European Union legislators are on the verge of agreeing to hedge-fund laws that would significantly restrict the ability of funds based in certain offshore tax havens to raise money from EU investors. And the Caymans are looking seriously vulnerable.

The proposal would require European authorities to create a “black list” of countries. European investors would then be prohibited from sending their money to funds based in those territories.

Avoiding the blacklist might not be simple either – countries would have to satisfy a list of four or five criteria that would send a shiver down the spines of traditional haven dwellers.

WSJ: “It would be pretty sensational if the Cayman Islands were on the black list, because then you would be closing the entire British hedge fund-industry,” said one hedge-fund lobbyist, who asked not to be named.

To avoid the black list, countries must have regulations against money laundering and terrorism financing, a deal to share information with EU regulators, laws ensuring access for EU-based depositories and tax agreements with EU nations based on conventions developed by the Organization for Economic Cooperation and Development.

More>