Third Country Rules for Alternative Investments: Passport flexibility comes at a price

In critically examining the rules applicable to third country managers and funds contained in the new EU Directive on Alternative Investment Fund Managers (AIFM), Mirzha de Manuel Aramendia, CEPS-ECMI Research Fellow, finds in an ECMI Commentary that the rules have gained in flexibility but that regulatory certainty and efficiency have suffered. A preview of this commentary was published by the Financial Times on 13 December 2010. On 11 November 2010, the European Parliament approved the Alternative Investment Fund Managers (AIFM) Directive, which enters into force next year. Among the more controversial aspects of this piece of legislation are the rules applicable to third country managers and funds. This Commentary attempts to present the third country rules in an accessible manner for non-specialists and to critically discuss these rules. An Annex is provided to guide the reader through the numerous provisions and the different phases that will follow after the Directive enters into force. The author argues that while the principles outlined initially by the Commission have prevailed, there are two issues that cause concern: On the one hand, there is no fixed date for the entry into force of the passport for non-EU managers, which sends the wrong signal to the industry, part of which still hopes to avoid compliance. On the other hand, the lack of trust among member states has brought unnecessarily complex provisions, which can act as a barrier to investments that would otherwise benefit the European economy. The author concludes that, while the rules have gained in flexibility, regulatory certainty and efficiency have suffered.