Uncertainty over implications of NPPR expiry

There is uncertainty as to what will happen to non-EU jurisdictions which have yet to attain EU equivalence under the Alternative Investment Fund Managers Directive (AIFMD) when National Private Placement Regimes (NPPR) are shut off.

The European Securities and Markets Authority (ESMA) is analyzing equivalence on a country-by-country basis. At present, ESMA has said Switzerland, Guernsey and Jersey meet equivalence, adding more work needed to be done to determine whether the US, Hong Kong and Singapore met equivalence. ESMA has also confirmed a number of countries including Brazil, South Africa and the Cayman Islands will be reviewed going forward.

Anna Berdinner, associate director at the Alternative Investment Management Association (AIMA), the hedge fund industry body, speaking at the GAIM Ops Conference in Dublin, said it was difficult to gauge what will happen when NPPR expires. There are concerns NPPR could be shut off entirely to jurisdictions that do not meet equivalence or possess the passport. If that happens, non-EU managers will theoretically be unable to market into the EU unless they move onshore or to a non-EU country with access to the AIFMD passport.

Some fear the US could be a way off from attaining equivalence. “ESMA’s reluctance to grant equivalence to the US is based partly on the fact that its remuneration rules are not the same,” said Berdinner. ESMA’s also references the difficulties AIFMs could face accessing retail investors in the US. This is confusing given that AIFMs are meant for professional investors accredited under the Markets in Financial Instruments Directive (MiFID) only.

Nonetheless, Jersey, Guernsey and Switzerland have made significant strides to attain AIFMD equivalence. Jersey launched a dual funds regime in line with AIFMD. The Cayman Islands announced its own dual funds regime designed to attain AIFMD compliance in summer 2015, although this was too late to be considered by ESMA.