Albania, driven by its commitment to align with European Union standards, has embarked on a comprehensive journey to harmonize its financial legislation with EU directives, particularly in the realm of capital markets. At the forefront of this effort stands Law 56/2020 “On Collective Investment Undertakings” (Albanian CIU Law), a pivotal piece of legislation that encompasses the passporting of foreign investment funds into Albania. This landmark law, coupled with the recent enactment of Regulation no. 37 (Passporting Regulation) and Regulation no. 38 (Distribution Regulation) by the Financial Supervisory Authority (FSA), lays down the groundwork for the processes of passporting and distribution within the Albanian financial landscape.
As it may be noted, the detailed governing rules for the passporting (recognition and registration) are brand-new, being adopted by the FSA only last year despite the general concepts of this process being already foreseen in the Albanian CIU Law.
Within the framework of the Albanian CIU Law, only recognized management companies and designated distributors, including Albanian second-tier banks, are authorized to offer undertakings for collective investment in transferable securities with open participation. However, the scope of passporting is presently limited to management companies overseeing “undertakings for collective investment in transferable securities” with open participation (UCITS) that are regulated at the EU level. In essence, only UCITS and their affiliated management companies registered or licensed within a EU jurisdiction are eligible for passporting into Albania. While the regulatory infrastructure is in place for UCITS, the passporting of Alternative Investment Funds (AIFs) remains pending, awaiting forthcoming regulations from the FSA to address this segment of the market.
Despite the clear regulatory framework outlined in the Albanian CIU Law, practical implementation faces an additional requirement that adds a layer of complexity. The law stipulates that the FSA must consider the existence of cooperation agreements for mutual recognition of foreign administrative companies between itself and the regulatory authority in the management company’s country of origin. The FSA has made a conservative interpretation of such provision and the Passporting Regulation, in turn, has made it a condition precedent since it sets forth that a “collaboration agreement between the FSA and the relevant country’s regulatory authority is mandatory for the passporting of the management company of UCITS.”
Presently, the FSA has established mutual recognition agreements with regulatory authorities in only three EU countries: Luxembourg, Malta, and Austria. However, it’s worth noting that the recent successful passporting of Eurizon Capital S.A and its managed UCITS marks a significant milestone, signaling progress and paving the way for potential opportunities for other interested parties.
Navigating the passporting regulatory process is quite straightforward, with interested parties having to submit a comprehensive set of documents falling into two categories: regulatory approvals from the country of origin and Albanian-related documents. These encompass licenses, approvals from the relevant regulatory bodies, prospectuses, and contractual agreements with Albanian distributors. Upon receipt of the complete documentation, the FSA is mandated to issue a decision on passporting within a stipulated timeframe of three months.
While the regulatory landscape lays the foundation for passporting EU investment funds into Albania, the practical implications and market dynamics warrant a deeper exploration. The gradual convergence of Albanian financial regulations with EU standards not only facilitates cross-border investment but also fosters investor confidence and contributes to the overall development of the Albanian financial ecosystem.
In conclusion, while the passporting of EU investment funds into Albania represents a significant step toward financial integration, it also underscores the complexities inherent in aligning regulatory frameworks across jurisdictions. By navigating these challenges with diligence and collaboration, Albania stands poised to unlock new avenues for economic growth and investment, ultimately forging stronger ties with the European Union and the global financial community.
By Aigest Milo, Co-Managing Partner, Kalo & Associates
This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
