Marketing of Funds in Europe – The Latest Developments
Marketing has increasingly become the focal point for fund managers, both based within and outside of the European Union (the “EU”). Legislators, funds and fund managers increasingly put the matter of marketing at the cornerstone of their efforts, work, and initiatives. The main task which fund managers are faced with nowadays, is the evaluation of the impact which new legislation will have in relation to marketing and their marketing strategies. In addition, fund managers must always be one step ahead when it comes to upcoming legislation. Similarly, legislators are constantly seeking to find ways to make marketing possibilities more relevant and attractive to fund managers and funds, equally, across the EU.
The Alternative Investment Fund Managers Directive (the “AIFMD”) is perhaps the most forthcoming legislation which seeks to tackle, head on, the aspect of marketing. In fact, the AIFMD provides, most probably, the widest, most comprehensive definition of marketing when it states that marketing is the direct or indirect offering or placement at the initiative of the Alternative Investment Fund Manager (the “AIFM”) or on behalf of the AIFM of units or shares of an Alternative Investment Fund (the “AIF”) it manages to or with a registered office in the EU.
As the situation stands now, EU fund managers, being AIFMs can avail of an EU-wide “passport” through a simple notification procedure and therefore do not require to be licensed in that particular member state it seeks to market its shares to. EU AIFMs, managing non-EU AIFs, or non-EU AIFMs, have the choice of marketing throughout the EU through the national private placement regime. Third country AIFMs managing an EU AIF marketed in the EU and third country AIFMs managing third country AIFs marketed in the EU must establish a member state of reference, comply fully with the directive, and follow the third country requirements in toto.
However, the AIFMD has taken a step further and allows for the provision of passporting not only for EU AIFMs and EU AIFs but also to potentially extend the avenue of passporting to non-EU AIFMs and non-EU AIFs to be able to market the units of their shares in the EU.
On the 18 July 2016, the European Securities and Markets Authority (“ESMA”) published its advice in relation to the extension of the AIFMD passport to non-EU AIFMs and non-EU AIFs. This advice was issued in relation to a total of twelve (12) countries, most notably, jurisdictions deemed to be financial centres such as, the United States, Guernsey, Singapore, Cayman Islands and Switzerland. Other countries include Australia, Bermuda, Canada, Hong Kong, Japan, and the Isle of Man.
In publishing its advice, ESMA has concluded that should it be elected for the passporting regime to extend to these countries:
(i) there are no significant obstacles impending the application of the AIFMD passport in jurisdictions such as Canada, Guernsey, Japan, Jersey, and Switzerland;
(ii) there are no significant obstacles regarding market disruptions and obstacles to competition impending the application of the AIFMD passport to Australia; and
(iii) there are 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.
When it comes to Bermuda and the Cayman Islands, ESMA refrained from giving its advice with respect to the criteria on investor protection and effectiveness of enforcement due to scheduled legislative changes in the regulatory regimes for the same scheduled to take place in these jurisdictions. It is only once these are complete that ESMA can assess the situation in these jurisdictions specifically when it comes to investor protection and effective enforcement of the AIFMD.
ESMA’s advice is now scheduled to be considered and discussed by the European Parliament, Commission and Council. Non-EU AIFMs based in countries to which the passport is extended will obviously need to comply with the provisions of the AIFMD (reporting, remuneration practices, appointment of depositary etc. to name a few).
Should ESMA’s advice be followed and be subsequently implemented, we will see the EU funds market being considerably expanded to allow for further funds to be marketed and their units purchased therein. This being said, one must also assess the impact this will have on the number of fund managers seeking to be licensed in Europe and EU jurisdictions, such as Malta.
Malta must strive to retain its competitive edge, which has brought in so many fund managers to establish their business in Malta throughout the years, to ensure steady growth of the industry. Then again, should the EU take on such initiative of extending the EU passport, this would considerably help levitate the profile of Europe in the financial services industry, specifically, main hubs such as Malta and will continue to reinforce Europe’s position as a leading block in the financial services field.
Mr. Dominique Lecocq
Dr. Louanne Caruana
This article appeared in the FinanceMalta Insight newsletter. Subscribe to the newsletter here.