AIFMD was introduced in 2011 with a very ambitious underpinning aim to create a wider regulatory and oversight blanket for actors in the financial markets, whose activities, so far unregulated, had exposed European markets to significant systemic risks in the years coming to the financial crisis of 2008. With the introduction of harmonised requirements across Europe – with significant extraterritorial reach – for management companies, AIFMD created regulatory constraints for these activities, for long not under the regulatory lens of scrutiny of the authorities.
AIFMD contains under article 69 an undertaking of the European Commission to revisit the whole functioning of AIFMD by July 2017, through a review carried out to ascertain whether, and to what extent, the main aims of the directive have been achieved so far. This article wants to summarise some of the most relevant points of a report completed by KPMG in December 2018 on the operation of the AIFMD with a specific focus on the rules on marketing non-EU AIFs under NPPR.
Rules on Marketing non-EU AIFs under NPPR and the aims of the survey
Of course, it is acknowledged that many EU AIFM do indeed manage and market non-EU AIFs. And whilst AIFMD contains provisions and mechanisms to extend the marketing passport also in these situations, this has not happened as yet. Accordingly, rules on marketing non-EU AIFs under NPPR represent the only feasible route today for marketing non-EU AIFs across Europe. NPPRs themselves are evaluated and assessed as part of the review of the AIFMD against five key principles in order to ascertain whether they still contribute to the overall goals of protection of European investors and markets, whilst allowing for access to these markets of innovative non-EU products to cater for demanding needs of institutional investors.
In fact, AIFMD article 69 talks about a review of the AIFMD to take place by 2017 and references to a general survey of the functioning of its rules, on the basis of the experience acquired in their application since enactment of the directive. And whilst the scope of the survey is of course broader, one of the points included is the rules on marketing of non-EU AIFs under NPPR available in the various member states in Europe.
The survey carries out an appraisal of how the specific rules on marketing in Europe under NPPR contained in the AIFMD have been able to achieve the objectives for which they were introduced against 5 key principles i) effectiveness; ii) efficiency; iii) relevance; iv) coherence; and v) EU added value.
Effectiveness is used to measure the qualitative and quantitative effects of the specific rules adopted on their objectives. Efficiency, instead, analyses the costs and benefits of the specific rules to evaluate their proportionality and the overall benefits for the stakeholders involved. Relevance determines whether the objective of the AIFMD are still existing and relevant, whilst Coherence intends to identify overlaps or complementarities between AIFMD and any other regulatory measures aiming at similar outcomes. EU added value finally evaluates the value that the introduction of AIFMD was able to ensure when compared to results that could have been achieved merely using national level regulation.
According to the survey, the rules on marketing non-EU AIFs under NPPR contained in the AIFMD have passed, by and large, the test against the 5 keys principle.
These rules can continue to contribute to bridge the gap in the EU regulation – for the lack of enactment of a third-country passport – for as long as they will be in place. And this conclusion stays also when considering that sufficient market and economic data to support that the extension of the third-country passport would increase the number of non-EU AIFs marketed across Europe is not available.
Efficiency of these rules is also ensured by the fact that the same costs in terms of regulatory reporting for instance, would be applicable in case of the extension of the passport. Also, their coherence lies in that they do not contradict other relevant rules under the directive and their relevance reinforced by the lack of the extension of the passport to third-country AIFs, same as their value added at EU level.
Whilst we agree that the rules on marketing non-EU AIFs under NPPR are a useful bridge the gap at EU level and should stay in place until the third-country passport is enacted, we can’t stress enough that whilst NPPRs remain the only route to access EU markets by non-EU AIFs, these reduce the scope of action to certain specific markets, because not all EU domiciles have adopted NPPR regimes at all or that are feasible in the compliance. This has to be taken in due consideration in the feasibility stage of any EU fund distribution project.