The European Securities and Markets Authority (ESMA) released advice regarding to the application of the AIFMD (Alternative Investment Fund Managers Directive) passport to non-EU Alternative Investment Fund Managers (AIFMs) and Alternative Investment Funds (AIFs). It also published its opinion on the functioning of the passport for EU AIFMs and the national private placement regimes (NPPRs). Both the Advice and Opinion, required under AIFMD, are now to be considered by the European Commission, Parliament and Council.
The advice concerns the possible extension of the passport, which is currently only available to EU entities, to non-EU AIFMs and AIFs which are subject to EU NPPRs at the moment. ESMA carried out an assessment on a country by country basis, allowing it to be flexible while taking into account the different positions in each non-EU jurisdiction with respect to the regulations to be considered, namely investor protection, competition, potential market disruption and the monitoring of systemic risk.
The six jurisdictions assessed by ESMA were Guernsey, Hong Kong, Jersey, Singapore, Switzerland and the United States of America (USA). A number of factors were taken into consideration in selecting such jurisdictions, such as the existing activity in these countries under the NPPRs, the knowledge and experience of EU national authorities in dealing with their counterparts and the efforts made by stakeholders from these jurisdictions to assist in the process undertaken by ESMA.
In their advice ESMA conclude that there are no existing obstacles to the extension of the passport with respect to Guernsey and Jersey. In the case of Switzerland, any obstacles will be removed once pending legislation has been enacted. Because of concerns related to competition, regulatory issues and a lack of sufficient evidence to properly assess the relevant criteria, no definitive view was given on the other three jurisdictions, Hong Kong, Singapore and USA.
The Way Forward: The Commission, Parliament and Council have received the advice and opinion in order for them to review and consider whether to approve the activation of the relevant provision in the AIFMD extending the passport through a Delegated Act. It is possible that the institutions will hold back the decision until ESMA delivers definitive advice on a number of non-EU jurisdictions, thereby avoiding any negative impact on the market which may arise if the extension is applied to only a few non-EU jurisdictions. The assessments of Hong Kong, Singapore and the USA, should be finalised by ESMA as soon as possible, along with an assessment of further non-EU jurisdictions in order to provide its advice on all the non-EU countries that it considers should be included in the passport extension.
The opinion relates to the functioning of the EU AIFMD passport and NPPRs, containing a preliminary assessment of the way the two mechanisms operate. The preliminary feedback is that a definitive assessment of the functioning of such mechanisms is difficult considering that a short time has passed since the AIFMD was implemented in EU member states. ESMA recommended publishing a further opinion once more time has elapsed.
For access to the advice and opinion click here.