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Global Trustee and Fiduciary Services News and Views | MiFID II Special Edition 2016
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to EU AIFMs: there is no similar amendment
to Articles 39 or 40 or Article 4(1)(r) itself to
extend the AIFMD passport for investment
services to third country firms acting as AIFMs
to EU and non-EU AIFs, respectively.
Unless the AIFMD is amended, a UK manager
authorised as an AIFM under Article 37 wishing
to offer segregated mandates in more than one
Member State will be unable to do so under
the Article 39 and Article 40 passports. The
position will, therefore, be the same as that
which currently exists with the AIFM having to
offer segregated mandates on a Member State-
by-Member State basis and not be able to rely
on the AIFMD third country passport.
As to the solutions for UK managers, it may be
that a UK manager would be better-off setting
up a subsidiary under the AIFMD rather than
MiFID where that manager wishes to provide
segregated mandates. Except for the head
office and registered office located in the
same Member State requirement in Article
8(1)(e), the requirements for a non-EU AIFM
established under Article 37 will be the same
as those for an EU AIFM established under
Chapter II. However, as mentioned above:
unlike an AIFM authorised under Chapter
II, an AIFM authorised under Article 37 will
be unable to offer segregated mandates in
reliance on an AIFMD passport. In this respect,
therefore, the subsidiary of a non-EU manager
authorised under the AIFMD, i.e. an EU AIFM,
offering management services (which include
segregated mandates) is better than the UK
manager offering management services itself,
as a non-EU AIFM.
Relief under the MiFID II third country passport?
The Markets in Financial Instruments Regulation
(MiFIR) — which, together with the recast MiFID
Directive (MiFID II Directive), make up the MiFID II
package — will, in essence, permit third country
firms to provide investment services to eligible
counterparties, as defined in MiFID, and the
entities identified in Section I of Annex II to
MiFID (“per se” professional clients) throughout
the EU. Under MiFIR, a third country firm will
be able to do so without having to establish
a branch in the EU but will have to become
registered with ESMA. This is contingent on the
Commission making an “Equivalence Decision”,
i.e. satisfying itself that the third country firm’s
home state legal and supervisory framework
has “equivalent effect”. Equivalent effect will
be determined, in essence, by reference to
prudential and business conduct requirements
that the Commission will be required to judge
in the context of the Capital Requirements
Directive (CRD IV) and the Capital Requirements
Regulation (CRR).
On the face of it, the MiFIR third country
provisions may provide a solution for a UK
manager that manages an AIF and also wishes
to offer investment services. In effect, a UK
manager entered onto the ESMA register
will benefit from a third country firm “MiFIR
Passport” with respect to investment services.
MiFIR makes it clear that Member States
will not be able to impose any additional
requirements on any third country firm.
However, a UK manager seeking to rely on the
MiFIR Passport could face at least three issues:
• MiFIR is silent as to whether a third country
firm that is also an AIFM may be entered on
the ESMA Register. Whereas the common
lawyer’s response is that this means that ESMA
is free to register such a third country firm,
there is the risk that ESMA would look for an
express power before registering an AIFM.
• Whereas Articles 39 and 40 of the AIFMD
provide third country firms with passport
rights with respect to any type of MiFID
professional client, the MiFIR Passport will
be restricted to services provided to eligible
counterparties and per se professional clients.
In practice this means that a third country
firm would be limited to offering investment
services to professional investors properly
so-called, institutional investors, and national
and regional governments. It could not offer
such services to, for example, high-net-worth
individuals or local public authorities and
municipalities (unlike MiFID, the MiFID II
Directive does not treat local public
authorities and municipalities as
per se professional clients).
• Echoing the AIFMD, there are what MiFIR
describes as “transitional provisions” with
respect to the MiFIR Passport. In essence,
the MiFIR Passport will only be available
three years after the Commission has made
the Equivalence Decision.
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Bearing in mind
that MiFIR is only due to come into force in
early 2018, the MiFIR Passport may not be
available until early to mid-2021. Until then,
the individual Member State rules will apply,
i.e. the status quo remains.