ESMA has released its second set of advice on the possible extension of the AIFMD passport to 12 non-EU countries. We set out a summary of ESMA’s assessment.
On 19 July 2016, the European Securities and Markets Authority (“ESMA”) published its second set of advice to the European Parliament, Council and the Commission on the possible extension of the passport that was issued based on the Alternative Investment Fund Managers Directive (the “AIFMD”) to 12 non-EU countries (the “Advice”).
Currently, non-EU Alternative Investment Fund Managers (“AIFMs”) and alternative investment funds (“AIFs”) must comply with each EU country’s national private placement rules if they wish to market to those countries.
In its assessment, ESMA considered whether there were any obstacles regarding investor protection, competition, potential market disruption and the monitoring of systemic risk which would impede the extension of the passport.
Summary of Advice
Canada, Guernsey, Japan, Jersey and Switzerland:
- No significant obstacles existed in extending the passport.
Hong Kong and Singapore:
- No significant obstacles existed in extending the passport, however, the ESMA assessment was only limited to AIFs and did not include AIFMs.
- In respect of competition and market disruption, no significant obstacles existed in extending the passport. This is provided that the Australian regulatory authority (ASIC) extends the ‘class order relief’, currently available to UK and German fund managers, from some of the requirements of the Australian regulatory framework.
- In respect of investor protection and the monitoring of systemic risk, no significant obstacles existed in extending the passport.
- In respect of competition and market disruption and funds marketed to professional investors involving a public offering, ESMA believes that extending the passport could result in an unlevel playing field for EU and non-EU AIFMs. However, ESMA suggested that the EU Institutions could consider options to mitigate such risk (eg granting the passport only to those US funds which restrict investment to professional investors, or those US funds dedicated to professional investors to be marketed in the EU by managers without any public offering).
Bermuda and Cayman Islands:
- New regulatory regimes are currently being implemented in both countries, so ESMA refrained from providing any definitive opinion.
Isle of Man:
- Given the absence of any AIFMD-like regime, ESMA refrained from providing any definitive opinion, as it felt that it was difficult to assess whether any investor protection criteria had been met in this jurisdiction.
The extension of the AIFMD passport to these non-EU countries may provide some clarity and hope for UK AIFMs post-Brexit. Given that the UK currently operates under the AIFMD, in the absence of drastic changes post-Brexit, it would seem likely that the passport will be extended to UK AIFMs, should the Commission decide to take the step of extending the passport to countries outside the EU.
The Advice is now being considered by the EU institutions and it remains to be seen whether the Commission will adopt the necessary delegated act extending the AIFMD passport.