ESMA’s advice on extending the AIFMD passport to non-EU jurisdictions

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On 30th July, 2015, the European Securities and Markets Authority published its Advice in relation to the application of the Alternative Investment Fund Managers Directive (AIFMD) passport to non-EU Alternative Investment Fund Managers (AIFMs) and Alternative Investment Funds (AIFs). In addition to this, it has also published its opinion on the functioning of the passport for EU AIFMs and the national private placement regimes (NPPRs).

The advice relates to the possible extension of the passport, currently only available to EU entities, to non-EU AIFMs and AIFs which are currently subject to EU NPPRs. For this, ESMA conducted a country-by-country assessment, assessing the following six jurisdictions: Guernsey, Hong Kong, Jersey, Singapore, Switzerland and the United States of America (USA). This assessment allowed it flexibility to take into account the different circumstances of each non-EU jurisdiction regarding the regulatory issues to be considered, for instance, investor protection, competition, potential market disruption and the monitoring of systemic risk. Selection of the aforementioned jurisdictions was based on a number of factors including the amount of activity already being carried out by entities from these countries under the NPPRs, EU national authorities’ knowledge and experience of dealing with their counterparts and the efforts by stakeholders from these countries to engage with ESMA’s process.

Such advice concluded that no obstacles exist to the extension of the passport to Guernsey and Jersey, while Switzerland will remove any remaining obstacles with the enactment of pending legislation. With regards to the other three jurisdictions, no definitive view has been reached due to concerns related to competition, regulatory issues and a lack of sufficient evidence to properly assess the relevant criteria.

Both the Advice and Opinion have been sent to the Commission, Parliament and Council for their deliberation on whether to activate the relevant provision in the AIFMD extending the passport through a Delegated Act. According to the timetable in AIFMD, the Commission has until October 2015 to adopt the relevant delegated act. For the delegated act to become effective, the Parliament and Council must not raise an objection to the delegated act. ESMA is yet to finalise the assessments of Hong Kong, Singapore and the USA and is yet to assess further groups of non-EU countries. In effect, its object is to provide advice on all the non-EU countries that it considers should be included in the extension of the passport. For those non-EU jurisdictions with which there are currently no supervisory cooperation arrangements in place for the purposes of the AIFMD, ESMA will continue its efforts to agree a MoU with the authorities concerned.

ESMA’s preliminary view – which is contained in its opinion on the functioning of the EU passport and the NPPRs – is that the delay in the implementation of the AIFMD together with the delay in the transposition in some Member States makes a definitive assessment difficult. Therefore, ESMA believes that there must be the preparation of another opinion on the functioning of the passport after a longer period of implementation in all Member States.