The European Securities and Markets Authority (ESMA) has issued additional advice on application of the Alternative Investment Fund Managers Directive (AIFMD) marketing passport for non-EU markets, finding issues outstanding for the US, Bermuda, the Cayman Islands and the Isle of Man.
ESMA found that there was “no significant obstacle” to passport application for Canada, Switzerland, Jersey and Guernsey.
The advice also covered Australia, Hong Kong, Japan, and Singapore.
Currently, non-EU alternative investment fund managers (AIFMs) have to comply with each individual’s EU state’s national regime in order to market funds there. A passport would allow these managers to market and manage funds throughout the EU.
In the US, ESMA found nothing regarding investor protection and the monitoring of systemic risk that could impede the application of the passport. It also found no issues with competition or market disruption.
However, although there is no obstacle for funds marketed to professional investors that do not involve a public offering, for those that do involve a public offering, extending the passport could cause an unfair advantage to the US funds, ESMA said.
Market access conditions applied to US funds marketed to professional investors that include a public offering could potentially be less onerous than those applicable to comparable EU funds marketed in the US.
ESMA advised that EU institutions should consider ways to mitigate this risk.
For Bermuda and the Cayman Islands, ESMA said it cannot offer any definitive advice on investor protection or effectiveness of enforcement, as both markets are in the process of implementing new regulatory regimes.
Similarly, ESMA said that, as the Isle of Man does not have any regulatory regime comparable to AIFMD, it could not assess whether the criteria for investor protection was met on the island.
For Hong Kong and Singapore, ESMA found no significant obstacles with regards to alternative investment funds (AIFs) themselves. However, both jurisdictions operate regimes that only allow access for UCITS funds from certain EU member states, for retail investors. This could prove an issue for extending the passport to AIFMs.
In Australia, there are no obstacles with regards to market disruption, providing that the Australian Securities and Investment Committee extends its relief provisions for class orders, which are currently only available for some EU member states.
The ESMA passporting advice is a requirement of AIFMD, and will now be considered by the European Commission, Parliament and Council.
