Border control: ESMA proposes extending the AIFMD passport (again)

United Kingdom

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and implications

Yesterday, the European Securities and Markets Authority (ESMA) published its advice to the European Commission on extending the AIFMD passport to non-EU managers.

ESMA's advice can be summarised as follows:

Should the passport be extended? Countries
Yes Jersey, Guernsey, Switzerland, Canada, Japan
Yes, with some conditions Australia, United States
Not yet Bermuda, Cayman Islands, Isle of Man
No assessments by ESMA yet Chile, China, Egypt, Malaysia, Taiwan

The next step is for the European Commission to pass a delegated act to extend the passport, presumably just to the five "yes" countries at present. Technically the Commission has three months to pass this act, but that timeline should not be taken as gospel.

Once the act has been passed, managers from the relevant countries will be able to market their funds into the EU using the AIFMD passport, provided they comply with the applicable requirements in the AIFMD.

ESMA's findings in more detail

  • Jersey, Guernsey, Switzerland, Canada and Japan: All received the green light from ESMA.
  • Hong Kong and Singapore: Received the green light from ESMA regarding their AIF regimes, but ESMA hinted that the price of being granted a third country passport might be reciprocal access rights for UCITS (or retail) funds.
  • Australia: Also received a green light as long as Australia reciprocates by extending its "Class Order Relief" to all EU states and not just a few.
  • United States: ESMA believes US managers will still have an unfair advantage over EU managers because there would be less onerous rules for US mangers marketing in the EU than vice versa, in cases where there is a public offering. ESMA therefore advises the EU to look at how to "mitigate this risk". Back to the negotiating table then.
  • Bermuda and the Cayman Islands: On hold because their regulatory regimes are currently in flux.
  • Isle of Man: Equivalence is currently too difficult to judge because of "the absence of an AIFMD-like regime".
  • Chile, China, Egypt, Malaysia and Taiwan: ESMA has postponed its advice on these countries because of the absence of memorandums of understanding with the local regulators or the level of marketing activity from the jurisdiction is very low.