The Alternative Investment Fund Managers Directive (“AIFMD”) is a wide-ranging piece of legislation that covers the management, administration and marketing of an Alternative Investment Fund (“AIF”) within the EU. The principal aim of the directive is to regulate the AIF Manager (“AIFM”) allowing Managers to freely market their funds across the EU without the need to register in each country. The ability to passport funds under the AIFMD is currently only available to EU based fund managers. All EU member states had until the 22nd July 2013 to implement the directive into national law although a number of jurisdictions failed to meet this deadline.
Following the enactment of the directive, Isle of Man based AIFMs have been able to continue to market their funds within each EU member state subject to the National Private Placement Regime (“NPPR”) which is subject to national law in each jurisdiction meaning that the application process differs between each member state. The NPPR is an agreement between member states allowing Non-EU AIFMs to market their funds (that are outside scope of the AIFMD passporting regime) in a member state. Eligible AIFMs will be able to continue to use NPPR until at least 22 July 2018.
Managers wishing to avail of the NPPR are required to satisfy a number of conditions as part of the application process within each jurisdiction including additional compliance responsibilities, regulatory registration & reporting requirements in a prescribed format (Annex IV regulatory submissions) and increased investor disclosures being some of the principal conditions.
The Annex IV regulatory submissions have already proven to be challenging for the AIFMs and the relevant regulators with issues encountered with online submissions and the collation of the required data from the AIFM’s systems. As a result, fund accounting systems such as the system used by Abacus (PFS-Paxus) have been greatly enhanced over the last 12 months to fully support these reporting requirements and are now capable of producing Annex IV reports in XML file for direct regulatory submissions.
One of the key objectives of the AIFMD directive was to increase investor’s protection however, there seems to be little evidence that anyone can point to suggesting that this has been achieved. What has become clear since the directive was imposed is that the range of funds available for investment by EU resident investors has greatly reduced as non-EU fund managers are restricted from marketing their funds within the EU unless they register under the NPPR. It is still possible for EU investors to invest in non-EU funds that are outside the scope of AIFMD under a reverse solicitation scenario i.e. where it is the investor themselves that has identified a non-EU fund that they wish to invest in however, reverse solicitation remains a grey area and can be difficult to validate.
Given the initial delays in the implementation of the AIFMD within certain member states, the inconsistent application of the NPPR and the problems associated with the reporting requirements under AIFMD, it is not surprising that the long term impact of AIFMD remains uncertain. It is therefore encouraging to see that the European Securities and Markets Authority (“ESMA”) is now working with the European Commission to consider extending AIFMD passporting rights to non-EU AIFMs and AIFs based in third countries such as the Isle of Man. This would effectively remove the obstacles under the NPPR and allow EU resident investors access to a wider range of funds that are managed in accordance with the AIFMD. Initial assessments undertaken by ESMA have already identified a number of non-EU jurisdictions where ‘no obstacles exist to the extension of the passport’ with the next wave of assessments being undertaken during q4 2015. We continue to monitor the situation closely as the European Commission considers extending the passporting rights and will provide updates in future editions of the newsletter.
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