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‘Fortress Europe’
AIFMD seeks to regulate EU-based Alternative Investment Fund Managers (AIFMs), managers of EU established Alternative Investment Funds (AIFs) and managers that market AIFs into the EU. So, in essence, if either the manager or the fund has a relationship with the EU then the Directive comes into play.
The initial ‘deadline’ for full legislative transposition of AIFMD was 22 July 2013 however a report by the Alternative Investment Management Association (AIMA), together with EY, showed that by that date only 12 out of 31 EU and European Economic Area (EEA) Member States had done so. In October of that year, AIMA and EY published the results of a further survey which showed the inconsistency in approach from EU and EEA national regulators in how they were implementing AIFMD.
The transitional year ended on 22 July 2014 and a report from KPMG showed that at that time only 23 of the 31 EU and EEA Member States had implemented full legislative transposition of AIFMD. Spain is one such jurisdiction which has since transposed AIFMD into national law however others have still not done so.
As such, even European fund managers cannot distribute funds into some EU/EEA Member States and we have also heard that the inconsistency of approach between national regulators is making life difficult for those using the passport.
In this climate, it is no wonder that non-EU fund managers believe that not only has AIFMD imposed extra cost on distributing funds into Europe but that the inconsistency of approach between national regulators is confusing and bureaucratic. Feedback from an event we attended in the US last year was that AIFMD is too burdensome, with some citing it as creating ‘fortress Europe’ and therefore, they would not be distributing funds into the EU.
Guernsey’s position as a third country, the Island’s dual regulatory regime and Guernsey Finance expertise is proving an attractive option for global fund managers. With new fund approvals up by a third in the year to the end of September 2014 compared to the previous 12 month period, it is clear that there is continuing vote of confidence as an international fund centre of the future.
Guernsey is not in the EU and therefore, is not required to implement AIFMD. However, with Europe still one of its biggest markets, a large proportion of business relates to the EU in some form. Yet it also has a substantial amount of funds business which originates outside of Europe and does not touch the EU at all.
As such, the Island has introduced a dual regulatory regime so that it is possible to continue to distribute Guernsey funds into both EU and non-EU countries: the existing regime remains for those investors and managers not requiring an AIFMD fund, including those using EU National Private Placement (NPP) regimes and those marketing to non-EU investors; and there is an opt-in regime which is fully AIFMD compliant.
Guernsey’s opt-in equivalent regime which has been in place since January 2014 is appropriate for funds requiring full AIFMD compliance.
However, Guernsey’s position as a third country means our managers and funds who want to access Europe continue to be able to use NPP regimes. The Guernsey Financial Services Commission (GFSC) has signed bilateral cooperation agreements with 27 securities regulators from the EU and the EEA, including the UK, Germany and France. These agreements mean that Guernsey funds continue to be able to market to appropriately qualified investors in these European countries through their NPP regimes.
Many have continued to use NPP regimes due to the reduced burden in comparison with AIFMD and they are working well. Figures from the GFSC show that 34 Guernsey managers promoted funds into 15 EU countries using their NPP regimes during the transitional year for the implementation of AIFMD. Indeed, it is understood that several Cayman Islands domiciled funds are being migrated to Guernsey to take advantage of the effectiveness of our route for distribution into EU countries using NPP regimes.
NPP regimes are expected to remain until at least 2018, while full passporting for non-EU managers is expected from July 2015. Guernsey has been liaising extensively with the European Securities and Markets Authority (ESMA) and is doing its utmost to ensure that the Island is part of the first wave of approved jurisdictions when the third country passport comes into effect.