In the summer the European Securities and Markets Authority (ESMA) published its advice and opinion on the proposal to extend the marketing passport to non-EU alternative investment fund managers (AIFM) and non-EU funds. The passport would enable non-EU AIFMs to market their funds across the EU under the single AIFMD regime, rather than seeking investors using the individual countries’ national private placement regimes (NPPR).
As part of the review, ESMA assessed six countries’ regulatory regimes in the context of investor protection, market disruption, competition and monitoring systemic risk. The outcome of the investigations was mixed. Whilst Guernsey, Jersey and Switzerland were identified as jurisdictions to which the passport could be extended, it was not such good news for Hong Kong, Singapore and the United States.
For the US, ESMA identified obstacles to the extension. Chief among these are the absence of remuneration rules for US investment managers and the “unlevel playing field” of the restrictions on EU funds to access US retail investors. At present, in order for the passport to be extended to the US substantive changes would need to be made to US federal securities laws and regulations regarding the marketing of private funds in the US. Whilst the SEC does focus on inadequate disclosures of fees, costs and expenses (see our posts here and here), it is highly unlikely that the legislative changes necessary to satisfy ESMA will be forthcoming in the near future. Consequently US managers will need to continue accessing European investors either by way of the NPPR or reverse solicitation for the foreseeable future. Each of those approaches continue to bring their own challenges, especially in the absence of guidance regarding the reverse solicitation exemption.
And what of the Cayman Islands? As you may have noted from the list above, the Cayman Islands was not included as part of ESMA’s first assessments. This a further blow to US investment managers and the inclusion of the territory on ESMA’s list of relevant jurisdictions will offer little comfort given the time required to conduct an assessment.
All in all, not a great deal has changed for the US firms.