ESMA has today concluded that "no obstacles exist to the extension of the passport to Guernsey and Jersey".
ESMA has assessed six jurisdictions to date and said that Switzerland will remove any remaining obstacles with the enactment of pending legislation and that it had formed no definitive view on the other three (Hong Kong, Singapore, and the USA).
AIFMD - ESMA recommends 3rd country passport for Jersey and Guernsey
The six jurisdictions were selected based on various factors including the amount of funds activity under existing EU national private placement regimes and the experience of EU national authorities in dealing with these jurisdictions.
The selection of Jersey and Guernsey in the list of jurisdictions for priority assessment is testament to their international importance as fund domiciles (which together have over £500 billion of assets under management) and of their standing as internationally co-operative and transparent jurisdictions. ESMA's recommendation that they be granted full EU passport access underlines the flexibility and "future-proofing" that they offer.
Guernsey funds partner Ben Morgan said: "Since the advent of AIFMD, fund establishment in Guernsey and Jersey has continued on a more or less business-as-usual basis. Firstly, funds are regularly established by promoters with no EU connections and secondly, Guernsey/Jersey funds are often established by EU AIFMs and non-EU AIFMs for marketing Guernsey/Jersey funds under the NPP regimes of EEA states.
"In addition, Guernsey and Jersey structures have also been established alongside EU AIFs (for passporting purposes). The extension to Guernsey and Jersey of the passporting regime will mean that the entire fund structure can be domiciled in the Channel Islands, something which should be welcomed by all investors, including those in EEA member states, given the resultant cost and time savings associated with having everything in one place."
Jersey funds partner Dan O'Connor said "Ultimately, with this announcement, clients have full AIFMD optionality. The existence of mature and experienced fund services industries and internationally recognised regulatory regimes that combine speed, certainty and flexibility with an appropriate level of regulatory oversight, have played a large part in the influx of new fund managers and the record growth in fund assets under management that Jersey and Guernsey have been experiencing.
"We have seen many fund managers significantly reduce operational costs and disclosure requirements by choosing Jersey and Guernsey funds and marketing to potential EU investors using NPP regimes. We expect this announcement to provide further comfort to fund managers and their advisers that Jersey and Guernsey funds provide the best of both worlds."
Technical Brief
Jersey and Guernsey are outside the European Union and regarded as "third countries" for AIFMD purposes. Each has implemented AIFMD requirements only to the extent necessary to allow their funds and managers to access investors in EU/EEA countries.
Channel Islands funds are eligible to be marketed into the EU / EEA in accordance with the AIFMD through national private placement regimes and (once available) through the EU passporting regime.
For Jersey and Guernsey funds (and other non-EU funds) with a Jersey or Guernsey manager:
Outside AIFMD
Where the fund is not an "AIF" or is not "marketed" into the EU/EEA (as defined in the AIFMD), the fund and its manager are not subject to any AIFMD-related requirements.
Article 42 requirements only
The fund can be "marketed" into the EU/EEA through national private placement ("NPP") regimes by complying with only the requirements of AIFMD Article 42 (annual reports, pre-investment disclosure and regulatory reporting on liquidity, risk management arrangements and leverage). This reduces costs as other AIFMD requirements do not apply, including that no depositary is needed (although a small number of EU/EEA countries require a depository before permitting marketing).
Full compliance
A Jersey or Guernsey manager can opt for full AIFMD compliance under its local funds regime, to be ready for the extension of the AIFMD passporting regime to third countries.
ESMA's advice and opinion have been sent to the EU Commission, Parliament and Council for their consideration on whether to activate the relevant provision in the AIFMD extending the passport through a Delegated Act. ESMA aims to finalise the assessments of Hong Kong, Singapore and the USA as soon as practicable and to assess further groups of non-EU countries until it has provided advice on all the non-EU countries that it considers should be included in the extension of the passport.
The full press release can be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
