Checking in on the latest developments, or lack thereof, with the AIFMD.
When the EU implemented the AIFMD (Alterative Investment Fund Manager Directive)—a new regulatory framework for alternative funds—it contained a couple of follow up items for regulators. The two outstanding items were the extension of the AIFMD passport and a review of the overall framework. Both of these items still remain open, leading many to wonder what is going on with the AIFMD. The short answer is: not much. The slightly longer answer is that inertia and geopolitical events have delayed progress.
Since 2015, the extension of the AIFMD passport has been in a holding pattern. ESMA (European Securities and Markets Authority) initially recommended the passport extension for Switzerland, Jersey, and Guernsey. Last year ESMA extended its recommendation, with some caveats, to nine non-EU jurisdictions. After ESMA’s recommendation, it is up to the European Commission to formally approve the passport extension. With the ball firmly in its court, the Commission has not taken a definitive action. The Commission already seemed disinclined to move on the AIFMD passport extension and the UK’s Brexit vote all but guaranteed that there will be no decision forthcoming. That’s because the Brexit vote has prompted the EU to reevaluate the concept of third-country equivalence. The EU is keen to ensure that equivalence is not used as backdoor into the EU by the UK after it withdraws from the EU. It seems that the industry may need to wait until next year (if not the year after that) for a final decision on the AIFMD passport extension.
The AIFMD includes a provision that it must be reviewed by the Commission by 22 July 2017. The idea behind the provision is twofold. First, it gives the Commission a chance to see what areas of the AIFMD are working and what areas need improvement. Second, it is a prelude to ESMA’s 2018 review of the AIFMD passport, which could lead to the end of national private placement regimes altogether. However, three months into 2017, it doesn’t appear that the Commission’s AIFMD review is forthcoming. The industry now expects the review to be delayed until at least the autumn, if not 2018. There are a number of factors contributing to the delay, including Brexit, conflicting priorities, and a feeling that there is not yet enough information to conduct a review. A delay in the review of the AIFMD is a mixed blessing for the asset management industry. On the one hand, there are elements of the AIFMD, such as the Annex 4 reporting, that it would like changed. On the other hand, the idea of initiating an AIFMD 2 process makes the industry’s blood run cold.
We Are Where We Are
It is likely that the status quo will reign for the foreseeable future. In fact, at this point, it would not be surprising if the AIFMD passport is never extended to a non-EU country. While some asset managers would surely benefit from the AIFMD passport extension, it’s not a must have. The passport is still finding its feet, and many managers are happy to rely on private placement for the time being. The lack of a passport would only become a pressing issue if ESMA moves to abolish private placement altogether.
With MiFID 2 bearing down on the industry, most will be relieved to avoid reigniting the AIFMD policy debate. All things considered, when it comes to AIFMD, no news may be good news.