New ESMA Guidance Sets Out AIFMD Passporting Criteria for Non-EU Fund Managers
By Jay Gomez, Associate, Triay
& Triay Financial Services Team
Gibraltar’s regulatory framework regarding the registration and marketing of Alternative Investment Funds (AIFs) is established under the Financial Services (Alternative Investment Fund Managers) Regulations 2013 (the “Regulations”), following the transposition of EU Directive 2011/61/EU (AIFMD). Among other regulatory aspects, the Regulations established a “passporting” platform enabling fund managers licensed under the Regulations to market their funds in other EU member states. Despite widening the market within the EU, AIFMD ultimately presented a rather limited scope for non-EU fund managers wishing to market AIFs within the EU in what is undoubtedly a significant global industry. The application of passporting rights to non-EU fund managers remained, and to some extent still remains, unclear and dependent on the much anticipated guidance from the European Securities and Markets Authority (ESMA). By the end of July, the wait was finally over and ESMA provided its advice to the European Commission, Council and Parliament in relation to the potential extension of the AIFMD passport to non-EU fund managers (the “Advice”).
ESMA’s guidance is based on a “country by country” assessment of the suitability of a non-EU jurisdiction to be granted the AIFMD passport. ESMA’s evaluation procedure involved a detailed assessment of a non-EU jurisdiction with specific emphasis on; investor protection, market disruption, competition and monitoring systemic risks (the “Assessment Criteria”).
Having specifically evaluated six non-EU jurisdictions, ESMA advised that the passport be extended to Switzerland, Jersey and Guernsey whilst advising that the European Commission, Council and Parliament delay their decision to extend the same to the United States, Hong Kong and Singapore. At the centre of the decision-making process is ESMA’s need to ensure a “level playing field”, the continuous emphasis of which throughout the Advice, arguably signals a need for non-EU jurisdictions to carry out their own internal assessments with a view to granting similar marketing rights for EU fund managers in non-EU jurisdictions, achieving an acceptable level of reciprocity. Citing a need for “more time” in the Advice, ESMA have ostensibly left the door ajar for the objectives of non-EU frameworks to be aligned with those of AIFMD.
The need for cooperation between jurisdictions also proved poignant, particularly in the case of Switzerland, where incoming legislation regarding the exchange of information provided a significant milestone in obtaining ESMA approval.
In the case of Jersey and Guernsey, they are jurisdictions which have all deployed a framework for the regulation of AIFs similar to those required of EU jurisdictions under AIFMD (and other AIF related legislation). In this respect the Advice may suggest that a lack of “EU-like” regulation presents various issues which would prevent any potential extension of an AIFMD passport to non-EU jurisdictions. However, it would appear that the similarities in frameworks were only used as indicative that the Assessment Criteria is unlikely to be disturbed and it seems that the AIFMD passport extensions will not strictly require non-EU jurisdictions to substantially alter their respective frameworks with a view to mirroring AIFMD. It will, however, be the case that some amendments will be required in order to ensure that the objectives of AIFMD, and the Assessment Criteria, will not be adversely affected – note the aforementioned example of Switzerland.
With no major legislative reforms in the pipeline, the Advice might prove grim reading for fund managers in the United States, Hong Kong and Singapore. This does not, however, mean there is no access to the European market for those fund managers (and indeed other fund managers from non-EU jurisdictions which have yet to be assessed) to market AIFs within the EU. Non-EU AIFMs without the extension of passport rights can, of course, rely on the National Private Placement Regimes (NPPR) of the respective EU member states in which they wish to market.
Gibraltar’s NPPR was implemented in December 2014 pursuant to the Financial Services (Alternative Investment Fund Managers) (Amendment) Regulations 2014 and provides a platform for non-EU fund managers (or non-EU AIFs managed by EU managers) to market AIFs in Gibraltar. It remains important to note, however, that the adoption of such NPPR’s remains subject to a further report due in 2018, in which ESMA will again opine on the AIFMD passport framework as well as advise on the potential termination of the existence of NPPR’s. In light of this recent development, it will be interesting to see whether that timeline will be extended. It would certainly appear that maintaining the NPPR as a suitably viable alternative for non-EU AIFs and non-EU fund managers for an extended period is an obvious and crucial necessity.
The implementation of the recommendations in the Advice is now dependent on the drafting of a “delegated act” pursuant to the final recommendation from ESMA. Under AIFMD, the delegated act should be implemented three months after the Advice is issued, but with ESMA carrying out their assessment on a country by country basis, and having only opined in respect of six out of twenty-two of the non-EU countries which are intended to be assessed, any changes to AIFMD or indeed the NPPR may, opportunely, be much further down the line than originally anticipated.