On July 30th 2015, the European Securities and Markets Authority (“ESMA”) published its advice to the European institutions on the application of the AIFMD passport with regard to non-EU AIFMs and AIFs (“Advice”) and its Opinion (“Opinion”) on the functioning of the AIFMD passport and the National Private Placement Regimes (“NPPRs”).
In the Opinion, ESMA evaluated the functioning of the EU passport and the NPPRs and while some issues were identified none were considered major. ESMA referred to the problem of different approaches to marketing rules in Member States such as: wide differences in the fees charged by national regulators and differences in interpretation of what activities constitute “marketing”. There are also differences in the definition of a professional investor.
However, ESMA was of the view that only one year of passport use is insufficient to allow for a full analysis and suggests that a better view might be formed over a longer period of time, after which a new Opinion should be prepared.
In the Advice, ESMA explains that it has conducted a country-by-country assessment, taking into account the different circumstances of each non-EU jurisdiction regarding the regulatory issues to be considered (i.e. investor protection, competition, potential market disruption and the monitoring of risk).
"In this first round of jurisdiction reviews ESMA only assessed six jurisdictions: Guernsey, Hong Kong, Jersey, Singapore, Switzerland and the United States."
Those initial countries were chosen due to a number of factors, such as:
- the level of activity already being carried out by entities from those countries under the NPPRs,
- EU national authorities’ and regulators’ knowledge and experience of dealing with their counterparts in the non-EU countries, and
- the level of engagement with ESMA’s review process by market participants, including AIFMs, from those countries.
The Advice that ESMA gives to the European Parliament, the Council and the Commission is that:
- there are no apparent obstacles to the passport being extended to AIFMs or AIFs established in Guernsey and Jersey ; and
- other than an amendment to the Swiss Federal Act on Stock Exchanges and Securities Trading, which becomes effective on January 1st 2016, there are no obstacles to the passport being extended to AIFMs or AIFs established in Switzerland.
However, ESMA was unable to reach a conclusion regarding Hong Kong, Singapore and the United States because of concerns regarding competition, regulatory issues and a lack of sufficient evidence to properly assess the relevant criteria. ESMA stated that it will finalise its analysis of those and other non-EU countries as soon as possible.
The Advice and Opinion are currently being considered by the European Commission, Parliament and Council, which will offer their views in due course as to whether they believe that EU law needs to be amended to extend the passport.
The Commission should adopt a delegated act within 3 months of ESMA’s Advice. However, ESMA suggests that the European institutions may consider waiting to take a decision on extending the passport to non-EU jurisdictions until it has delivered positive advice on a sufficient number of non-EU countries and territories, to avoid any adverse market impact that might result from a decision to extend the passport to only a few non-EU countries.
