Following its initial advice in June 2015, yesterday the European Securities and Markets Authority (ESMA) published its second advice as to the application of the so-called AIFMD passport to non-EU managers and non-EU alternative investment funds (also referred to as the “third country AIFMD passport”). It concluded that, in addition to Guernsey, Jersey and Switzerland, also Japan, Canada and, subject to certain conditions, Australia would be eligible for application of a third country AIFMD passport. Whether a third country AIFMD passport will be introduced is subject to a decision of the European Commission (the Commission). If and when such decision will be made is still unclear.
Background
At present, non-EU managers can only market their funds to investors in the EU on the basis of the national private placement regimes (NPPRs) as in force in the various EU member states. This is not a harmonized regime and although compliance with the NPPRs of some countries is quite straightforward, other EU member states have more restrictive NPPRs or do not allow marketing by non-EU managers at all.
Under the AIFMD it is foreseen that non-EU managers may in time be offered the possibility to also market their funds in the EU on the basis of a passport, just like their authorized EU counterparts. Whether or not such passport for non-EU managers will be introduced is still uncertain and subject to a decision to that extent by the Commission. In any event, as a first step any such decision by the Commission requires the ‘positive advice’ from ESMA as to the application of the ‘AIFMD passport’ for non-EU managers or non-EU funds.
ESMA’s advice
In formulating its advice, ESMA has taken a country-by-country approach whereby it assesses on the basis of a rather limited sub-set of criteria whether a non-EU country is eligible for application of a third country AIFMD passport. Interestingly, in its second advice ESMA itself indicates that the Commission might also want to consider other criteria (such as fiscal matters in the non-EU country), thereby suggesting that its scope of assessment may be too narrow.
When issuing its initial advice in June last year, ESMA had reviewed six countries and concluded that out of these six, Guernsey, Jersey and Switzerland would be eligible for application of a third country AIFMD passport. Now, in its second advice, ESMA covered twelve countries (including the six of the earlier round) and concluded that a third country AIFMD passport could possibly also be extended to managers or funds in Japan, Canada and, provided that certain conditions will be met, Australia.
Whilst ESMA is generally positive for the US, it has signaled quite a few conditions that still need te be met. For Bermuda, the Cayman Islands and the Isle of Man, ESMA concluded that these countries do not yet meet the required standards also indicating that in some respects it could not come to a definitive view given a lack of information.
For Singapore and Hong Kong, which were also assessed in the second advice, the outcome of ESMA’s advice is of somewhat less relevance because, although ESMA is generally positive about these jurisdictions, it has only considered the eligibility for a third country AIFMD passport for Singapore and Hong Kong funds and not for fund managers. So, as per today’s date based on ESMA’s review, five non-EU countries meet the requirements for a third country AIFMD passport.
What’s next?
As mentioned before, whether a third country AIFMD passport will be introduced is subject to a decision of the Commission. If and when such decision will be made is still unclear.
It is however good to note that following ESMA’s initial advice last year the Commission requested ESMA to extend its review to more countries as it felt that opening a third country AIFMD passport for only three non-EU countries would have an undesired market effect (no level playing field). Question is whether following this second advice this concern has been adequately addressed. It is clear from the second advice that ESMA feels that this is not the case, as it suggests that the Commission may wish to wait with taking a decision until ESMA has delivered positive advice on a sufficient number of non-EU countries.
Although one can never be certain what the Commission will decide, it is quite likely that it will follow ESMA’s suggestion and request a further review by ESMA. Moreover the Commission, being a political body, may also be susceptible for other considerations (such like Brexit, just to name one) when taking a decision about opening the possibility for providing an EU marketing passport to non-EU managers.
Click here to read the full text of ESMA’s advice.
