The financial watchdog of the European Union is of the view that the largest economic block of the world should allow hedge funds from the United States, Singapore and Hong Kong to market themselves in the European Union.
This recommendation, according to many, is a taste of what Britain's financial services sector might face after it leaves the bloc as the recommendation for endorsement by the European Securities and Markets Authority (ESMA) to the EU's executive European Commission was long-delayed.
Whether the rules for hedge funds and other alternative investments such as private equity in non-EU countries are as strict as those in the 28-country bloc is what the ESMA to say for the first time and is required to do so by a new EU law.
Replacing a system of country-by-country private placement authorization¸ asset managers based outside the EU get a "passport" to continue offering services to investors across Europe by the positive view.
With provisions for some, hedge funds from Canada, Guernsey, Japan, Cayman Islands, Jersey, Australia, and Switzerland were also given the green light by ESMA.
“We remain optimistic that ESMA will be in a position in the not too distant future to provide a full and positive assessment for the Cayman Islands and Bermuda in the same manner,” said industry trade body AIMA said in a statement.
Due to competition concerns, equivalence for the United States, the world's biggest hedge fund center, could not be recommended by ESMA in a preliminary finding.
ESMA has said that the much bigger U.S. mutual funds sector as well as hedge funds would have to be allowed to operate across the EU due to equivalence.
“UK hedge fund managers do not use the passport in significant numbers so this ESMA advice is not particularly relevant either way. However, it does reinforce the likelihood that the UK would be positively assessed by ESMA post-Brexit, given the UK would already have implemented the AIFMD in full," said Leonard Ng, a partner at law firm Sidley Austin in London.
"With respect to the competition and market disruption criteria, ESMA considers there is no significant obstacle for funds marketed by managers to professional investors which do not involve any public offering," ESMA said in relation to the United States.
"However, ESMA considers that in the case of funds marketed by managers to professional investors which do involve a public offering, a potential extension of the AIFMD (alternative investment fund managers directive) passport to the U.S. risks an un-level playing field between EU and non-EU AIFMs," the ESMA noted.
The EU was recommended to take action to "mitigate this risk" by the ESMA.
Unless the UK is able to keep its "passporting" access to the single market like at present, Britain would have to undergo the same "equivalence" process. The country has one of the world's biggest hedge fund centers and it voted last month to leave the EU.
The Commission said it would wait for ESMA to approve more countries before endorsing these decisions even though the EU watchdog had already deemed Jersey, Guernsey and Switzerland as being "equivalent".
(Source:www.reuters.com)
This recommendation, according to many, is a taste of what Britain's financial services sector might face after it leaves the bloc as the recommendation for endorsement by the European Securities and Markets Authority (ESMA) to the EU's executive European Commission was long-delayed.
Whether the rules for hedge funds and other alternative investments such as private equity in non-EU countries are as strict as those in the 28-country bloc is what the ESMA to say for the first time and is required to do so by a new EU law.
Replacing a system of country-by-country private placement authorization¸ asset managers based outside the EU get a "passport" to continue offering services to investors across Europe by the positive view.
With provisions for some, hedge funds from Canada, Guernsey, Japan, Cayman Islands, Jersey, Australia, and Switzerland were also given the green light by ESMA.
“We remain optimistic that ESMA will be in a position in the not too distant future to provide a full and positive assessment for the Cayman Islands and Bermuda in the same manner,” said industry trade body AIMA said in a statement.
Due to competition concerns, equivalence for the United States, the world's biggest hedge fund center, could not be recommended by ESMA in a preliminary finding.
ESMA has said that the much bigger U.S. mutual funds sector as well as hedge funds would have to be allowed to operate across the EU due to equivalence.
“UK hedge fund managers do not use the passport in significant numbers so this ESMA advice is not particularly relevant either way. However, it does reinforce the likelihood that the UK would be positively assessed by ESMA post-Brexit, given the UK would already have implemented the AIFMD in full," said Leonard Ng, a partner at law firm Sidley Austin in London.
"With respect to the competition and market disruption criteria, ESMA considers there is no significant obstacle for funds marketed by managers to professional investors which do not involve any public offering," ESMA said in relation to the United States.
"However, ESMA considers that in the case of funds marketed by managers to professional investors which do involve a public offering, a potential extension of the AIFMD (alternative investment fund managers directive) passport to the U.S. risks an un-level playing field between EU and non-EU AIFMs," the ESMA noted.
The EU was recommended to take action to "mitigate this risk" by the ESMA.
Unless the UK is able to keep its "passporting" access to the single market like at present, Britain would have to undergo the same "equivalence" process. The country has one of the world's biggest hedge fund centers and it voted last month to leave the EU.
The Commission said it would wait for ESMA to approve more countries before endorsing these decisions even though the EU watchdog had already deemed Jersey, Guernsey and Switzerland as being "equivalent".
(Source:www.reuters.com)