The European Securities and Markets Authority (ESMA) released guidance this summer on:
- the potential for extending the marketing passport provided under the Alternative Investment Fund Managers Directive (AIFMD) to funds (AIFs) and managers (AIFMs) based outside of the EEA, and
- the functioning of the existing passport and national private placement regimes (NPPRs).
Extension of the AIFMD marketing passport
On extending the AIFMD marketing passport, ESMA concentrated its analysis on Guernsey, Jersey, Switzerland, Hong Kong, Singapore and the United States, applying the criteria of investor protection, market disruption, obstacles to competition and monitoring of systematic risk to its evaluation. It concluded that the Channel Islands and Switzerland have regulatory regimes which should not present obstacles to the AIFMD passport application (subject to some improvements to supervisory cooperation being made in Switzerland), but that Hong Kong, Singapore and the United States do not.
Although it sounds positive, the extension of the passport to AIFMs and AIFs in certain third countries may be a mixed blessing. The national private placement regimes which currently allow those third country AIFMs/AIFs access to certain Member States without complying in full with the AIFMD are unlikely to remain available. These national private placement regimes may ultimately also be removed or significantly limited more generally, leaving AIFMs or AIFs from third countries which have not been judged as suitable for the AIFMD passport with very limited access to European investors.
Commentary on the existing passport framework
In discussing issues with the existing passport within the EEA, ESMA set out several issues currently encountered by EU AIFMs:
- First, approaches to marketing rules (e.g. the definition of a ”professional investor” and the fees charged by the various local regulators in relation to passporting applications) vary across the Member States.
- Second, terms such as ”marketing” and ”material changes” under AIFMD are interpreted differently across the EEA in the context of the passport.
- Third, the Member States take inconsistent positions as to how much time should pass before the passport rights kick-in.
There were a relatively limited number of applications for passports in the period covered by ESMA’s research (for example, in the UK the AIFMD was transposed in national law only in July 2013). So during the ESMA consultation process many respondents noted that more time is needed to assess the impact of the AIFMD in full.
In the coming months the European Parliament, the Council and the Commission will see further submissions from ESMA on the assessment of the third country passport, including its continued assessment of Hong Kong, Singapore and the United States with a view to reaching a definitive conclusion on whether to extend the passport to those jurisdictions, and its assessment of a second group of jurisdictions, announced on 13 October 2015: Australia, Canada, Japan, the Cayman Islands, the Isle of Man and Bermuda.
ESMA will also concentrate on putting in place the framework necessary if the passport is extend to one or more non-EEA countries. This will involve preparing for its role in the functioning of the passporting system and strengthening supervisory co-operation.
The actual extension of the passport to the Channel Islands and Switzerland will require a delegated act to be implemented by the European Commission. The AIFMD gives them three months from the submission of a positive opinion by ESMA to do this; however, ESMA noted in its 30 July advice that the Commission may wish to consider waiting until ESMA has delivered positive advice on a sufficient number of non-EEA countries before introducing the passport. This leaves the legal framework for implementation unclear, as the AIFMD neither anticipates ESMA providing its advice and opinion on a country-by-country basis; nor the ability for the Commission to delay the implementation of a delegated act on this basis.