(Bloomberg) -- The European Union’s investment regulator said some overseas alternative funds should qualify for the right to operate across the trade bloc, creating a potential opening for U.K. managers worried about losing access after Brexit.

There are “no significant obstacles” preventing hedge funds and private equity firms based in Canada, Guernsey, Japan, Jersey and Switzerland gaining so-called passports under a directive due to come into force in 2018, the European Securities and Markets Authority said in a statement. The Paris-based regulator also backed passports for some types of U.S. funds. It delayed opinions on Bermuda and the Cayman Islands, pending new rules in these nations.

Hedge fund lawyers have highlighted the ESMA report as a key indicator in determining whether European regulators will let the U.K.’s 700-billion-pound ($922 billion) alternative investment industry operate across the bloc once the country leaves the grouping. About 85 percent of Europe’s hedge-fund assets are managed out of London, making it the second-largest center worldwide after New York, according to estimates from industry group TheCityUK.

Under the Alternative Investment Fund Managers Directive, non-EU funds may be able to get a single passport that will let them sell products in every EU country. Whether a fund qualifies will largely depend upon the regulations in force in its home market. The European Commission will consider the ESMA’s recommendation when it draws up legislation to implement the directive.

The ESMA generally backed awarding passports to firms based in Hong Kong and Singapore, while noting that there are discrepancies in how accessible funds are for investors in different European countries. It also said Australian firms should get passports, provided the nation standardized its treatment of European funds. The regulator didn’t give an opinion on the Isle of Man because the island doesn’t have a investment regime comparable to the EU directive.

The Alternative Investment Management Association, whose members manage more than $1.5 trillion, said it it welcomed the ruling and that it was optimistic that regulators in the U.S., Hong Kong, Singapore and Australia would quickly be able to resolve the issues highlighted in the report.

To contact the reporters on this story: Luca Casiraghi in London at, Silla Brush in London at To contact the editors responsible for this story: Shelley Smith at, Neil Denslow, Sandy Hendry

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