On 18 July 2016, the European Securities and Markets Authority (ESMA) gave its advice to the European Parliament, Council and Commission on the extension of the AIFMD passport to 12 “third countries”. ESMA confirmed its positive advice under Article 67(4) of the AIFMD, namely that there are no significant obstacles impeding the application of the AIFMD passport to Guernsey and Jersey. ESMA was also asked to assess expected investment inflows into the EU and expressed the view that extending the AIFMD passport to Guernsey and Jersey would probably result in more Guernsey and Jersey Alternative Investment Funds (AIFs) on the EU market.
The EU Commission now has three months under AIFMD Article 67(6) to adopt a delegated act specifying the date when the extension of the EU passport will be extended to non-EU AIFs and non-EU Alternative Investment Fund Managers (AIFMs) in all EU Member States, taking into account the criteria of Article 67(2) and the objectives of the AIFMD.
Guernsey and Jersey are important international fund domiciles which together have over £500 billion of assets under management. ESMA’s recommendation that they be granted full EU passport access underlines the flexibility and “future-proofing” that they offer.
Guernsey funds partner Ben Morgan said: “Since the advent of AIFMD, fund establishment in Guernsey and Jersey has continued on a more or less business-as-usual basis. Firstly, funds are regularly established by promoters with no EU connections and, secondly, Guernsey/Jersey funds are often established by EU AIFMs and nonEU AIFMs for marketing Guernsey/Jersey funds under the NPP regimes of European Economic Area (EEA) states.
“In addition, Guernsey and Jersey structures have also been established alongside EU AIFs (for passporting purposes). The extension to Guernsey and Jersey of the passporting regime will mean that the entire fund structure can be domiciled in the Channel Islands, something which should be welcomed by all investors, including those in EEA member states, given the resultant cost and time savings associated with having everything in one place.” Jersey funds partner Dan O’Connor said: “We expect this announcement to provide further comfort to fund managers and their advisers that Guernsey and Jersey funds provide the best of both worlds. It confirms the full AIFMD optionality which will be offered by funds in the Channel Islands.
“Guernsey and Jersey managers can market a fund to potential EU investors using NPP regimes and benefit from significantly reduced operational costs and disclosure requirements. Alternatively, they can launch funds which are fully outside the scope of AIFMD, where the fund is not “marketed” in the EU. Now, they will also be able to launch funds which have full EU passport access.
“Guernsey and Jersey each offers a range of experienced and wellrecognised fund service providers who have the size and depth to provide appropriate levels of “substance” for fund managers and fund vehicles, while remaining cost effective through investment in technologies, processes and, where appropriate, outsourcing solutions. We expect to see the influx of new fund managers and the record growth in fund assets under management that Guernsey and Jersey have been experiencing to continue.”
Guernsey and Jersey are outside the European Union and regarded as “third countries” for AIFMD purposes (and accordingly their status for AIFMD purposes is not expected to be affected should the United Kingdom withdraws from the EU). Each has implemented AIFMD requirements only to the extent necessary to allow their funds and managers to access investors in EEA countries. Channel Islands funds are eligible to be marketed into the EEA in accordance with the AIFMD through national private placement regimes and (once available) through the EU passporting regime. For Guernsey and Jersey funds (and other non-EU funds) with a Jersey or Guernsey manager:
Where the fund is not an “AIF” or is not “marketed” into the EEA (as defined in the AIFMD), the fund and its manager are not subject to any AIFMD-related requirements.
Article 42 requirements only
The fund can be “marketed” into the EEA through national private placement (“NPP”) regimes by complying with only the requirements of AIFMD Article 42 (annual reports, pre-investment disclosure and regulatory reporting on liquidity, risk management arrangements and leverage). This reduces costs as other AIFMD requirements do not apply, including that no depositary is needed (although a small number of EEA countries require a depository before permitting marketing).
A Jersey or Guernsey manager can opt for full AIFMD compliance under its local funds regime, to be ready for the extension of the AIFMD passporting regime to third countries.
ESMA has adopted a “country-by-country” approach and for 12 nonEU countries has assessed whether there were significant obstacles regarding investor protection, competition, market disruption and the monitoring of systemic risk which would impede the application of the AIFMD passport. ESMA’s advice and opinion (which reached a positive conclusion for both Guernsey and Jersey under AIFMD Article 67(4)) has been sent to the EU Commission, Parliament and Council for their consideration on whether to activate the relevant provision in the AIFMD extending the passport through a Delegated Act.
The press release can be found here:
A full copy of ESMA’s advice can be found here: