As is now widely known, a "compromise agreement" on the shape and scope of the AIFM Directive was reached between the EU Finance Ministers in October (essentially involving a compromise between the UK and French positions on regulation of Alternative Investment Funds (AIFs), going forward).
A trialogue meeting of representatives of the EU Parliament, the European Council and the European Commission endorsed the compromise agreement and the agreed text of the Directive was approved in a plenary vote of the EU Parliament on 11th November 2010. The text now awaits formal approval by European Finance Ministers at the ECOFIN.
It is now clear that the Directive will be approved and it will then have to be brought into force in individual EU Member States within two years of its first publication in the EU Official Journal (which is expected to be early in 2011, so that the Directive should be in force in all EU Members States by Q1 or Q2 2013).
From a non-EU/third country perspective, the agreed version of the Directive recognizes and accepts the need to allow EU-based investors to have access to AIFs domiciled and/or managed in such third countries, and to allow such funds to make investments into the EU, which is very much to be welcomed.
The impact of the Directive on such third country domiciled funds and fund managers will be phased in over the period 2013 to 2018 approximately as follows:
- Between 2013 (i.e. once the Directive is in force in each EU Member State) and 2015 any current private placement regimes permitted in individual EU Member States will continue. It should also be noted that "reverse solicitation" or "passive marketing", whereby EU investors may continue to invest in AIFs on a non-solicited/non-marketed basis, is outside the scope of the Directive.
- By 2015, the new pan-European Securities and Markets Authority ("ESMA"), to be based in Paris, is expected to be fully operational and will be required to have undertaken consultation on and drawn up a full set of secondary legislation, rules, and regulations, covering the impact of the Directive in many areas.
- By 2015, assuming ESMA is fully functional and the rules and regulations have been approved as applying on a pan-European basis after consultation with all relevant interested parties, a pan-European passporting regime may then apply to third country AIFs and AIF Managers allowing such funds to be marketed across the EU, without relying on national private placement regimes.
- However, it should be noted that, during the period from 2015 to 2018 (even if the EU passporting regime has by then come into force), the national private placement regimes will continue. If, however, the EU passporting regime has not been approved by 2015, then the existing national private placement regimes may not be "switched off" at all.
The only additional requirements from a non-EU/third country perspective, are that, in order to continue marketing on a national private placement basis during the period 2013 up to 2018 and beyond, such third countries (and their regulators) must:
- have entered into a reciprocal regulatory co-operation agreement on a country by country basis with each EU Member State, in which the national private placement regime is to continue; and
- not be on any list of non-co-operative countries produced by the Financial Action Task Force (FATF) from an AML or terrorist financing perspective.
We are confident that both Jersey and Guernsey will meet these two tests, such that both Jersey and Guernsey AIFs and AIF Managers should be able to continue marketing their funds in Europe on the same basis as at present, at least until 2018 and, from 2015 onwards on an EU passporting basis.
Martin Paul, Head of Funds & Private Equity at Bedell Group noted: "In terms of regulatory co-operation arrangements, Jersey and Guernsey are both long-standing signatories to the IOSCO multilateral memorandum of understanding, and have signed bi-lateral regulatory Memoranda of Understanding with over 40 supervisors, including many in the EU (including the UK, France, Germany, Belgium, Ireland). From an AML/FATF perspective, neither Jersey nor Guernsey are at any risk of being regarded as non-co-operative, having received various independent endorsements of their anti-money laundering regimes, most recently in Jersey in the IMF review which noted that Jersey was ahead of most other G20 and EU nations in meeting the FATF's 40 + 9 recommendations.".
Geoff Cook, Chief Executive of Jersey Finance, has commented in a Jersey Finance press release: "This is fantastic news for our funds industry, and removes any uncertainty that has existed in the market place while the Directive was under discussion. Jersey is also confident that it will be among the first jurisdictions to obtain a passport for non-EU alternative investment funds and managers, when it is introduced in 2015".