The Alternative Investment Fund Managers Directive (AIFMD) is a European directive, the aim of which is to provide protection to investors in alternative investment funds.
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 stated from the outset that it would position its regulatory infrastructure to enable clients to distribute Guernsey-domiciled funds into both EU and non-EU countries.
The existing regime remains in place for those investment managers not engaging in effective marketing of their funds in Europe, and therefore not needing to comply with AIFMD.
For everyone else, Guernsey will avail of national private placement regimes (NPPRs) for as long as they remain in place, and will transition to full passport as and when it is implemented for third countries.
Manager Led Product (MLP)
In May 2016 the Guernsey Financial Services Commission launched the Manager Led Product (MLP). The MLP is aimed at alternative investment fund managers (AIFMs) seeking to market into one or more EU Member States under NPPR.
Under the MLP regime, all regulatory standards are borne by the AIFM and, by virtue of the AIFM’s sponsorship, no alternative investment fund or underlying licensee will have rules imposed on it. The MLP regime avoids duplicating regulatory requirements over several entities. Further, derogation requests acceptable to the host country will be considered by the GFSC.
The GFSC will be able to register a fund and license an underlying licensee within 24 hours of notification.
The GFSC intends to extend Guernsey’s suite of MLPs to include a similar offering for marketing outside the European Union.
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
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.
View our AIFMD brochure for more information.