A European supervisory authority delivered a generally positive assessment of the U.S. regarding the extension of the Alternative Investment Fund Managers Directive passport to the country, but the ESMA still has reservations.
The European Securities and Markets Authority published its advice Tuesday in relation to the application of the AIFMD passport to non-European Union alternative investment fund managers and their strategies in Australia, Bermuda, Canada, Cayman Islands, Guernsey, Hong Kong, Japan, Jersey, Isle of Man, Singapore, Switzerland and the U.S. The advice will now be considered by the European Commission, European Parliament and European Council.
Currently, non-EU alternative investment fund managers and alternative investment funds, right must comply with national regimes when they market strategies in that country, as opposed to a single set of regulations for EU members. ESMA assessed countries on criteria such as investor protection, competition, market disruption and the monitoring of systemic risk, which might impede the application of the AIFMD passport.
ESMA said there might be an unlevel playing field in the case of the U.S. between EU and non-EU managers. It said market access conditions would be potentially less onerous for U.S. funds in the EU that are marketing strategies to professional investors that involve a public offering, than for EU funds doing the same in the U.S. ESMA suggested therefore, “that the EU institutions consider options to mitigate this risk.” When it comes to the marketing of strategies that do not involve any public offering, ESMA said there are no significant obstacles.
There are also no significant obstacles regarding investor protection and the monitoring of systemic risk.
ESMA advised the European Commission that in the cases of Canada, Guernsey, Japan, Jersey and Switzerland, “there are no significant obstacles impeding the application of the AIFMD passport.”
There are also no significant obstacles for Hong Kong, Singapore and Australia, provided equivalent rules reciprocate to all EU member states.
ESMA said advice for Bermuda, the Cayman Islands and the Isle of Man was not yet definitive or will need more time.
“This is a very positive development,” said Lisa Cawley, a corporate partner in London at law firm Kirkland & Ellis, in an e-mail. Ms. Cawley added that ESMA “has also been very encouraging about the U.S.”
The Alternative Investment Management Association welcomed the positive assessment for Hong Kong, Singapore, the U.S. and Australia, “albeit with some reservations and conditionality,” said Jiri Krol, deputy CEO at the association, in a news release. “We are hopeful that the European Commission will proceed to the introduction of the passport to all of these countries given that the remaining cited obstacles appear to be minor (and) are capable of being successfully addressed or mitigated.”
Jack Lejk contributed to this story.
