Fund managers must first hire a France-based bank or administrator before soliciting capital from French investors under the Alternative Investment Fund Managers Directive (AIFMD), pfm has learned.
Under the directive, compliant GPs are permitted to freely market throughout Europe without having to register or obtain a license with individual national securities regulators.
However, the French regulator, the L’Autorité des marchés financiers’ (AMF), confirmed it has included a provision requiring a “local correspondent” to be hired to “process subscription and redemption requests, make coupon and dividend payments and supply information documents to investors”.
Legal sources tell pfm this provision is an unexpected major roadblock for funds interested in France.
“It’s a complete and utter nightmare. A passport works if there is one set of rules. France gold-plating a passport is ridiculous,” said one UK-based regulatory lawyer, adding that no one is sure exactly which institutions are accepting the role and what the local correspondent is supposed to do.
“What do they do? Who on earth knows. Every role they have seems to be duplication [of the fund manager’s own AIFMD requirements] apart from the fact they are in France,” adds the UK lawyer.
The legality of inserting such a provision is also under question. Sources claim it defeats the purpose of the directive's passport marketing feature, which was designed to streamline GPs' registration and reporting administrative burdens to just one regulator.
“It is unclear legally if there is anything to prevent that as it is ultimately national law that prevails and the directive just instructs member states on what laws they have to transpose,” said one UK-based COO. Some legal sources disagree, arguing that a local correspondent requirement is a breach of the EU’s freedom of services principle, which gives business the right to equal footing when providing services across EU borders.
The UK-based lawyer said the provision has been reported to pan-European regulator, the European Securities and Markets Authority (ESMA), who is responsible for the EU-wide implementation of the directive.
ESMA was unable to return a request for comment by press time.