NEW DELHI:  The Cayman Islands’ removal from the Financial Action Task Force (FATF) grey list is expected to have a positive impact on global private equity funds seeking to invest in India, say experts. 
It was placed on the grey list by the FATF, a global money laundering and terrorist financing watchdog, in February 2021, which led to increased monitoring of the region.

The FATF, an inter-governmental agency, recently removed Cayman Island, Panama, Jordan, and Albania from the grey list. As per experts, several US and European funds prefer establishing holding companies and funds in the Cayman Islands for investments in India. However, the RBI restricts approvals for shareholding in NBFCs from grey list jurisdictions. Cayman Islands’ removal from the grey list is expected to prompt the RBI to consider favorably and approve shareholders from the Cayman Islands, which is seen as a positive development for global PE funds based there. 

As per Manoj Purohit, Partner & Leader – Financial Services Tax, Tax & Regulatory Services, Cayman Island has been one of the preferred jurisdictions by foreign investors, and about 400 foreign portfolio investors (FPIs) are domiciled from Cayman Island.

“Removal of Cayman Island from FATF grey list will reduce the compliance burden for such funds, resulting in reduction of cost of funding and compliance costs,” says Purohit. Funds from FATF non-compliant countries are subject to not only additional documentation requirements but also lowered limits for disclosure of Beneficial ownership.

Yashesh Ashar, Partner, Illume Advisory said, “With the removal of Cayman Island from grey list, investments in India can pick up not only in financial services sectors like NBFC, AIF etc, but in other sectors as well.” As per the Department for Promotion of Industries and Internal Trade (DPIIT), Cayman Island is the 8th largest contributor of foreign direct investment in India with over $15 billion investments coming since 2000.