European Union: Potential Implications On The Use Of Passporting For Asset Management Firms In A Post-Brexit World

Following the "Leave" result of the United Kingdom's Referendum on whether to Remain or Leave the European Union, one the most talked-about issues is whether the UK will continue to have access to the EU's financial services single market andcruciallywhether UK financial services entities will maintain their ability to use the passporting regimes provided for under a variety of EU Financial Services legislation. Whilst we acknowledge the high degree of uncertainty as to what the final form of any new relationship between the UK and the EU will look like, in this note we set out to highlight and consider some of the key questions surrounding the implications of the EU passporting regime as we currently understand them and what potential passporting options may look like going forward for UK financial services entities in the asset management sector.


Passporting is a concept that allows a firm to establish in one jurisdiction and obtain a "passport" to provide services in another jurisdiction, either on a cross-border basis or through establishing a branch. For the financial services sector, the ability to passport has created harmonised access to the single market for financial services in the European Union ("EU") and European Economic Area ("EEA") . In the past, the availability of a passport to perform financial services was restricted to firms that have been established in one EU/EEA member state having the ability to utilise a passport and perform financial services in another EU/EEA member state (the "EU/EEA Passport"). However, in recent years, the concept of passporting has been extended to allow firms who are not members of the EU or EEA to obtain a passport to provide certain services in an EU/EEA member state (the "3rd Country Passport"). The availability of each type of passport differs according to different EU financial services legislation. This note focuses on the passporting regimes available under three key Directives that are relevant for asset management firms, the Markets in Financial Instruments Directive ("MiFID"), the Alternative Investment Fund Managers Directive ("AIFMD") and the Undertakings in Collective Investments in Transferable Securities Directive ("UCITS").


The EU/EEA Passport

Subject to its fulfillment of conditions under the relevant EU Directive, a firm authorised in an EU/EEA member state is entitled to carry on regulated financial services activities in any other EU/EEA member state by either exercising the right of establishment (of a branch and/or agents) or providing cross-border services through the use of an EU/EEA Passport. For EEA states, this relationship is governed by the EEA Agreement, which allows 3 Non-EU states (Iceland, Liechtenstein and Norway) ("EEA member states") access to the EU's financial services single market. However, we note that, at present, there is an outstanding issue in relation to the incorporation of the EU Regulations establishing the European Supervisory Authorities (ESAs) into the EEA Agreement. This means that, currently, EEA member states are not members of the EU financial supervisory systems and the ESAs, with the consequent effect that some EU member states do not accept EEA AIFMs to passport into their jurisdictions. An agreement has been reached to find a solution to this issue between the EEA member states and the EU Ministers of Finance and Economy, however, this solution has not yet been fully implemented into current EU legislation. Therefore, currently, there is an impasse on the availability of the EEA Passport under certain EU Directives. However, we understand that the implementation of this solution is being worked upon by the relevant authorities and legislative bodies and should be resolved in the coming months. The application of the EU/EEA Passport and the regulated financial services activities that are "passportable" vary depending on the rules set out in each EU financial services Directive. EU/EEA Passports are available to firms under each of the following EU Directives:

  • The Markets in Financial Instruments Directive ("MiFID"), in respect of brokers, dealers, portfolio managers and distributors;
  • The Undertakings in Collective Investments in Transferable Securities Directive ("UCITS"), for UCITS fund managers;
  • The Alternative Investment Fund Managers Directive ("AIFMD"), for alternative fund managers;
  • The Capital Requirements Directive IV ("CRD IV") and Capital Requirements Regulation ("CRR"), for credit institutions;
  • The Solvency Directives (as amended), in respect of insurers.

Activities that are not covered by these Directives and are not "passportable" require the firms wishing to carry on regulated financial services activities to contact the national competent authority (i.e., the local national regulator) in relevant EU jurisdictions to determine whether direct authorisation is needed to conduct such services. In practice, marketing and conducting regulated financial services in an EU jurisdiction is difficult without a passport.

The EU/EEA Passport is only available for EU/EEA member states, and therefore any state that is not within the EU or EEA, including the Channel Islands (Jersey, Guernsey) or the Isle of Man, does not have access to apply for the EU/EEA Pasport.

The 3rd Country Passport

In addition to the EU/EEA Passport, certain EU Directives also provide for access to conduct cross-border services to countries outside the EU/EEA – so called "3rd Countries". For asset management firms, the most relevant Directives that provide access to 3rd Country firms are MiFID (once the MiFID II amendments are implemented) and the AIFMD. Both Directives grant 3rd Country firms (i.e., firms established outside the EU/EEA) rights to conduct business in the EU/EEA by exercising 3rd Country Passport rights as stated under each Directive, subject to certain provisos as detailed below.


With effect from the 3 January 2018, the MiFID II Directive and Markets in Financial Instruments Regulation (MiFIR) (often jointly referred to a MiFID II) will repeal and recast MiFID.

MiFID II provides access to 3rd Country firms to conduct investment services in the EU by obtaining a 3rd Country Passport. However, the approach for allowing 3rd Country access via a passport is not harmonized, and the manner in which a 3rd Country Passport may be obtained by a 3rd Country firm will be dependent on an individual EU member state's implementation of MiFID II and will vary from member state to member state.

However, bearing the above in mind, and in summary, MiFID II will allow for two types of 3rd Country Passport to be available as follows: the first will allow for the provision of cross-border investment services by a 3rd Country firm to per se professional clients and eligible counterparties; and/or the second option will allow for the provision of investment services by a 3rd Country firm by that firm establishing a branch in an EU jurisdiction when providing services to elected professional clients and retail clients.

Under Article 47 of MiFIR, in addition to obtaining co-operation agreements between regulators, in order for a third country to be able to obtain access to the 3rd Country passporting regime, the European Commission is required to examine a third country's legal and supervisory arrangements to ensure that firms authorised in that third country comply with legally binding prudential and business conduct requirements which have the "equivalent" effect to the requirements set out under MiFID II. This decision is also permitted to be reviewed by the European Commission on an ongoing basis and as such the European Commission maintains a right to withdraw its equivalence decision for a 3rd Country if it believes that the 3rd Country firm no longer meets certain requirements (the procedures is as set out in MiFIR).

Consequently, whilst the possibility of a 3rd Country Passport is clearly one that may prove to be beneficial in circumstances where the UK leaves the EU nor is deemed an EEA state and therefore UK firms no longer have access to the EU single market using an EU/EEA Passport, firms will need to keep a close eye on Brexit-related developments and discussions as they occur, and particularly in relation to the application of an "equivalence" decision by the European Commission.

In our view, given that (as set out by the UK Financial Conduct Authority on 24th June 2016) the implementation efforts for MiFID II in the UK continue without change, and, consequently, the text adopted by the UK is highly likely to be the same as that adopted by EU member states (even if legislative changes may be required to remove any reference to the EU once the UK is no longer subject to EU regulation or law), the UK should have a good case for proving equivalence under the MiFID II provisions. Having said that, firms should be mindful that such decisions are not usually merely based on whether the language is the same under legislation but more often takes into account wider policy implications of the relationship between the EU and a third country, which may include consideration of the effects on competition or investor protection or even apply a principle of proportionality to an equivalence decision (as recently seen with discussions on Solvency II). Consequently, at present, it is hard to see how the effects of politics will not have any effect on any discussion on "equivalence" in relation to providing access to the UK. This is clearly something that is difficult to predict and therefore re-emphasises the need for the industry to maintain a watchful eye on developments.


Currently under the AIFMD, Non-EU Alternative Investment Managers (Non-EU AIFMs) and Non-EU Alternative Investment Funds (Non-EU AIFs) may only have access to the EU/EEA under the national private placement regime (NPPR) of each EU Member State. However, the AIFMD provides that the European Securities and Markets Authority (ESMA) will issue an opinion to the European Parliament, Council and Commission in relation to the continuing operation of the NPPRs and the possibility of applying a 3rd Country Passport to Non-EU AIFMs and Non-EU AIFs.

This process has already begun with ESMA issuing its advice to the European Parliament, Council and Commission on this issue in July 2015, where ESMA assessed six jurisdictions: Guernsey, Hong Kong, Jersey, Singapore, Switzerland and the United States. ESMA concluded that it sees no obstacles to extending this passport to Guernsey, Jersey and Switzerland (subject to the latter amending certain provisions in its legislation). However, ESMA did not reach a definitive view on the remaining three jurisdictions in this advice and the European Commission responded to ESMA's advice in January 2016 requesting ESMA to provide further assessment on the remaining three jurisdictions (Hong Kong, Singapore and the United States), plus six additional jurisdictions (Australia, Bermuda, Canada, Cayman Islands, Isle of Man and Japan). This advice was due at the end of June 2016. The European Commission also agreed with ESMA's suggestion that ESMA produces another opinion on the functioning of the EU/EEA Passport and the NPRRs once the AIFMD has been fully transposed in all EU member states and there is more experience on the functioning of the framework.

In addition to the obtaining of appropriate cooperation arrangements and compliance with relevant FATF and OECD tax rules, Article 67(4) of the AIFMD sets out additional elements that ESMA would need to consider to ensure that there is no further impediment to obtain a Third-Country passport; this includes an assessment on investor protection, market disruption, competition and the monitoring of systemic risk.

As with MiFID II, we are of the view that the UK should have a good case to meet the criteria set out both in the AIFMD and in the recent guidance provided by ESMA's advice on the application of a Third-Country passport. However, the assessment made by ESMA will take the form of advice to the European Parliament, Council and Commission, and therefore there may be additional elements (not least political) that are taken into consideration prior to an approval for the UK to be able to utilise the Third-Country passport route under the AIFMD. Consequently, as with many items under consideration for Brexit, firms will need to continue to monitor how any potential discussions progress.

UCITS Directive

There is currently no 3rd Country Passport available under the UCITS Directive.


A lot will depend on the final form of any future relationship that the UK has with the EU and EEA. For instance, if the UK was to exit the EU but become a member of the EEA (such as Norway), UK firms would still have the EU/EEA Passport available to them in much the same way as they do now, (provided that, as aforementioned, the application of the EU financial supervisory systems and the ESAs is resolved under the EEA Agreement). However, the distinction between being a member state of the EU and being a member state of the EEA is that EEA member states are not represented (nor have a vote) in the European Parliament, European Council or European Commission, but are still bound to implement directives that have EEA effect, and are also required to make significant contributions to the EEA budget. Consequently, this may have certain undesirable results for the UK as they would, in effect, lose their "voice" within the EU institutional structure, which may mean, from a political standpoint, the UK government may not wish to enter into such a relationship. Therefore, it will also be necessary to look at alternative "Brexit" options, which may include entering into bilateral arrangements following either existing precedent relationships such as that between the EU and Switzerland or something that is completely unique to the UK and the EU. We also note that, whilst in the short term, it may be the case that, upon a Brexit, the UK adopts legislation "as is" currently drafted and/or already in place under EU legislation, in the longer term it may also very well be the case that as the UK seeks to shape out a new pathway for itself outside of the EU, certain EU financial services provisions may be amended or indeed removed. In such instances, the discussion and analysis around the use of 3rd Country Passports, the timing of the UK receiving access to such passports and the ability to review "equivalency" on an ongoing basis by the European institutions will become more relevant and certainly "one to watch" as the impact of Brexit progresses.

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

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

In association with
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.