Non-EU managers from countries not yet regarded as passport-eligible may continue to market in Germany on the basis of the national private placement regime
The German Federal Financial Services Regulatory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, "BaFin") has communicated that, after introduction of the European passport for cross-border management and cross-border marketing by non-EU AIFMs ("Third-Country Passport"), the national registration procedure (so-called private placement regime) will continue to be available to non-EU AIFMs having their registered seat in countries that are not passport-eligible.
By contrast, the national registration procedure (so-called private placement regime) will no longer be available to non-EU AIFMs having their registered seat in passport-eligible states once the third-country passport goes into effect. These AIFMs will have to make use of the new third-country passport to be able to market in Germany. This means in particular that they will have to comply with all requirements of the AIFMD and be subject to the supervision of an EU regulator (see below on this procedure).
Previously there has been uncertainty about the consequences of the introduction of the third-country passport for non-EU AIFMs having their registered seat in non-passport-eligible countries. We reported this in an earlier client update.
The KAGB currently permits the marketing of interests in German Spezial-AIFs, EU AIFs and non-EU AIFs by non-EU AIFMs to professional and semi-professional investors in Germany pursuant to the national registration procedure (§ 330 KAGB). This registration procedure is intended to exist only for a limited period of time. On introduction, the third-country passport is to replace the national Art. 42 procedures (§ 295 para. 2 sentence 1 no. 2 KAGB). The time for the introduction of the third-country passport is set by the Commission in the delegated act on the introduction of the third-country passport.
The Commission is to issue the delegated act within three months following receipt of a positive recommendation from the European Securities and Markets Authority ("ESMA") to introduce the third-country passport. ESMA published its recommendation on July 19, 2016 (see our earlier client update).
ESMA's recommendation is initially related to only the following countries: Guernsey, Japan, Jersey, Canada, Switzerland, and with certain limitations Australia, Hong Kong, Singapore and the United States as well. It is to be expected that the Commission's delegated act will follow this state-by-state approach.
II. GERMAN MARKETING RULES AFTER INTRODUCTION OF THE THIRD-COUNTRY PASSPORT FOR NON-EU AIFMs
1. Managers from passport-eligible countries or with passport-eligible funds: Australia, Guernsey, Hong Kong, Japan, Jersey, Canada, Switzerland, Singapore, USA (the "Passport-Eligible Countries")
Managers from the Passport-Eligible Countries will no longer be able, as they have previously been, to market under the heightened requirements of the national Art. 42 procedure in Germany and manage EU AIFs. Instead, they must use the new third-country passport. This means:
- acquisition of a third-country passport from the regulator of the reference member state. The reference member state is determined by, among other elements, the geographical area of emphasis in which the manager intends to develop an effective marketing.
- Compliance with the provisions for a
fully authorized AIFM under the AIFMD, including in
- compliance with the compensation rules;
- minimum capital requirements;
- functional and hierarchical division of portfolio management and risk management;
- appointment of a depositary;
- disclosure obligations to investors and regulators.
2. Managers from non-passport-eligible countries
Managers from non-passport-eligible countries can continue to use the national Art. 42 procedure. This means:
- appointment of a depositary "lite";
- compliance with the requirements of AIFMD Art. 42 (in particular the disclosure obligations and compliance with the anti-asset-stripping rules).
III. TIMING COMPONENT / GRANDFATHERING
Until introduction of the third-country passport, nothing will change for non-EU AIFMs, regardless of whether their registered seat is in a Passport-Eligible Country or not.
- Following introduction of the third-country passport (potentially as early as this year), non-EU AIFMs from Passport-Eligible Countries will be permitted to perform cross-border management and marketing only via the third-country passport.
- For non-EU AIFMs from non-passport-eligible countries, the national registration procedure pursuant to § 330 KAGB will continue to remain available after introduction of the third-country passport.
- The German KAGB contains a grandfathering provision. Although this provision is formulated in a very unfortunate manner, its meaning and intent appear to be that non-EU AIFMs that have already received permission from BaFin for marketing under the existing national Art. 42 procedure prior to the entry into force of the third-country passport may continue their fundraising in Germany on the basis of such authorization. By contrast, AIFMs that have not yet received permission by this time will only be able to continue their fundraising by using the third-country passport. It is thus advisable to begin preparing promptly for potential intentions to fundraise in Germany.
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.