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ESMA Limits Positive Recommendation for AIFMD Passport Extension to Only Five Non-E.U. Countries; Excludes U.S., Citing Uneven Playing Field (Part One of Two)

E.U. alternative investment fund managers (AIFMs) are able to market their alternative investment funds (AIFs) to citizens in all E.U. member states under the Alternative Investment Fund Managers Directive (AIFMD). The European Securities and Markets Authority (ESMA) was tasked with providing advice on the viability of extending an AIFMD marketing passport to non-E.U. AIFMs and AIFs. In its initial advice in 2015, ESMA issued positive recommendations for several countries but ultimately advocated for delaying a decision on extending the marketing passport. See “ESMA Opinion Highlights Issues Regarding the Functioning of the AIFMD Passport” (Aug. 13, 2015); and “ESMA Recommends Extension of the AIFMD Passport for Hedge Fund Managers and Funds in Certain Non-E.U. Jurisdictions” (Aug. 6, 2015). In its latest advice issued on July 18, 2016, ESMA provided positive recommendations for extending the AIFMD passport to five countries, but identified significant obstacles to the candidacies of seven other countries, including the U.S. However, as in its 2015 advice, ESMA recommended that the AIFMD passport not be extended until ESMA has identified a “sufficient number” of acceptable candidates. This article, the first in a two-part series, summarizes the criteria ESMA used to evaluate the candidates and details the obstacles it identified for the seven jurisdictions to which it did not recommend extending the passport. The second article will provide industry commentary on issues that likely factored into ESMA’s advice and discuss the potential implications of the advice on hedge fund managers. See also “Marketing Strategies for U.S. Hedge Fund Managers under AIFMD (Part One of Two)” (Jul. 21, 2016); “Leading Law Firms Discuss Hedge Fund Marketing and Distribution Opportunities in a Post-Brexit World (Part Two of Two)(July 14, 2016); and “European Commissioner Addresses Disproportionate Regulation, Difficulties of Hedge Funds to Rely on AIFMD Passport and Increased Compliance Burden” (May 5, 2016).

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