdiction – basically, the first hurdle has been cleared, and is a signal that sanctions and penalties are effective and proportionate – a vital means of demonstrating our credentials as an international finance centre.

“The Cayman Islands has long specialised in Collateralised Loan Obligations (CLOs). Following the grey listing which prompted the Cayman Islands being added to the EU AML blacklist, so managers who were seeking EU investors to their transaction using Cayman Islands securitisation SPVs were impacted. The listing triggered a move to other jurisdictions like Bermuda and Jersey.

“With the grey listing lifted, we’re anticipating a return to the Cayman Islands of CLO work from European managers when the Cayman Islands are removed from the EU AML blacklist in early 2024, which should happen by default following the removal of the Cayman Islands from the FATF grey list.

“We have a well-established history and track record as the jurisdiction of choice for the formation of CLOs, and the international community hasn’t forgotten that. The grey listing was certainly a regulatory barrier, but that hurdle has now been removed and it sends a message e to the international financial services community that the Cayman Islands has addressed the FATF’s few concerns.

“Furthermore, the local expertise is still here and we have a mature industry that is equipped to do the work. Combine that with tax neutrality, legal certainty and the flexibility to make CLOs tax efficient and operationally viable – and you have a winning recipe. It’s worth pointing out that US managers seeking solely US investors continued to use the Cayman Islands as the EU Blacklisting had no impact on them, and reflects the expertise and maturity of the local industry.

“At Ocorian, we’re looking forward to increasing our volume of CLO transactions, and demonstrating to new and old contacts how our organisation has grown and evolved in recent years.”