AIFMD: Good news and bad news

European LPs who feel cut off from US and Asian fund managers after they stopped marketing into the continent following AIFMD now have cause to rejoice.

On July 19, Europe’s financial regulator, the European Securities and Markets Authority, advised the EU that 12 non-EU countries should be afforded the marketing passport provided by the AIFMD. The regulator gave its unequivocal blessing to Canada, Guernsey, Japan, Jersey and Switzerland. It also expressed positive sentiment for fund managers based in the US and Australia, but said the passport should only be available after certain adjustments to the country’s regulations.

For Hong Kong and Singapore, ESMA made its assessment only in relation to funds, which legal sources said should mean there are no significant obstacles impeding the application of the AIFMD passport. However, both jurisdictions have retail securities regimes where only certain EU member states are eligible. It is likely that the organization will require Singapore and Hong Kong to ensure that all member states have eligibility before granting the passport to these two popular fund domiciles.

The muddy regulatory waters of the UK caused by the vote to leave the EU last month were not addressed. Brexit would mean UK fund managers would no longer have automatic access to the passport when the country officially leaves the EU. As the UK already has an AIFMD-compliant regime in place, lawyers said it should be technically straightforward to extend the passport to the UK, but sources say there may be a political dimension which comes into play about whether the EU would be prepared to extend the directive to the UK. Judging by the general rhetoric from European bureaucrats towards the UK post-Brexit, it would be fair to bet such an offer might not be forthcoming.

However, before LPs rejoice, ESMA said the EU should consider waiting until the regulator has given positive advice on more countries before triggering the extension of the passport to non-EU countries.

European investors looking to put more money to work with fund managers based in these 12 countries will have to put their check-writing pens back in their pockets for now. But, for those lamenting Europe’s difficult capital raising environment, ESMA’s announcement is a definitive step in the right direction.

ESMA rulings

Cleared for passport: Canada, Guernsey, Japan, Jersey, Switzerland
Funds only: Hong Kong, Singapore
‘No significant obstacles’: Australia, US
Unable to give advice: Bermuda, Cayman Islands, Isle of Man