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European infrastructure would benefit from a Guernsey AIFMD passport

12 September 2016

Granting Guernsey a ‘third country’ passport under the Alternative Investment Fund Managers Directive (AIFMD) would lead to increased investment in European infrastructure projects, research by the island’s financial services regulator has found.

The Guernsey Financial Services Commission (GFSC) undertook a survey of Guernsey fund administration companies in response to a request from the European Securities and Markets Authority (ESMA), to understand the potential impact of extending an EU AIFMD passport to Guernsey. ESMA’s request, which was made before it published its non-EU AIFMD passport review findings, asked specifically for an evaluation of the ‘expected inflow of funds by size and type into the EU’ from Guernsey if the passport were to be granted.

From an industry-wide perspective the GFSC survey projected that there would be a 12% increase in the number of Guernsey funds launched on an annual basis with an accompanying 21% increase in the scale of capital being raised. At the same time, given the typical share of EU investments held in Guernsey funds, the GFSC submission forecast that there would be a 27% increase in investment into EU assets generally and a 40% increase in investment into infrastructure assets over five years through Guernsey-based funds, as a result of a passport being granted.

ESMA assessed Guernsey, alongside 11 other non-EU jurisdictions, as part of its non-EU AIFMD passport reviews and gave Guernsey one of only five ‘unqualified and positive assessments’ when it announced its recommendations on 19 July. ESMA's advice will now be considered for approval by the European Commission, Parliament and Council before they activate the relevant provision in the AIFMD to extend the passport through a Delegated Act.

Guernsey Finance Chief Executive Dominic Wheatley said: “The GFSC survey evidences the important role that the Guernsey funds market has to play in the European economy and how this could be enhanced further once we are granted an AIFMD passport.

“ESMA’s unqualified and positive assessment back in July demonstrated the confidence and trust in our regulatory framework, supervisory practices and track record as a jurisdiction that meets the highest international standards. It also offered a greater degree of certainty for investment managers utilising Guernsey for funds which are then sold into the European Union, something this report and its projections show is of great importance.”

"The GFSC survey evidences the important role that the Guernsey funds market has to play in the European economy and how this could be enhanced further once we are granted an AIFMD passport." Guernsey Finance Chief Executive Dominic Wheatley

This research was conducted prior to the UK’s Brexit vote on 23 June. The GFSC has since gone back to those firms surveyed to ascertain their initial views on the potential impact Brexit might have on the likely result of a passport extension.

Dr Andy Sloan, Director of Financial Stability at the GFSC, said that while it was too early to be definitive, the general consensus was that extending the passport would have an increased positive impact. 

“Given Guernsey is already a third country, its attractiveness as a jurisdiction would increase due to the stability and security its unchanged status affords. This is allied to its internationally recognised commitment to meeting global regulatory and tax transparency standards and that the same funds would be able to be marketed in parallel into the EU and the UK,” said Dr Sloan.

Since AIFMD came into force in 2013, Guernsey has adopted a 'dual regime' whereby there are two parallel regulatory regimes for investment funds. The existing regime remained in place for managers and investors not requiring an AIFMD fund, including those using EU national private placement regimes and those marketing to non-EU investors, and ran parallel with an opt-in regime which is fully compliant with AIFMD.

*A report, ‘Passport expectations – benefits of granting Guernsey an AIFMD passport’, which contains the findings of the GFSC survey, can be viewed here.

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