ESMA guidance: AIFMD passport arrangements valid even where a member state is late implementing the Directive

In a recent opinion (2-page / 94KB PDF), the European Securities and Markets Authority (ESMA) said that the 'passport' regime in the Alternative Investment Fund Managers Directive (AIFMD) should override any national restrictions on AIFMs. Only 12 member states have fully implemented the AIFMD into their national laws, according to recent research, despite a transposition deadline of 22 July 2013.

The AIFMD is intended to create a harmonised regulatory structure for alternative investment fund management across the EU. As part of this, the AIFMD contains provisions for a 'passporting' system which allows fund and fund managers registered in one EU state to market their products to all other member states. AIFMs need only notify the regulator in their own home state that they intend to do so. The regulator must confirm that it has transmitted authorisation for that AIFM to the relevant member states within 20 working days of application.

In its guidance, ESMA said that if a particular AIFM's home state had transposed the AIFMD, the regulator in the host state "may not refuse a valid notification" under the marketing passport regime on the grounds that the AIFMD had not been transposed. In addition, an AIFM established in a state that has transposed the AIFMD should be able to use the management passport to provide services or operate a branch in a state where the AIFMD has not yet been transposed. In both cases, the AIFM must be authorised to manage that particular type of alternative investment fund by its home regulator.

ESMA's guidance is intended to address operational difficulties that could be caused by some member states not implementing the rules on time. It is given on the basis of previous decisions on the late transposition of directives by the Court of Justice of the European Union (CJEU), and is not intended to override any initiatives to deal with late transposition in this particular case by the European Commission.

"In the process of transposition [member states] are obliged to create a legal framework in which the rights and obligations arising from a directive can be recognised with sufficient clarity and certainty to enable citizens to invoke them," the guidance said. "In other words, [member states] have an obligation to reconcile their legal order with the objectives of a directive at the end of the transposition period."

The guidance only applies to EU-based AIFMs. Member states remain free to draw up their own rules in relation to non-EU AIFMs unless ESMA enters into separate 'cooperation' arrangements with the relevant third country. ESMA is due to consider whether it would be appropriate to extend the passporting regime to non-EU AIFMs in 2015.

The AIFMD is intended to cover the management and administration of all 'collective investment undertakings' that are not subject to an existing collective of directives known as the Undertakings for Collective Investment in Transferrable Securities (UCITS) regime. It applies to any person or company whose regular business is managing one or more alternative investment funds including hedge funds, private equity funds, real estate funds and a wide variety of other types of institutional fund.

According to recent research by the Alternative Investment Managers Association (AIMA) and professional services firm Ernst and Young, the AIFMD was only fully in force in 12 member states as of the beginning of August. These states included the UK. However, the majority of states have either already transposed the AIFMD into law or have drafted the final legislation and are awaiting parliamentary approval.

At least five member states have made "little or no progress" towards drafting or finalising the required legislation: Belgium, Finland, Portugal, Slovenia and Spain. AIMA was unable to verify the progress of the legislation in Estonia, Greece, Lithuania or Poland, it said.