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On 18 July 2016, the European Securities and Markets Authority (the ESMA) published its second advice to the European Parliament, the EU Council and the EU Commission (the EU Institutions) on the application of the AIFMD passport to non-EU AIFMs and AIFs, following the first one released on 30 July 2015.
The methodology of the ESMA consisted in analysing the situation of several non-EU jurisdictions in order to assess the potential extension of the AIFMD passport to such jurisdictions. In this respect, the ESMA assessed whether or not there are, for each of the twelve jurisdictions analysed, significant obstacles in terms of investor protection, competition, market disruption and the monitoring of systemic risk impeding the application of the AIFMD passport.
It appears from the results of this advice, combined with those of the 2015 advice, that three categories of jurisdictions may be distinguished as follows.
It appears that five out of twelve jurisdictions, being Guernsey, Jersey, Hong Kong, Switzerland and Singapore, have received a positive assessment from the ESMA.
This means that in the ESMA’s point of view, there are no significant obstacles to the future extension of the AIFMD passport to these jurisdictions.
For the United States of America, the ESMA considers that there are no significant obstacles regarding the monitoring of systemic risk. The ESMA, however, noted several differences between the US regulatory framework and the AIFMD. Moreover, the ESMA considers that a potential extension of the AIFMD passport to the United States of America risks an un-level playing field between EU and non-EU AIFMs. Still, the ESMA does not exclude a potential extension of the application of the AIFMD passport though and makes three options to be considered by the EU Institutions to mitigate the risks should they wish to grant AIFMD passport to the US.
Concerning Cayman Islands, even if there are no significant obstacles regarding competition and market disruption according to the ESMA, the latter is not in a position, at that time, to provide a definitive advice regarding investor protection and the monitoring of systemic risk.
Concerning Bermuda, no significant obstacles have been noticed by the ESMA regarding competition, market disruption and the monitoring of systemic risk. Still, the ESMA cannot provide a final advice yet, mainly for two reasons. On the one hand, the ESMA is concerned about investor protection in Bermuda, and on the other hand, the ESMA is expecting more information regarding the effectiveness of enforcement.
For the four other jurisdictions analysed by the ESMA in its advice, comprising Australia, Canada, Isle of Man and Japan, the ESMA considers that there are no significant obstacles but there are differences in terms of investor protection between their respective regulatory frameworks and the AIFMD. For the Isle of Man in particular, further information are expected by the ESMA in this respect in order to put it in a position to provide a final advice.
It has also to be noted, as mentioned by the ESMA in its 2015 advice, that the ESMA has gathered data on investor protection, competition, potential market disruption and monitoring of systemic risk for seven other non-EU countries. However, the ESMA is still not in a position to render a final advice on these non-EU countries either because no memorandum of understanding has been agreed between these non-EU countries and the ESMA or because the current level of activity of such countries within the UE did not justify a detailed assessment.
Now that there is positive advice of the ESMA for several jurisdictions, the next step consists for the EU Institutions in considering such advice and decide whether or not they will give their green light for the extension of the AIFMD passport as recommended by the ESMA and also in which timeframe.
Indeed, according to article 67 of the AIFMD, the EU Commission shall adopt a delegated act within three months after having received both positive advice and an opinion from the ESMA. The ESMA having already provided such opinion on 30 July 2015, the EU Commission has from now on three months to adopt the said delegated act which shall also specify the date when the AIFMD passport will become applicable in the relevant jurisdictions.
In conclusion, this ESMA advice proposes to broaden the scope of jurisdictions that may further benefit from the AIFMD passport and points to the likelihood that some other jurisdictions may join them in a near future.
This article was written by David Louis. For more information please contact David on +352 26 48 68 87 or at david.Louis@crsblaw.com