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Competing with onshore jurisdictions - Coggle Diagram
Competing with onshore jurisdictions
The EU
In the wake of the financial crisi, the EU has put significant pieces of legislation in place to provide greater levels of investor protection than were in place historically
Whilst investor protection measures have increased, another effect of the legislation is a protective one as the EU aims to create a level playing field for all EU member states to make it easier for investors to invest within the EU
Third countries have found themselves in weaker positions when trying to market within the EU
AIFMD
Was a game changer in the funds space
Created a new level of regulation for funds being marketed to EU investors
AIFMD was designed to create a secure and stable financial system where all significant financial market actors are subject to appropriate regulation and supervision
It is essential that the risks that AIFMs pose to their investors, the financial markets and the companies in which they invest are rigorously monitored and controlled
The crisis exposed a number of deficiencies, notably a lack of transparencies, deficincies in risk management and asset-safekeeping arrangements and weaknesses in due diligence
The overarching objective was to create for the first time a comprehensive and secure framework for the supervision and prudential overusing of AIFMs in the EU
Since AIFMD entered into force, all AIFMs are required to obtain authorisation and subject to ongoing regulation and supervision
Increases the transparency of AIFMs towards investors, supervisors and the employees of the companies in which they invest
Equips national supervisors, ESMA and the European Systemic Risk Board (ESRB) with the information and tools necessary to monitor and respond to risk to the stability of the financial system that could be caused or amplified by AIFM activty
Inroduces a common and robust approach to the protection of investors in these funds
Strengthens and depends the single market thereby creating the conditions for increased investor choice and competition in the EU subject to high and consistent regulatory standards
Increases the accountability of AIFMs coding controlling stakes in company towards employees and the public at large
This regulation established a single market for those investment managers within the EU and differing conditions to entry for third country investment managers
Fund managers established in the EU may be regulated as AIFMs under which authority they may register, market and manage funds offered within the EU
Fund managers outside of the EU can not presently be regulated as AIFMs and instead must market AIF through National Private Placement Regimes which are established by each member state, significant barriers to entry have been created for non EU managers and in some cases, total prohibition
Undertakings for collective investment in transferable securities
The EU created a form of CIS know as UCITS capable of operating freely throughout the EU on the basis of authorisation from one member state
Existed since 1985, the current form was adopted in 2014 and is known as UCITS V
Runs in parallel to AIFMD
Depositaries
Both AIFMD and UCITS create a requirement for AIFs and UCITS to have a depositary appointed whose responsibility is to take act as a custodian of the fund assets
Requirement is wholly borne out of the EU's desire to increase investor protection measures
Ensures that an independent party is in place to monitor the safekeeping of fund assets
Lux RAIF
EU member states are enacting lighter touch versions of AIFMD and UCITS focusing on the prudential regulation of the fund manager which must already be regulated under AIFMD
Result in speedier route to market as regulators look to the regulation of the manager to preserve the protection of investors
Malta
Established itself as a growing and significant player in the Alternative Investment space
Member of the EU so afforded access to other EU states that all member states presently enjoy
Advantage over other non-EU offshore jurisdictions until results and granting of passporting rights are know
UK
Current member state of EU, both AIFs and UCITS are available fund brands which gives UK an edge when marketing funds within the EU a market many of of the offshore jurisdictions particuarly those geographically closer to the EU depend on
FCA sandbox
The FCA has demonstrated its willingness to innovate in the creation of new fund types
The sandbox is an opportunity for managers with little to no track record to establish a track record through an FCA lighter touch regulated product
The FCA states the sandbox is a safe space in which businesses can test innovative products, services, business models and delivery mechanisms which ensuring that consumers are appropriately protected
To be eligible sandbox participants must agree to limited scope as to who may invest and the amount of capital that may be raised
the US
The prevalence of Delaware is a low tax, cheap and administratively light jurisdiction for the formation of fund structures on home soil but also its desirability as an offshore centre
Offshore jurisdictions such as the Cayman Islands do enjoy success as jurisdictions often favoured by US participants
A significant barrier for offshore funds marketing into the US is the US's protective measures designed to keep US money within the US resulting in restrictive and burdensome laws controlling US holdings in non US entities
There is also unfavourable tax treatment of US investments outside of the US, another protective measure designed to encourage US investors to invest within the US
Asia
Singapore and Hong Kong have emerged as offshore centres in recent years, providing routes into and out of Asian markets that many traditional offshore jurisdictions have not been able to reach either owing to country restrictions, linguistic or cultural issues or merely the lack of geographic proximity