Marketing BVI Funds in the EU Following the Implementation of the AIFMD
The Alternative Investment Fund Managers Directive ("the Directive" or "AIFMD") was due to be implemented by all 27 European Union ("EU") member states by 22 July 2013. It is supplemented by delegated regulation, which will automatically apply across all 27 EU states from the date of implementation of the Directive. While the implementation date has passed, many key jurisdictions have either opted to implement with a transitional period or have not yet implemented the Directive into their national laws. The Directive will also be adopted by the three European Economic Area ("EEA") states and applies equally in those states.
The Directive regulates the management of alternative investment funds (“AIFs”) from within the EU and the marketing of AIFs to investors domiciled, or with a registered office in the EU.
The key definitions in the Directive are:
"AIF": Any non-UCITS collective investment undertaking which raises capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors.
Alternative Investment Funds Manager ("AIFM"): A legal person whose regular business is managing AIFs (the term 'Manager' is used in this article for clarity).
"Managing": Performing at least the investment management functions of portfolio management or risk management for one or more AIFs.
"Marketing": A direct or indirect offering or placement at the initiative of the AIFM, or on behalf of the AIFM, of units or shares of an AIF it manages to or with investors domiciled or with a registered office in the EU.
Managers of British Virgin Islands' ("BVI") AIFs, including all recognised or registered private, professional or public funds and unregulated closed-ended funds ("BVI Funds"), who perform risk management or portfolio management functions from within an EU member state, will need to consider whether or not they have to comply with the Directive in its entirety and will need advice from legal counsel in the relevant EU member state(s).
A Manager who has no risk or portfolio management operations in the EU, but actively markets their BVI Funds in the EU, will need to comply with limited aspects of the Directive from 22 July 2013, in particular:
(a) reporting obligations to regulators in the EU (annual and periodic);
(b) disclosure obligations to investors; and
(c) obligations in relation to investment in large EU non-listed undertakings, if relevant.
In addition, a non-EU Manager will only be able to continue marketing their BVI Fund in an EU member state after that member state has implemented the Directive, if:
(a) the non-EU Manager’s regulator and the BVI Fund’s regulator, the Financial Services Commission ("the Commission"), have entered into the relevant co-operation arrangement, and the private placement regime of that EU member state allows the BVI Fund to be marketed there; and
(b) the BVI must not be listed as a 'Non-Cooperative Country and Territory' by Financial Action Task Force ("FATF").
Clients will need advice from legal counsel in the relevant EU member state(s) where they intend to market their funds, to ensure compliance with local marketing requirements.
A Manager who has no risk or portfolio management operations in the EU and does not actively market their BVI Funds in the EU, but only accepts EU investors on a 'passive placement' or 'reverse solicitation' basis, may not have to comply with the Directive. Clients should take advice from legal counsel in the relevant jurisdiction to ensure that their interaction with EU investors falls within this safe harbour.
A Manager who has no risk or portfolio management operations in the EU, does not actively market in the EU and only manages EU investors’ money on a single investor basis (e.g. through a managed account or 'fund of one') may not have to comply with the Directive. Managers will need advice in the relevant jurisdiction on whether the relevant managed account or 'fund of one' satisfies the requirements of the safe harbour provided for in the Directive, which applies a 'look through' test and may also require amendments to the terms of the relevant structure to be compliant.
A Manager who wants to maximise marketing opportunities across the EU may be able to obtain a 'passport' for marketing to 'professional investors' in the EU, if they establish an AIFMD-compliant fund structure within an EU jurisdiction. The passport will not be available to non-EU Managers or BVI Funds until at least 2015. Our Irish office can advise on the relevant opportunities and challenges in establishing such a structure.
The BVI is not listed as a 'Non-Cooperative Country and Territory' by FATF; indeed it is rated as 'Compliant/Largely Compliant' with 35 of the 40+9 FATF anti-money laundering recommendations, and scores 14 out of 16 when rated against the FATF Core and Key Recommendations, which places it second globally for compliance with those recommendations. In addition, the BVI is a member of the Caribbean FATF and is the current chair of its plenary.
On 11 July 2013, the Commission announced that 25 EU and EEA securities regulators have entered into a Memorandum of Understanding ("MOU") concerning consultation, cooperation and the exchange of information related to the supervision of AIFM with the Commission. The MOU, which was concluded in May 2013, was negotiated by European Securities and Markets Authority ("ESMA") on behalf of EU securities regulators with responsibility for the supervision of alternative investment funds, including hedge funds, private equity funds and real estate funds.
The MOU is largely based on the International Organisation of Securities Commissions ("IOSCO") Multilateral Memorandum of Understanding ("MMOU") and, as the first jurisdiction to be admitted to IOSCO membership on the basis of the MMOU, the BVI has, over the years, developed a robust international cooperation regime based on mutual cooperation on information sharing and rendering necessary assistance in regulatory matters. The signings ensure that the BVI's fund industry will be able to market its products within the EU.
The 25 countries/securities regulators that have agreed to, and signed the MOU are:
(i) Belgium (Financial Services and Markets Authority);
(ii) Bulgaria (Financial Supervision Commission);
(iii) Cyprus (Cyprus Securities and Exchange Commission);
(iv) Czech Republic (Czech National Bank);
(v) Denmark (Finanstilsynet);
(vi) Estonia (Estonian Financial Supervision Authority);
(vii) Finland (Finanssivalvonta);
(viii) France (Autorité des marchés financiers);
(ix) Greece (Hellenic Capital Market Commission);
(x) Hungary (Pénzügyi Szervezetek Állami Felügyelete);
(xi) Iceland (Fjármálaeftirlitið);
(xii) Ireland (Central Bank of Ireland);
(xiii) Latvia (Finanšu un kapitāla tirgus komisija);
(xiv) Liechtenstein (Finanzmarktaufsicht);
(xv) Lithuania (Bank of Lithuania);
(xvi) Luxembourg (Commission de Surveillance du Secteur Financier);
(xvii) Malta (Malta Financial Services Authority);
(xviii) Norway (Finanstilsynet);
(xix) Poland (Polish Financial Supervision Authority);
(xx) Portugal (Comissão do Mercado de Valores Mobiliários);
(xxi) Romania (Financial Supervisory Authority);
(xxii) Slovak Republic (Národná banka Slovenska);
(xxiii) Sweden (Finansinspektionen);
(xxiv) The Netherlands (Autoriteit Financiële Markten); and
(xxv) UK (Financial Conduct Authority)
The Commission had been in negotiations with ESMA since April 2012 regarding the form of the cooperation agreements, and the execution of these agreements demonstrates the recognition and importance of BVI Funds in the global funds industry.
For further information, please speak with your usual Maples and Calder contact or one of the individuals listed above.