The Cayman Islands’ removal from the Financial Action Task Force (FATF) grey list is expected to have a positive impact on global private equity (PE) funds seeking to invest in India. This is because the Cayman Islands is a popular jurisdiction for PE funds to establish holding companies and funds, and the FATF grey listing had created additional compliance burdens for such funds.
The FATF is an intergovernmental organization that sets standards for anti-money laundering (AML) and combating the financing of terrorism (CFT). In February 2021, the FATF placed the Cayman Islands on the grey list, citing concerns about its AML/CFT regime. This meant that the Cayman Islands was subject to increased monitoring by the FATF and its members.
Impact on Global PE Investments in India
Several US and European PE funds prefer to establish holding companies and funds in the Cayman Islands for investments in India. However, the Reserve Bank of India (RBI) restricts approvals for shareholding in non-banking financial companies (NBFCs) from grey list jurisdictions.
The Cayman Islands’ removal from the grey list is expected to prompt the RBI to consider favorably and approve shareholders from the Cayman Islands. This would be a positive development for global PE funds based in the Cayman Islands, as it would make it easier for them to invest in NBFCs in India.
In addition to the impact on PE investments in NBFCs, the Cayman Islands’ removal from the grey list is also expected to boost investment in other sectors of the Indian economy. This is because the Cayman Islands is a major source of foreign direct investment (FDI) in India.
According to the Department for Promotion of Industries and Internal Trade (DPIIT), the Cayman Islands is the 8th largest contributor of FDI in India, with over $15 billion in investments since 2000.
- Financial Action Task Force (FATF)
- Grey list
- Anti-money laundering (AML)
- Combating the financing of terrorism (CFT)
- Non-banking financial companies (NBFCs)
- Foreign direct investment (FDI)