The European Securities and Markets Authority (ESMA) has cast doubts over whether 鈥榩assport鈥� rules under the Alternative Investment Fund Managers Directive (AIFMD) will be extended to non-EU countries in the near future.
Advice published by ESMA this morning has implications for non-EU alternative investment managers, which are currently unable to market to European investors under the AIFMD passport regime.
ESMA said there were 鈥渘o obstacles鈥� to extending the passport to Guernsey and Jersey, but it has 鈥渘o definitive view鈥� on the US, Hong Kong and Singapore due to 鈥渃oncerns related to competition, regulatory issues and a lack of sufficient evidence to properly assess the relevant criteria鈥�. Switzerland would also become viable once 鈥減ending legislation鈥� is passed, it added.
The advice to the European Commission could mean the passport regime will not be extended any time soon, although ESMA鈥檚 positive view of Guernsey, Jersey and Switzerland complicate the picture.
鈥淭his begs the question whether the Commission will want to adopt a delegated act for just these three countries or wait until there are more countries that meet the criteria,鈥� said Jeff Rupp, director of public affairs at INREV, the European association for non-listed real estate investors.
ESMA said European Commission, Parliament and Council can now consider whether to extend the passport through a delegated act, but it added that they 鈥渕ay wish to consider waiting until ESMA has delivered positive advice on a sufficient number of non-EU countries鈥�.
鈥淭he regulators鈥� strategic goal of greater investor protection conversely is resulting in an erosion of choice for investors.鈥�
Melville Rodrigues
Matt Keogh, partner at Linklaters, said: 鈥淭he widespread introduction of the passport still looks some way off.
鈥淛ersey, Guernsey and Switzerland will clearly be happy that the marketing passport looks likely to be extended to them when it is introduced. However, those hoping that today鈥檚 announcement would provide more certainty on when introduction might occur will be a bit disappointed.鈥�
For the time being, non-EU managers will need to continue to market to European investors via Europe鈥檚 private placement regime, the rules of which vary from country to country.
Melville Rodrigues, partner at CMS, suggested that European investors are not being adequately served by the national private placement regime.
鈥淭here are no indications that passporting is not working.鈥�
Jeff Rupp
Rodrigues described the private placement regime as a 鈥減atchwork鈥� and 鈥渋nterim solution鈥� that was not currently working well for investors in certain countries, notably those in France and Germany.
鈥淭he current national private placement regime is reducing that choice of suitable investment product to investors in particular jurisdictions,鈥� he said.
鈥ㄢ�淭he regulators鈥� strategic goal of greater investor protection conversely is resulting in an erosion of choice for investors.鈥�
ESMA published the advice following a consultation period, during which it also sought to assess how well the passport regime had been functioning for EU-based managers. Its preliminary view is that not enough time has elapsed since implementation of the AIFMD to arrive at a 鈥渄efinitive assessment鈥�.
鈥淚t鈥檚 too early to determine whether passporting has been successful,鈥� Rupp said. 鈥淏ut, importantly, while there are some issues, there are no indications that passporting is not working.鈥�
