ESMA Leaves U.S., Hong Kong and Singapore in the Dark on AIFMD Passport Ruling

Europe’s regulatory watchdog was unable to come to a definitive conclusion about whether to extend the passport allowing U.S., Hong Kong and Singapore-based fund managers to launch alternative funds in Europe.

On Thursday the European Securities and Markets Authority (ESMA) released its advice to the European Commission on extending the Alternative Investment Fund Managers Directive (AIFMD) passport to non-EU jurisdictions.

It granted an extension of the passport to Guernsey and Jersey, while also stating that Switzerland will implement legislation that will allow it to comply with the AIFMD.

However ESMA states: “No definitive view has been reached on the other three jurisdictions due to concerns related to competition, regulatory issues and a lack of sufficient evidence to properly assess the relevant criteria.”

U.S. and Asian hedge fund managers are already reluctant to launch an AIF in Europe due to the regulatory costs, and the ruling by ESMA could mean even more U.S. managers refusing to market their funds in Europe.

“Many in the industry will be surprised and disappointed by both how narrow ESMA’s decision on the AIFMD passport is,” says Sean Tuffy, head of Regulatory Intelligence, Brown Brothers Harriman.

“I think to many non-EU managers, the fact that three jurisdictions approved for the passport are all “European” will also reinforce the idea that there is a protectionist element to the AIFMD.”

The ruling could also cause even more friction between U.S. and European regulators, as a dispute over recognising eachother’s derivatives rules continues.