On October 13, the European Securities and Markets Authority (ESMA) published the text of a speech made by its chairman, Steven Maijoor, to the European Parliament regarding ESMA’s ongoing work involving potentially providing non-EU managers (i.e., non-EU AIFMs) and non-EU funds with access to the cross-border passport under the Alternative Investment Fund Managers Directive (AIFMD).

As reported in the July 31 edition of Corporate & Financial Weekly Digest, on July 30, ESMA provided its advice on the proposed extension of the AIFMD cross-border passport to the Parliament, Council of the EU (Council) and European Commission (EC), having assessed six non-EU jurisdictions (Hong Kong, Singapore, the United States, Jersey, Guernsey and Switzerland) for their readiness to be able to comply with the AIFMD passporting rules. At that time ESMA concluded that there were no obstacles to extending the passport to Guernsey and Jersey, and that once certain amendments were made to Swiss legislation later this year, that Switzerland would also have no obstacles and should also be considered for the passport. ESMA was unable to reach a definitive view on Hong Kong, Singapore or the United States.

In his speech, Chairman Maijoor commented that:

  • Overall, ESMA felt that there was insufficient evidence to indicate that the AIFMD passport had raised major issues in terms of the functioning and implementation of the AIFMD framework.
  • ESMA sees merit in the preparation of another opinion on the functioning of EU private placement rules once the AIFMD has been in place for a longer period––and that any such opinion would take into account the decisions to be taken by the Parliament, the Council and the EC on whether to extend the AIFMD passport to any non-EU countries in the interim.
  • Although AIFMD itself did not require it to do so, ESMA decided to apply the passport-eligibility criteria (including (1) removing obstacles to inter-jurisdictional cooperation on investor protection, (2) tackling the risk to the EU fund industry of market disruption and distortion of competition, and (3) ensuring the adequacy of systemic risk monitoring) on a non-EU country jurisdiction-by-jurisdiction basis––rather than as a single block (as AIFMD itself had envisioned). Chairman Maijoor stated that ESMA did so because it was felt that was the only way to carry out a proper assessment of the various criteria set out in the AIFMD. In particular, factors such as the demand for the passport, the access to the market of these non-EU countries for EU funds and managers, and their regulatory framework as compared to the AIFMD will be assessed this way.
  • The selection of Guernsey, Hong Kong, Jersey, Switzerland, Singapore and the United States in the first “tranche” of non-EU countries was made taking into account a number of criteria, including the amount of activity already being carried out by entities from these countries under EU private placement rules, the existing knowledge and experience of EU regulators with respect to their counterparts in these jurisdictions and, significantly, the efforts made by stakeholders from these countries to engage with ESMA’s review process.
  • ESMA will continue its assessment of Hong Kong, Singapore and the United States with a view to reaching a definitive conclusion on whether to extend the AIFMD passport to them.
  • ESMA is beginning to assess a second “tranche” of non-EU countries: Australia, Canada, Japan, the Cayman Islands, the Isle of Man and Bermuda. These countries were selected using the same criteria as for the first set of advice.
  • ESMA is making preparations for itself to have a significant role in the functioning of the AIFMD passporting system and strengthened supervisory cooperation that will be necessary if the passport is to be extended to one or more non-EU countries.

The passport can only be extended to non-EU countries if the Parliament, the Council and the EC jointly agree to make it more widely available (since it is only currently available to EU managers and EU funds). What is uncertain, however, is whether, under AIFMD itself, it is possible to extend the passport on a country by country basis or, if as was originally intended, the passport should only be extended in circumstances where it is made available to all non-EU jurisdictions.

Chairman Maijoor’s speech is available here.