EU regulators dubious about AIFMD passport extension

There may be little point in extending the Alternative Investment Fund Managers Directive passport to third countries, according to delegates at Association of the Luxembourg Fund Industry European Alternative Funds conference, who said the directive works well in its current form.

“There is plenty of capital available inside the EU, and plenty of EU funds to commit to. [Passports] will be nice to have, but it’s not going to account for the bulk of business,” Fabio Galli, director general of the Italian asset management society told attendees at the conference on Wednesday.

The issue of reciprocity was also raised, and a couple of panellists said the benefit for EU investors in the jurisdiction should be considered as a priority when assessing a country’s suitability for a passport.

“Market access for an EU entity in a particular country shouldn’t be ignored. The passport scheme as it stands seems to be making an offering without receiving anything in return,” Jean Marc Goy, counsel for international affairs at the Commission de Surveillance du Secteur Financier, said.

A third panellist said Brexit presented the opportunity to revisit the passport scheme, saying it was time to rethink the offering.

“Brexit does make things difficult, and has raised new issues. But it’s an opportunity for member states to re-discuss the regime they want to offer, and the conditions that are possible. They can look again at how a country’s suitability is assessed,” Mathieu Lucchesi, deputy head of asset management regulation at the French regulator AMF said.

The extension of the scheme will allow managers in non-EU countries whose financial regime is considered to be in line with that of Europe to market their funds to investors in the bloc.

Currently, non-EEA AIFMs can market AIF interests to EEA investors only where permitted by applicable national private placement regimes, and subject to compliance with certain AIFMD disclosure and transparency obligations.

Europe’s lawmaker, the European Commission, is ultimately responsible for deciding whether or not to grant a country a passport. Its decision is based on advice given by the regulator, ESMA, and “other information.”

It is due to deliver a decision within three months of receiving advice from ESMA – this December in the case of six countries – but it is widely anticipated it will delay its ruling until ESMA has assessed more countries, something the regulator it is doing as a matter of priority, according to its chairman Steven Maijoor.