The proposed third-country passport regime must be reviewed if it is to be beneficial to the financial services industry and the European regulator, according to the European Securities and Markets Authority chairman Steven Maijoor.
The framework, which is yet to be implemented, is a “patchwork of arrangements” across multiple legislations and lacks consensus on how to consistently implement the passporting rights across all EU states, he told the European Parliament.
The current proposal is “time and resource intensive,” he said, adding it would create a dual system which required third-country accredited investment fiduciaries to be regulated by ESMA alone, while EU AIFs will be subject to ESMA and third-country regulations.
Under the regime, managers in countries with a passport would be able to market their funds across the bloc and would not be required to abide by the individual private funds regulations each EU country it operates in.
Maijoor added the framework is reliant on third-country regulators’ enforcement will and structures. He said ESMA has no assurance a third-country regulator has the right incentive to appropriately assess and address the risks associated with the activities of AIFs outside its jurisdiction.
“ESMA has very limited opportunities to see the specific risks that third-country [AIFs] might be creating in the EU as we have very limited powers regarding information collection and risk assessment, and no regular supervision and enforcement tools,” Maijoor said.