In July 2015, ESMA published its first advice on the extension of the AIFMD passport to non-EU AIFMs and AIFs. The advice covered Guernsey, Hong Kong, Jersey, Switzerland, Singapore and the United States. Following this, the European Commission requested that ESMA complete its review of certain of those jurisdictions and assess a further six non-EU jurisdictions, including Australia, Bermuda, Canada, the Cayman Islands, Japan and the Isle of Man. ESMA published this latest advice on 18 July 2016 (the "Advice").
ESMA concludes in the Advice that there are no significant obstacles impeding the extension of the AIFMD passport to Canada, Guernsey, Japan, Jersey and Switzerland. It gave the following feedback on the remaining seven jurisdictions:
- United States – ESMA did not see any significant issues with investor protection or the monitoring of systemic risk which would impede the extension of the AIFMD passport to US AIFMs and AIFs. However, ESMA noted, that in the case of AIFs marketed by managers to professional investors which involve a public offering, a potential extension of the AIFMD passport risks an un-level playing field between EU and non-EU AIFMs. ESMA determined that the market access conditions which would apply to such AIFs in the EU under an AIFMD passport would be different from, and potentially less onerous than, the market access conditions applicable to EU AIFs in the US and marketed by managers involving a public offering. In light of this, ESMA recommends suggested approaches for EU legislators including:
- granting the AIFMD passport only to those US AIFs dedicated to professional investors to be marketed in the EU by managers not involving any public offering;
- granting the AIFMD passport only to those US AIFs which are not mutual funds (under the Investment Company Act of 1940);
- granting the AIFMD passport only to those US AIFs which restrict investment to professional investors.
- Australia – ESMA concludes that there are no significant obstacles regarding market disruption and obstacles to competition impeding the application of the AIFMD passport to Australia, provided the Australian Securities and Investment Committee (ASIC) extends to all EU member states the 'class order relief' from the requirement to have an Australian financial services licence. ESMA notes that ASIC had indicated willingness to discuss extending this to EU AIFMs or UCITS managers from the EU member states more generally on a reciprocal basis.
- Hong Kong and Singapore – in this case ESMA's assessment is limited to AIFs and does not deal with the potential extension of the passport to AIFMs in these jurisdictions. ESMA is of the view that there are no significant obstacles impeding the application of the AIFMD passport to AIFs in Hong Kong and Singapore.
- Bermuda and Cayman – ESMA refrained from giving definitive advice due to the on-going implementation of new regulatory regimes in Bermuda and Cayman and advised that the assessment of extending the AIFMD passport will need to take into account the finalised rules.
- Isle of Man – ESMA advised that the absence of an AIFMD-like regime made an assessment of the investor protection criterion difficult and refrained from giving definitive advice.
ESMA's Advice will now be considered by the European Commission, Parliament and Council. Under AIFMD, the European Commission now technically has three months to adopt a delegated act specifying the date when the rules extending the AIFMD passport become operational.
However, ESMA notes that the European Commission, Parliament and Council may wish to consider waiting until positive advice is issued on a sufficient number of non-EU jurisdictions before triggering the relevant legislative procedure under AIFMD to extend the passport, taking into account such factors as the potential impact on the market that a decision to extend the passport may have. A threshold number of non- EU jurisdictions that ESMA views as "sufficient" is not indicated in the Advice.
The Advice also states that assessments of additional non-EU jurisdictions are ongoing (including China and India), and that further submissions are due to the European Commission, Parliament and Council. No specific timeframe is provided for these additional assessments.
In conclusion, while ESMA has given positive feedback on a number of key jurisdictions, uncertainty remains as to when the rules that would activate the AIFMD passport for those countries would come into effect and what the content of those rules will be.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.