|Ross Munro||Tim Clipstone|
The final terms of the EU's Alternative Investment Fund Manager's Directive (the Directive) were approved by the European Parliament last November. Among other matters, the Directive provides a framework for allowing the marketing of non-EU alternative investment funds to professional investors in EU member states on a country-by-country basis through the Private Placement Regime (PPR) and, potentially from 2015, throughout the EU under the passport regime.
The British Virgin Islands has welcomed the final terms of the Directive, and expressed confidence that BVI managers and funds will have access to the EU market under the private placement regime and, in due course, the passport regime.
In a statement issued following the approval of the Directive, the BVI International Finance Centre (IFC) said the Territory is widely acknowledged as having a robust regulatory system, a fact that has been recognised by international bodies including the OECD, FATF and the International Organisation of Securities Commissions (Iosco).
The IFC is confident that this recognition, the close relationships the BVI Financial services Commission (FSC) enjoys with key national and supra-national regulatory bodies and the FSC being a signatory of the Iosco Multilateral Memorandum of Understanding will provide the best platform to ensure that the BVI will be ready, willing and able to enter into the cooperation agreements required to allow BVI funds and their managers access to the EU market over the coming years under the Private Placement Regime.
Furthermore, according to the IFC, the BVI government remains committed to expanding the already large and growing network of TIEAs to enable its managers and funds to take advantage of the EU-wide passport regime, if and when it is adopted.
The BVI's response to the Directive is welcomed, as is the government's commitment to continuing this pragmatic approach.
It is acknowledged that the BVI has a long history of balancing the business and financial needs of its international clientele with regulatory and corporate governance policies that meet, and in many cases, exceed international best practice standards.
The recent public statement by the IFC is in keeping with what has been discussed privately- that the BVI Government is prepared and committed to entering into the necessary cooperation agreements with EU regulators over the coming years, and to expanding its network of TIEAs to take advantage of the passport regime if and when it is adopted.
In the Cayman Islands, one of the jurisdictions in which Harneys operates, it is hoped that the final implemented detail of the Directive will lead to cooperative, non-discriminatory and proportionate regulation which allows EU managers access to the optimal structures and products they need to efficiently operate their businesses within and outside the EU and continues to allow non-EU managers access to EU professional investors.
It is further anticipated that the Directive will provide EU professional investors with continuing access to a global, diverse and well-managed portfolio of alternative investment products.
The bulk of the Directive at first will only apply to EU managers who manage more than €100 million in assets (including leverage) or €500 million in assets for un-leveraged closed-ended funds. Now that the Directive has become law, it is in the Level II phase of implementation, a process where the broad statements of policy in the Directive are interpreted and set down into a workable code.
Passive marketing has not been outlawed for investments by EU professional investors in non-EU funds, including BVI funds; in addition, non-EU managers will not be required to prepare for full compliance with the Directive to actively market their funds in the EU unless and until the PPR is halted, which at the earliest will be in 2018.
The PPR provides that each EU member state may allow non-EU managers to market their funds to professional investors on their territory only, provided that each fund complies with the transparency provisions and the control of non-listed companies provisions of the Directive and subject to both the manager's and fund's home jurisdictions having entered into cooperation arrangements with the EU regulators.
In practice, most non-EU hedge fund managers will need, as from 2013, to make sure that their fund documentation and reporting processes comply with the detail set down in the transparency provisions of the Directive, as interpreted in the Level II process. He also explained that while large EU managers with non-EU funds will need to comply with the bulk of the Directive, they will be able to continue to market their non-EU funds under the PPR without requiring the funds to have a single depositary.
The detail of how the Directive is to be implemented will become clearer through the Level II process over the next year, enabling the BVI to prepare for the implementation of the Directive to ensure that BVI Funds continue to be able to be marketed actively to EU professional investors.