The Republic has a considerable advantage as a location for the funds industry due to its membership of the European Union, which means the sector can market its products freely throughout the EU and EEA (European Economic Area) under the EU regulatory passporting regime. How does this work?
In the context of investment funds, the EU regulatory passporting regime allows for the cross-border distribution and sale of funds authorised in one EEA member state to another, provided a notification procedure has been completed, says Jennifer Dobbyn, funds partner, Ogier.
“As a member of the EEA, Ireland is part of the single market. The passporting regime forms part of the foundation of the single market for financial services.
“The origins of the UCITS passporting regime go back as far as the 1980s when the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive was first introduced.”
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In the context of alternative investment fund managers (AIFs), it has only been as recently as 2013, following the introduction of the Alternative Investment Fund Managers Directive (AIFMD) that it is possible for EEA AIFMs to avail of the pan-EEA marketing passport and to market EEA alternative investment funds (AIFs) across the EEA, Dobbyn says.
EU membership gives investment fund managers a big advantage: seamless access to the entire EU and EEA through regulatory passporting, without the barriers faced by non-EU jurisdictions such as the UK, says Dean Phillips, partner with EY Financial Services.
“Since the early 1990s, the EU’s passporting regime has allowed Irish-domiciled funds to be distributed across Europe without additional approvals, offering speed, market access and operational efficiency,” he says.
“Combined with Ireland’s deep expertise in fund servicing, governance and its extensive tax treaty network, this positions Ireland as the premier European base for managers looking to grow in Europe and beyond.”
The passporting regime is a legal framework for cross-border distribution, says Vanora Madigan, global head of public affairs and managing director at Waystone.
“It allows fund managers to market their EU-domiciled fund ranges throughout Europe by registering with their home member state regulator and notifying the host member state regulator of the fund details that will be offered for sale in that jurisdiction.
“Fund managers and promoters decide to pursue the marketing passport on the determination of which jurisdictions they intend to focus on to raise capital. Should a firm see substantial demand across Europe it may decide to go down the full marketing passport route or file for the marketing passport in certain jurisdictions only depending on local investor interest.”
The passporting regime underpins much of the EU’s single market depth, tailored for different fund types and investors, reducing regulatory fragmentation and enhancing investor confidence, says Dobbyn.
“It requires all firms operating in the EEA to comply with the same rules and regulations when offering financial products and services and requires regulators to apply the same high standards across all EEA member states.
“In terms of single market integration, it reduces barriers to entry and provides broader access to products on a cross-border basis under streamlined and harmonised rules, in turn providing a competitive advantage and means of attracting capital.”
Since the establishment of the investment funds and asset management industry in Ireland more than 30 years ago, we have supported international investment managers to develop and expand their international distribution capacity, says Madigan.
“Ireland is considered a strategic distribution location and offers a full suite of locally domiciled products and services as a gateway for distribution to Europe and on an international footing,” she says.
“One of the main objectives of the European Savings and Investment Union (SIU) is to encourage cross-border investments, throughout the EU, from EU institutional and retail investors.”
Pan-European distribution of investment products throughout the EU is paramount for an integrated, efficient and accessible single market to improve the flow of savings from EU citizens into investments, increasing the efficiency of capital allocation, and fostering economic growth, Madigan says.
Post-Brexit, the Republic of Ireland and other European countries have strengthened their competitive position relative to the UK because of the continuity of the EU passporting regime and the benefits of the single market, says Oisin McClenaghan, funds partner, Ogier.
“The UK’s post-Brexit divergence from the EU regime has also resulted in some service providers realigning their teams to Ireland and EU financial centres to maintain passporting capabilities,” he says.
The passport provides for efficiency, scale and competitive advantage in an integrated regulatory environment, McClenaghan adds: “The EU passporting regime allows firms to launch and distribute funds at a faster pace and more cost effectively than UK firms that face multi-jurisdictional filings.”
This speed to market combined with lower costs due to harmonised rules has provided the State with a competitive advantage over the UK and strengthened its attractiveness as a base for global firms to access EU investors.
However, London remains and is expected to remain a leading global investment management hub.
“Post-Brexit, UK-domiciled investment managers continue to be appointed to manage Irish and EU-domiciled investment funds,” says McClenaghan. “Provided any such fund managed by a UK investment manager appoints an Irish or other EU-domiciled UCITS management company or AIFM, the fund may avail of the pan-European passporting regime.”
