Worldwide: ESMA Advice On Extension Of Funds Passport: What Next?

Last Updated: 26 July 2016
Article by Walkers Global

Most Read Contributor in Cayman Islands, September 2018

On 18 July 2016, the European Securities Markets Authority ("ESMA") issued its advice on the extension of the alternative investment fund managers' directive ("AIFMD") passport to investment fund managers and investment funds based in 12 non-EU countries, including Bermuda, the Cayman Islands, Guernsey and Jersey (the "Opinion").

In the Opinion, ESMA has confirmed that, in this second round of assessments, 2 additional jurisdictions (Canada and Japan) have been added to the original 3 jurisdictions (Guernsey, Jersey and Switzerland) deemed to satisfy the threshold of no significant obstacles impeding the application of the AIFMD passport. The assessment of the remaining 7 jurisdictions is still under consideration; 4 of these jurisdictions may need to address market access equivalency concerns raised by ESMA and ESMA has not yet had sufficient time to complete its review on the other 3 remaining jurisdictions (including Bermuda and the Cayman Islands).

Background

The AIFMD aims to harmonise the regulation of alternative investment fund managers, managing and marketing alternative investment products in the EU. Under the current situation, non-EU fund managers have been largely precluded from marketing non-EU funds into the EU other than under the national private placement regimes ("NPPRs"). The benefit of the extension of the passport for any jurisdiction is that, once available, such jurisdiction's funds will be able to be managed and marketed in the EU on the same footing as European funds, albeit that this may not necessarily be as favourable as the current NPPRs.

Under the terms of the AIFMD, ESMA was required to give an opinion to the European Commission as to whether non-EU countries would be able to take part in the AIFMD EU passport regime. ESMA's first advice was published on 30 July 2015, following a decision by ESMA that it was in the best interests of the countries which were the subject of the advice that assessments were completed on a country-by-country basis. The first report covered six non-EU countries namely, Guernsey, Hong Kong, Jersey, Switzerland, Singapore and the United States. ESMA recommended that the AIFMD passport be extended to Guernsey, Jersey and conditionally, Switzerland.

The Cayman Islands and Bermuda were part of the second group that was assessed, which also included Australia, Canada, Japan and the Isle of Man.

The outcome

On 18 July 2016, ESMA released its second advice on the extension of the AIFMD passport to third countries and has recommended that the passport be extended to include Canada and Japan. Market access equivalency concerns remain in respect of Hong Kong, Singapore and the United States, and changes may be required to Australia's regulatory framework before it will be eligible for the passport extension.

Guernsey and Jersey, having already implemented AIFMD-equivalent regimes, remain categorised as jurisdictions which have no significant obstacles impeding the application of the AIFMD passport, and hence both should receive any passport extension when the European Commission finally permits third countries to participate in the AIFMD passport regime.

ESMA cannot give definitive advice with respect to the Cayman Islands or Bermuda until each has implemented its proposed new regulatory regime and ESMA have also confirmed that further assessment of the Isle of Man current regime needs to be undertaken.

Current status of Cayman AIFMD-equivalent regime

Whilst ESMA is of the view that there are no significant obstacles regarding competition and market disruption impeding the application of the passport to the Cayman Islands, ESMA wishes to further examine criteria on investor protection and effectiveness of enforcement before affirming that the passport should be extended to the Cayman Islands. Part of this process involves ESMA completing its review of draft rules and regulations supplied by the Cayman Islands government as part of the assessment process – following its initial review, ESMA has confirmed that the draft rules and regulations seem to show that the Cayman Islands' proposed new AIFMD-like regime would be broadly similar to the AIFMD framework, but ESMA still needs to undertake a more in-depth analysis. Much preparation has already been completed regarding the revision of the Cayman Islands laws and regulations in readiness for the extension of the AIFMD passport, specifically the Securities Investment Business Law ("SIB Law") and Mutual Funds Law ("MF Law").

The amendments to the MF Law and SIB Law provide a framework for Cayman Islands fund managers to opt to be licenced to an EU equivalent standard to allow them to obtain an EU passport. The MF Law amendments allow for Cayman Islands investment funds to opt-in to be regulated to an equivalent standard as against EU funds.

The specifics of the compliance obligations under the AIFMD regime will be set out in Regulations for both the MF Law and the SIB Law, final drafts of which were provided to ESMA as part of the assessment process. These drafts were received favourably by ESMA given their similarity to the AIFMD framework and the Cayman Islands is in a position to finalise the Regulations and bring them into force very quickly.

Additional legislative changes are currently underway in the Cayman Islands to address the Cayman Islands Monetary Authority's ("CIMA's") power to impose administrative fines for breach of regulatory laws, regulations and rules, and CIMA is currently developing a macro-prudential policy framework which will enhance its already robust systemic risk framework.

Current status of Bermuda AIFMD-equivalent regime

ESMA has confirmed that Bermuda has met three of the five criteria it assessed in order to issue advice on the extension of AIFMD passports. It advised that there are no significant obstacles impeding the issue of a passport to Bermuda in relation to standards on competition, market disruption and monitoring of system risk, but that more time is needed to review the remaining criteria, being enforcement and investor protection measures.

Following its initial review, ESMA has confirmed that the interim rules and procedures supplied by the Bermuda Monetary Authority ("BMA") as part of the assessment process seem to show that Bermuda's proposed new AIFMD-like regime would be largely similar to the AIFMD framework, but ESMA will continue to undertake a more in-depth analysis.

Much has already been done in order to revise Bermuda laws in preparation for the extension of the AIFMD passport, specifically a draft bill that has been introduced and, once in force, will amend the Investment Business Act 2003 to provide an opt-in framework for the licensing and regulation of alternative investment fund managers who wish to market their alternative investment funds in the EU. Recent legislative approval of the Investment Funds Amendment Act in Bermuda will also enhance the enforcement powers of the BMA to impose civil penalties, make prohibition orders and take other disciplinary measures in order to meet appropriate international standards.

The next steps

With only 5 out of the 12 jurisdictions assessed by ESMA to date being approved for the extension of the passport, and assessments on a further 10 new jurisdictions still to be commenced, it is not certain when the extension of the passport to non-EU countries will occur. ESMA has advised in its Opinion that the Commission and co-legislators may also wish to consider fiscal matters and anti-money laundering regimes, in addition to ESMA's advice, before extending the passport to any jurisdiction, and highlights that the NPPRs can continue in the interim – it is expected that the NPPRs will co-exist with the passport regime until at least 2018.

Pursuant to Article 67 of the AIFMD, the European Commission should pass legislation within 3 months after having received the Opinion to enable non-EU managers to avail of any passport for marketing and managing EU and non-EU funds in the EU. Notwithstanding the Opinion, the European Commission may delay or refuse to approve the extension of the passport to some or all of the third countries recommended by ESMA.

Three years after the passing of legislation under Article 67, a further advice should be produced by ESMA under Article 68(1) of the AIFMD, advising whether the NPPRs should be terminated or continue in parallel with the AIFMD passport.

With so much uncertainty still surrounding the timing of the extension of passports to third countries, investment managers domiciled in any of Bermuda, the Cayman Islands, Guernsey or Jersey who intend to obtain a passport, when available, should note they will be required to obtain the relevant investment manager's licence under the applicable domestic law and also to obtain an authorisation from their intended EU member state of reference. For the time being, investment managers should continue to take advantage of the NPPRs to market their funds into the EU pending any further decision of the European Commission. If you would like to discuss this further or need more information, talk to your usual Walkers contact or contact one of the team members listed below.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Cayman Finance
Maples and Calder
Cayman Islands Government
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Cayman Finance
Maples and Calder
Cayman Islands Government
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions