EU could tighten marketing rules in ‘AIFMD II’

Following the Brexit vote there any many unanswered questions, including whether the UK will hold onto its Alternative Investment Fund Managers Directive passport, which enables UK-based managers to market to investors in the EU.

When Brexit occurs, if the UK were to lose its passport, these managers would potentially rely on the same marketing methods as managers based outside of the EU: National Private Placement Regimes (NPPRs), which exist in most member states; and/or reverse solicitation, which means managers can market their funds only to investors who have approached them first.

“If the UK were to leave the EU tomorrow, both of these options would be available. However, the question is what will the landscape look like in next few years when Brexit actually occurs; will NPPRs still be available or will EU member states and the EU Commission really crack down on reverse solicitation and make it so difficult that nobody dare use it? These are unknowns at this stage,” says Michael Collins, chief executive of industry body Invest Europe.

The European Securities and Markets Authority (ESMA) intends to phase out private placement regimes after it issues “third countries” with a marketing passport. In addition, the EU Commission could tinker with rules around NPPR usage and reverse soliciation in its review of AIFMD, which is expected by July 2017.

“At some point the AIFMD will be revisited, which could be as soon as next year, so both NPPRs and reverse solicitation could be impacted by the review of the directive,” warned Collins.

Although the EU Commission has not officially stated its intention to focus on reverse solicitation, it is clear from pfm’s recent general council roundtable that fund managers are considering whether ESMA may focus its scrutiny on reverse solicitation in the future.

“There is not currently any reason for us to believe that there is going to be an assault on reverse solicitation,” says Collins. “However, UK-based fund managers that are considering their long-term options for marketing into Europe would be prudent to ask themselves what would be the consequences if one of these two options were to be restricted or were to disappear entirely.”