On 19 July 2016, the European Securities and Markets Authority (ESMA) published its advice to the European Parliament, the Council and the Commission on the possible extension of the AIFMD passport to non-EU AIFMs and AIFs in twelve non-EU countries: Australia, Bermuda, Canada, Cayman Islands, Guernsey, Hong Kong, Isle of Man, Japan, Jersey, Switzerland, Singapore and the USA.

In its assessment ESMA considered whether there were any significant obstacles regarding investor protection, competition, market disruption and the monitoring of systemic risk that would prohibit the application of the passport in each of these countries. ESMA found that:

• There are no significant obstacles to the application of the passport to Canada, Guernsey, Japan, Jersey and Switzerland.
• With regard to AIFs, there are no significant obstacles to the application of the passport in Hong Kong and Singapore. ESMA noted, however, that both these countries only permit retail investors access to UCITS from certain EU member states.
• There are no significant obstacles regarding market disruption and obstacles to competition impeding the application of the AIFMD passport to Australia, provided the Australian Securities and Investment Committee extends to all EU Member States the ‘class order relief’, currently available only to some EU Member States, from some requirements of the Australian regulatory framework.
• There were no significant obstacles regarding investor protection and the monitoring of systemic risk which would impede the application of the AIFMD passport to the United States (US). Regarding the competition and market disruption criteria, ESMA considers that there is no significant obstacle for funds marketed by managers to professional investors, which do not involve any public offering. However, ESMA is of the opinion that in the case of funds marketed by managers to professional investors which do involve a public offering, a potential extension of the AIFMD passport to the US risks an un-level playing field between EU and non-EU AIFMs. The market access conditions which would apply to these US funds in the EU under an AIFMD passport would be different from, and potentially less onerous than, the market access conditions applicable to EU funds in the US and marketed by managers involving a public offering. ESMA suggests, therefore, that the EU institutions consider options to mitigate this risk.
• For Bermuda and the Cayman Islands, it could not provide definitive advice with regard to the criteria on investor protection and effectiveness of enforcement. This is because both of these countries are in the process of implementing new regulatory regimes and the assessment will need to take into account the final rules in place.
• The absence of an AIFMD-like regime in the Isle of Man makes it difficult to assess whether the investor protection criterion is met.

In accordance with the AIFM Directive, ESMA’s advice will now be considered by the European Parliament, the Council and the Commission.

Contributed by Audrey Giles