"Five Key Points for US Investment Fund Administrators on the AIFMD Third-Country Passport"
In the current European Union (EU) landscape, non-EU Alternative Investment Fund Managers (AIFMs) are unable to leverage the AIFMD marketing passport to market funds within the EU. Instead, they rely on National Private Placement Regimes (NPPRs) in each EU Member State, where such regimes are available.
The AIFMD, or Alternative Investment Fund Managers Directive, contemplates extending the marketing passport to non-EU AIFMs and AIFs, but no concrete steps have been taken to activate this regime, including in the context of the AIFMD II revisions expected in April 2026.
The process of determining the Member State of Reference (MSR) for a third-country AIFM involves an application to the competent authorities of all MSRs with potentially authority. A joint decision must be issued within one month from the application.
Should a third country be deemed equivalent to the AIFMD, the AIFM would need to comply with AIFMD requirements as if it were an EU AIFM. The AIFs managed must meet transparency and investor protection standards aligned with AIFMD. However, the third-country passport availability remains pending, with no confirmed launch date.
The European Commission has proposed a definition of AIFMD, which has brought attention to the access of US Fund managers to Europe via local national private placement regimes. The process of extending the passport to third-country AIFMs involves objective and subjective requirements to be met, both at the level of the third country domicile and the AIFM.
When the delegated acts are issued, there will be a transitional period when both the third-country AIFMD passport and the local national private placement regime will coexist across European domiciles. The extension of the AIFMD passport to third-country AIFMs may not be good news for US Fund Managers due to uncertainties regarding competition and compliance with AIFMD provisions, particularly the depositary proposition.
Attilio Veneziano, Managing Partner at Veneziano & Partners, emphasises the importance of a clear and consistent approach to the third-country passport. Should an equivalence decision not be obtained, the fact that some European domiciles might phase out their private placement regime with immediate effect will pose further uncertainty on existing strategies to access European investors.
ESMA will have to assess the regulatory regime of various third countries and release its advice, followed by delegated acts from the European Commission to extend the passport to the countries that have been deemed equivalent. The proposed measures may not be exclusively aimed at the United Kingdom, but could reflect a more generalized restrictive approach at the European level.
In conclusion, non-EU AIFMs must continue to rely on NPPRs until the EU formally implements a third-country passport, which may occur only after regulatory equivalence and cooperation frameworks are fully established. The extension of the AIFMD marketing passport to third-country AIFMs and AIFs is one of the avenues available to third-country AIFMs willing to gain access to European investors, but the path to implementation remains uncertain.
- Technology advances could potentially streamline the process of determining the Member State of Reference (MSR) for a third-country AIFM, by automating application submissions and joint decision issuances.
- As businesses continue to expand globally, investing in technology that aligns with finance regulations like the AIFMD could provide a strategic advantage for Alternative Investment Fund Managers (AIFMs) seeking to leverage the AIFMD marketing passport.
