ALFI Urges Three Year Delay For AIFMD Passporting Decision

The Association of the Luxembourg Fund Industry (ALFI) has called for a decision on the extension of the pan-European passport regime to non-EU managers to be delayed until 2018.

Under the Alternative Investment Fund Management Directive (AIFMD), the European Securities and Markets Authority (ESMA), Europe’s regulatory body, is currently discussing whether to allow managers based in ‘third countries’, for example the U.S., to market funds in Europe.

A consultation with the market on the passporting rule ended on January 8, in which ESMA intends to submit its advice on the rule to the European Commission in July this year.

However in its response to ESMA, ALFI says: “an extension of the passport to non-EU managers in 2015 would be premature.”

ALFI also argues because AIFMD is currently being enforced by national regulators via the national private placement regime (NPPR), it would create “a parallel system” which would cause “market distortion by putting EU AIFMs at a clear disadvantage.

“Therefore, ALFI concludes that a decision by the Commission should be deferred until at least 2018, i.e. the point in time where NPPRs are meant to disappear. A possible decision in favour of an extension at that point in time should be followed by a one year transition period.”

The extension of the pan-EU passport to non-EU managers is contingent on third countries meeting equivalent standards laid out by the EU. Countries deemed non-equivalent could be those without a competition agreement with Europe, or on a Financial Action Taskforce (FATF) blacklist.

But whether U.S. managers want to comply with AIFMD is uncertain. According to a Deutsche Bank Prime Finance Survey conducted in 2013, 90% of US managers were either undecided or would choose to not market their funds in Europe, and therefore comply with AIFMD, if they were granted a ‘passport’.