So it's here! After all the controversy, the Alternative Investment Fund Managers Directive (AIFMD) was implemented on 22 July 2013. At least it was partially implemented. As a European Directive, Member States of the EU (and the additional EEA states of Norway, Liechtenstein and Iceland) were required to transpose the Directive into national law by that date. In fact, only a minority of Member States have passed the laws necessary to implement the Directive, others have only draft legislation still to be put before their legislative bodies, and yet others appear to have done nothing at all.
National Private Placement Regimes
It is our understanding that where the Directive has not yet been implemented by national law, it has no application, and the pre-22 July 2013 status quo will continue until the national law is amended (even if this puts the Member State in breach of European law).
Where the AIFMD has been transposed into national law by EU/EEA states, under certain conditions non-EEA funds may be marketed into those states under their National Private Placement Regimes (NPPR), until at least 2018. Those conditions include the requirement that there be a co-operation agreement between the regulatory authority of the relevant Member State and the authority in the jurisdiction of domicile of the fund.
The AIFMD requires Member States to incorporate within their NPPR certain minimum registration, transparency and disclosure requirements. Member States may (and some have) imposed more substantial conditions and restrictions. For example, Germany has taken the step of requiring non-EU/EEA funds to comply with all of the requirements of the AIFMD (under the Directive, this is only obligatory for the time being in relation to EU/EEA funds) and to obtain authorisation of BaFin (the German financial services regulator). In counterpoint, the Netherlands has introduced rules which deem funds authorised in Guernsey and Jersey to be automatically authorised for distribution subject to registration.
For the time being, the AIFMD treats EU/EEA managers and EU/EEA funds differently from their non-EEA equivalents, imposing greater compliance obligations on the Europeans. In exchange for this greater compliance obligation however, EU/EEA managers will have the right to "passport" their fund throughout Europe (i.e. market those funds) without further authorisation and to "passport" their services throughout Europe (i.e. provide fund management services to European funds), without additional member state approvals.
Subject to advice from the European Securities and Markets Authority (ESMA), from early 2016 the same "passporting" privileges may become available to non-EU/EEA funds and non-EU/EEA managers; provided they comply with all of the requirements of the AIFMD. This should create a level playing field between EU/EEA and non-EU/EEA managers looking to raise funds from European investors. Given the delays in implementation of the AIFMD by some Member States however, it remains to be seen how effective this "passport" will be, either for EU/EEA based managers or their non-EU/EEA equivalents.
So what does this mean for the Crown Dependencies of Guernsey, Jersey and the Isle of Man and how have they responded to the Directive?
Two key conditions apply to allow investment funds in the Crown Dependencies to be marketed into EEA states under the NPPRs implemented in response to the AIFMD. Firstly, each of them is not considered uncooperative by the FATF and secondly, an appropriate co-operation agreements are in place between the regulator in the relevant Crown Dependency and the relevant EU/EEA regulator. The first condition has been met by all the Crown Dependencies, and their regulators have signed appropriate co-operation agreements with 27 EU/EEA securities regulators (25 in the case of the Isle of Man).
Jersey has implemented by legislative change the full scope of the AIFMD and so-called "Level 2" regulations issued by the EU Commission on an opt-in basis. As a result, all Jersey funds to which the AIFMD applies (and Jersey AIFMs to which the AIFMD applies) will require approval or must comply with exemption conditions before marketing into Europe. It is not considered that the new requirements will impose any significantly greater burden on the Jersey AIFM or fund than would apply by virtue of the European requirements resulting from the marketing into Europe.
If desired, a Jersey AIFM may elect to comply with (and so will be subject to regulation in accordance with) the full scope of the AIFMD as if the passporting rights were available even though no such passport will be available for two years. It is considered that this may be beneficial to marketing efforts into states, such as Germany, which have removed their NPPR. However, a Jersey fund (or AIFM) which will not be marketed into Europe can continue to enjoy the status quo ante without any of the additional requirements or obligations introduced by the AIFMD.
Guernsey has also passed its own domestic legislation (The AIFMD (Marketing) Rules, 2013), which essentially requires all Guernsey AIFMs to comply with the relevant EU/EEA regulators' requirements (replicating articles 42 and 43 of the Directive) when marketing in their home jurisdictions. There are also obligations to make certain disclosures to the GFSC before marketing commences in any of the EU/EEA Member States. As such, for Guernsey AIFMs marketing into the EU/EEA, provided they comply with both the home jurisdictions' requirements, as well as the reporting requirements under the Guernsey rules, they are free to continue marketing by way of national private placement. Similarly to Jersey, if no marketing in Europe will take place, the new rules will have no application.
The Isle of Man has not found it necessary to make any modifications to its domestic law, maintaining access to European markets through the network of co-operation agreements.
Transition and Sub-threshold ManagersA number of EU/EEA states have incorporated into their transposition of the AIFMD certain transitional arrangements, the effect of which is to suspend the requirements of the AIFMD for a period of time (usually between one and two years) and where an AIFMD (or fund) in the Crown Dependencies falls within the transitional arrangements, the new rules introduced by domestic legislation in the Crown Dependencies will not apply. So for the time being and with a limited number of exceptions, the AIFMD was not a big bang on 22 July 2013, but it certainly has produced some fireworks.
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.