On 19 July, the European Securities and Markets Authority (ESMA) published its advice in relation to the application of the Alternative Investment Fund Managers Directive passports to non-EU AIFMs.
The context of the advice is that, currently, non-EU AIFMs that wish to market to EU professional investors need to register in each EU country under the national private placement regimes (the NPPRs) and then report information on the fund and the manager to each regulatory authority. In some countries, such as the UK and the Netherlands, this process is straightforward; whereas in other countries, such as Germany, Italy and France, the process is either difficult or impossible.
The Directive, however, contemplates the possibility that a non-EU AIFM could obtain authorisation in a “member state of reference” and then use the passport to market to investors throughout the EU in the same way as an EU AIFM may do currently. The availability of this passport was predicated in the Directive on prior advice from ESMA that the regulatory regimes of the relevant home country was broadly equivalent to that applicable in the EU under the Directive.
In principle, all 12 non-EU countries considered by ESMA have passed the test, although there are slight differences between them.
Canada, Japan, Guernsey, Jersey and Switzerland all passed with no substantial qualifications.
The United States also passed, although ESMA suggested that the Commission may consider restricting the passport to certain types of U.S. funds.
In principle, the passport should be available to Australian managers provided that certain relief provisions currently available only to fund managers from the UK and Germany are extended to all EU countries. These Australian relief provisions currently exempt UK and German managers from the requirement to hold an Australian licence to market funds to Australian investors in certain circumstances.
With respect to Hong Kong and Singapore, there are no significant obstacles to the extension of the passport, although both countries permit the access of retail schemes only from certain EU member states. Since the AIFMD permits marketing only to professional investors, it is not clear that this point should be relevant.
Although there are no significant issues in relation to Bermuda, Cayman Islands or the Isle of Man, ESMA cannot give final advice until the current proposed legislative amendments have been passed.
The European Commission has three months to consider ESMA’s advice and then publish delegated legislation to implement the passport. ESMA has suggested, however, that the Commission should wait until a sufficient number of countries have been considered before implementing this regulation. It is not yet clear, however, whether the Commission will consider a sufficient number of countries to have been considered.
Will this passport make any significant difference to non-EU managers? At least in the short term and until the potential abolition of the NPPRs, this is not going to make a significant impact on most managers. Most non-EU managers currently only undertake marketing in a small number of EU countries where the registration process is reasonably straightforward. Not many managers are going to want to undertake the onerous obligation of obtaining authorisation in a member state and then complying with the requirements of the Directive (including the appointment of a depositary) and complying with the remuneration requirements.
The relatively smooth ESMA process is largely good news for the UK, however. Since all regimes that ESMA has considered have passed the test at least in principle, this means that when the UK leaves the EU, there is no obvious reason why the UK also should not pass the test as an appropriate third country.