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Third-country alternative funds could be shut out by EU directive option

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A new draft of the European Union’s Directive on Alternative Investment Fund Managers includes an option that would bar funds domiciled in outside

A new draft of the European Union’s Directive on Alternative Investment Fund Managers includes an option that would bar funds domiciled in outside countries from the EU altogether, according to a Brussels-based specialist in European law.

Alastair Sutton, a partner with White & Case, says that EU government are currently considering a third draft of the directive, which aroused strong criticism from the alternative investment industry when it was first introduced in April.

One of the options put forward in a discussion paper from by the Swedish government, which currently holds the EU presidency, would simply bar all third-party alternative funds from being marketed within the union, Sutton told delegates at the Channel Islands Stock Exchange International Business Summit in Guernsey.

The first draft of the directive proposed that non-EU funds could gain access to the European market as long as the jurisdictions in which they were domiciled offered equivalent standards of regulation as well as transparency and exchange of information on tax matters.

The first draft would allow non-EU jurisdictions a transition period of three years following the implementation of the directive, after which any non-EU funds from equivalent jurisdictions would have to obtain authorisation from an EU member state.

Sutton notes that the directive goes back on more than two decades of EU lawmaking practice by being implemented through a series of future regulations to be drawn up by the European Commission and approved by EU members, rather than leaving it up to member states how to implement a framework decided by the EU. “The light-touch approach introduced by Lord Cockfield and Jacques Delors is finished,” he said.

He also points out that the directive will fall within a framework of new EU regulatory structures covering areas including banking, insurance and securities, A new European Securities Market Authority will replace the current Committee of European Securities Regulators.

Sutton told his audience there was no time to waste for businesses involved in alternative investments in the Channel Islands as well as public bodies to lobby members of the European Parliament, European Commission officials and representatives of member states and to put forward concrete alternatives to the current proposals.

He says he has assured told by a senior Commission official that Jersey and Guernsey boast “probably the highest standards in the world for regulation and tax co-operation. You should be well placed [to seek equivalency], but should start now to build a consensus within the EU, not just talk to the UK.”

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