On 19 July 2016, the European Securities and Markets Authority (‘ESMA‘) published its advice on the application of the AIFMD passport to non-EEA (third country) AIFMs and non-EEA AIFs2.
ESMA’s new set of advice follows its previous advice of July 20153on the application of the passport to six non-EEA jurisdictions.
On the basis of ESMA’s advice, the European Commission is expected to adopt, within three months, a First Delegated Act that will make the AIFMD passport available for the marketing of non-EEA AIFs managed by EEA AIFMs and EEA and non-EEA AIFs managed by non-EEA AIFMs to professional investors from the date of entry into force of the Act. The First Delegated Act should extend the passport to non-EEA AIFMs and AIFs on a jurisdiction-by-jurisdiction basis.
EXECUTIVE SUMMARY
Currently, private placement is the only option available for the offering of non-EEA AIFs managed by EEA AIFMs and EEA AIFs and non-EEA AIFs managed by non-EEA AIFMs to professional investors in the EEA. Private placement is subject to national private placement regimes (NPPRs) which are not harmonised in the EEA.
However, a First Delegated Act will make the AIFMD passport available for the marketing of non-EEA AIFs managed by EEA AIFMs and for the marketing of EEA and non-EEA AIFs managed by non-EEA AIFMs to professional investors from the date of entry into force of the Act for the non-EEA jurisdictions it covers.
ESMA advice is based on the criteria the Alternative Investment Fund Managers Directive (‘AIFMD‘) for the assessment of the regimes of third countries.cThe criteria over:
- Investor protection
- Market disruption
- Competition
- Monitoring of systemic risk
ESMA has provided advice on the following 12 jurisdictions: àlist
THE FUNDGLOBAM VIEW
ESMA’s advice prepares the way for the European Commission to adopt a First Delegated Act in relation to AIFs and AIFMs from the following jurisdictions:
- Australia
- Canada
- Guernsey
- Hong Kong for AIFs but not retail funds
- Japan
- Jersey
- Singapore for AIFs but not retail funds
- Switzerland
- United States for non-retail AIF under the option chosen
This First Delegated Act could be followed by additional Delegated Acts extending the AIFMD passport to further jurisdictions such as Bermuda and the Cayman Islands.
The adoption of a First Delegated Act provides the countries covered with access to a dual regime whereby non-EEA AIFMs and non-EEA AIFs may access European markets either via private placement or the AIFMD passport.
The adoption of a First Delegated Act also paves the way for the adoption to a Second Delegated Act which would discontinue NPPRs. The European Commision may adopt a Second Delegated Act on the basis of an opinion and advice issued by ESMA on the potential termination of national regimes under which non-EEA AIFs may be marketed under private placement options three years after the entry into force of the regime implemented by the First Delegated Act of the AIFM Directive.
The extension of the AIFMD passport to multiple third countries should boost the AIFMD brand both in the EEA and globally:
- Non-EEA AIFMs and AIFs will have access to EEA professional investor markets, boosting competition for asset managers, lowering fees, and choice for investors
- During a transitional period, EEA professional investors would have access to both traditional and alternative funds from the selected non-EEA jurisdictions either under private placement or the passport during the transitional period, we expect to see managers move fast to shift from the limited private placement regimes to the EEA wide passport
- After the end of the transitional period, EEA professional investors would have access to both traditional and alternative funds from the selected non-EEA jurisdictions under the passport; national private placement regimes will no longer be available
- EEA retail investors will, however, not automatically have access to traditional or alternative funds from non-EEA jurisdictions; retail investor access will depend on the national regime of the jurisdiction of the investor
- The limited extension of the passport (for example for AIFs only in Hong Kong or Singapore) may create an incentive for these jurisdictions to open up their regimes to all EEA countries on an equivalent basis
- The extension of the passport may be an incentive for other non-EEA jurisdictions such as the Cayman Islands to implement an AIFMD-like regime
- The extension of the AIFMD passport to non-EEA jurisdictions will boost the AIFMD brand globally