The Alternative Investment Fund Managers Directive (AIFMD) is a European directive, which seeks to regulate the non-UCITS fund sector in order to provide protection to investors in alternative investment schemes.
Despite its name, AIFMD has implications for all non-UCITS funds as well as a range of other financial products and covers not just the management but also the administration, custody and marketing of such funds.
Guernsey is not a member of the EU and is regarded as a 'third country' for the purposes of AIFMD.
Since 2013, when AIFMD came into force, Guernsey has operated a dual regulatory regime to enable the continued distribution of Guernsey-domiciled funds into both EU and non-EU countries.
Guernsey funds, and fund managers who are not distributing their funds into the EU, are outside the scope of AIFMD and are subject to Guernsey’s existing regulatory regime.
Guernsey funds and fund managers who wish to engage in distribution of their funds to professional investors in the UK and EU, can avail themselves of national private placement regimes (NPPR) to provide access to UK and European investors
The AIFMD 'passport' allows EU investment funds to be distributed across the EU. However, the EU investment fund market is still predominantly a national market - in fact, only 3% of EU AIFs are registered for sale in more than three member states.
Alternatively, a non-EU alternative investment fund domiciled in Guernsey can use NPPR to distribute their funds across the UK and EU in a way which has been demonstrated to be quicker, less expensive and more flexible than the passport.
Security of continuing market access
Guernsey was one of the first jurisdictions recommended by the European Securities and Market Authority (ESMA) for an AIFMD 'third-country' passport to enable non-EU alternative investment funds to be distributed. The passport has yet to be introduced and it has been confirmed that NPPR will not be withdrawn. Guernsey’s continuing market access into Europe is therefore ensured, leaving the island in a strong position.
Third country passport
In July 2016, the European Securities and Markets Authority (ESMA) announced its recommendation to grant Guernsey a third country passport. Guernsey is one of only five non-EU jurisdictions to be given the ‘unqualified and positive assessment’ by ESMA. The recommendation, once approved by the relevant European authorities, will further enhance Guernsey's position to distribute funds into Europe.
“Regulators and lawmakers worked alongside industry to develop a regulatory regime that is compatible with the Directive, while leaving market participants the flexibility to all within or without the AIFMD regime for so long as Europe permits. The GFSC was also able to demonstrate to ESMA a culture of robust enforcement and co-operation with EU regulators that gave ESMA the confidence to recommend the extension of the AIFMD Passport to Guernsey.”Cathy Pitt, Corporate Partner at CMS, on Guernsey’s response to AIFMD
Do I need to comply with AIFMD?
Compliance with AIFMD will be onerous and costly. Guernsey-domiciled investment structures provide significant cost saving opportunities for Guernsey managers versus their European domiciled counterparts.
In particular, Guernsey fund structures will provide a cheaper 'out of scope' option for marketing into non-EU jurisdictions.
For those managers with an international focus, it will be possible to take advantage of both EU and non-EU opportunities on a cost-effective basis, which might include a parallel and feeder structure for which AIFMD compliance would not be required.