AIFMD compliance should now be business as usual. However, the Annex IV reporting regime continues to present a particular challenge and non-European firms still await the switching on of the EU passport.
Third Country Firms
Unless you are an EU AIFM with EU AIFs, you are yet to benefit from AIFMD’s new Pan-European passport regime.
Back in 2016, ESMA has published its Advice in relation to the application of the passport to non-EU AIFMs and AIFs in twelve countries: Australia, Bermuda, Canada, Cayman Islands, Guernsey, Hong Kong, Japan, Jersey, Isle of Man, Singapore, Switzerland, and the United States. According to ESMA’s advice:
- there are no significant obstacles impeding the application of the AIFMD passport to Canada, Guernsey, Japan, Jersey and Switzerland
- if ESMA considers the assessment only in relation to AIFs, there are no significant obstacles impeding the application of the AIFMD passport to AIFs in Hong Kong and Singapore. However, ESMA notes that both Hong Kong and Singapore operate regimes that facilitate the access of UCITS from only certain EU Member States to retail investors in their territories
- For details of the other countries, please see the report.
We hope that soon, the AIFMD pan-European passport may be available to both third country AIFMs and EU-AIFMs with AIFs domiciled outside the EU. However, the European Commission has yet to confirm the switching-on of this passport. Assuming it does, you will be able to opt in, but you will need to comply with the full AIFMD requirements.
Alternatively, you can choose to continue to market in the EU under national private placement regimes (NPPRs), subject to them remaining available – this is down to member state discretion and some have more onerous requirements than others. Dual marketing is expected to operate until late 2018 to early 2019, after which NPPRs are expected to be abolished.
AIFMD Asset Segregation
With the aim of improving investor protection, AIFMD requires that AIF assets are entrusted with a depositary and segregated from certain separate accounts. Depositaries may sub-delegate their responsibility for safe-keeping to third parties, on the condition that those third parties maintain proper asset segregation. Industry practitioners have, however, raised questions regarding the interpretation of this condition.
A draft Delegated Regulation has now been published to address this. It clarifies that the assets of AIFs, UCITS and other clients can be comingled at the level of the first custodian provided that they are initially held by the same depository (or are initially held by the same custodian where the latter further delegates the custody assets down the custody chain). It is proposed that it should apply six months after publication in the Official Journal.
Under Article 69 of the AIFMD, the Commission needs to undertake a review of AIFMD, looking at the following:
- analysis of the experience of applying the AIFMD;
- understanding its impact on investors, AIFs or AIFMs, and in the EU and in third countries; and
- the degree to which AIFMD’s objectives have been achieved.
The review is expected to formally start during 2018.
How can Bovill help?
We can help with all aspects of AIFMD compliance:
- technical advice on interpreting and applying AIFMD requirements
- completing your Annex IV returns – we can help from the initial completion of the Annex IV templates to the validation and the submission of the ‘xml’ formatted file directly to the FCA
- while we wait for the passport to be switched on, we can watch NPPR developments in key EU markets or target markets to ascertain timing of applying for full authorisation and passport.