On January 7, 2022, the European Commission adopted a draft regulation adding the Cayman Islands to its list of countries with strategic deficiencies in their AML/KYC regimes. Article 4 of the EU Securitisation Regulation provides that securitization SPEs may not be established in any country on that list. The application of Article 4 of the EU Securitisation Regulation to EU investors is unclear, but the general consensus is that EU investors should not invest in Cayman-domiciled securitization vehicles while the Cayman Islands are on the list.
Accordingly, sponsors and managers of collateralized loan obligations (CLOs) are considering alternative jurisdictions for new CLOs. Those jurisdictions include the United States. We previously wrote that onshore CLOs might make sense for insurance companies. With the European Commission’s latest actions, they might now make sense more generally.