At least one jurisdiction, Guernsey, announced that it is drafting new regulations in response, "to create a regime which is compliant with the AIFMD rules", which is expected to be in place by July 2013, when the new rules are due to take effect.
The island will continue to maintain the existing investment funds regime "for those investors and managers not requiring an AIFMD fund", Guernsey Finance, which represents the island’s financial services industry, said in a statement today.
The global funds industry has been awaiting the final implementation rules, or so-called "Level 2" regulations, for the AIFMD for months, as the 2013 implementation date grew nearer.
The European Commission’s 149-page AIFMD implementation document, formally called the "Commission Delegated Regulation", is described by the EC as "a precondition for the application of the AIFMD in EU countries", which was "adopted to supplement certain elements of the AIFMD".
These elements include how AIFMs are to be authorised and the capital requirements they should meet; how they operate with respect to remuneration, conflicts of interest, risk management, liquidity management and organisational requirements; and how depositaries are to be used.
The AIFMD regulations are subject to a three-month scrutiny period (extendable to six months) by the European Parliament and Council, after which, if no objections are raised, they will become law.
‘Disappointing outcome’
The London-based Investment Management Association, which represents the UK’s funds industry, called the document “a disappointing outcome from a flawed process”.
“AIFMD is often billed as a hedge and private equity fund regulation, but it covers a very wide range of pooled investment vehicles, including non-UCITS retail funds (NURS), investment trust companies, VCTs, charity funds and pension fund pooling vehicles," the IMA’s director of authorised funds and tax, Julie Patterson, said.
“Many of the provisions are workable, and others have now incorporated points that the IMA raised.
"But some of the detailed provisions in this Regulation are out-of-sync, or even conflict with other regulations that managers are required to follow, and will impose additional costs for investors without conferring clear benefits."
Andrew Baker, chief executive of the Alternative Investment Management Association, said that while the AIMA "may not agree with all of the final provisions – notably on areas like depositaries and delegation – it is now important to look forward”.
At least, he said, the global industry will now be able to begin making its final preparations for implementing the directive, in time to meet the July 2013 deadline.
As reported, the alternative investment fund mangement industry has been in a state of uncertainty for months, as it waited to hear how the EC intended to regulate its members. The AIFM directive was among a raft of new regulations that emerged out of the 2008 financial crisis, but it has been fiercely challenged by the powerful Irish and Luxembourg funds industries in particular, which have argued that the regulations could restrict their members’ ability to do business.
Among their biggest concerns was that the EC would put an end to the practice of outsourcing parts of their investment responsibilities to other entities, including those located in a different jurisdiction.
Non-EU jurisdictions such as Guernsey, Jersey and the Isle of Man, which have funds management industries, were concerned that the regulations could favour EU centres like Dublin, Luxembourg and the UK.
A requirement that fund managers employ the services of a depositary bank, to safeguard investors in the event of a major liquidity problem, also prompted objections from some, who argued it would add to costs.
Threat to multi-manager strategies
The IMA’s Patterson was among those critical of the final rules as they pertain to outsourcing.
“The provisions on delegation…may require the setting-up of additional companies within groups, reduce investor choice in non-EU markets, bring non-EU funds into quarterly reporting to EU regulators and could render ‘multi-manager’ type strategies impossible," she said.
“Also, the Commission’s decision to reduce ESMA’s recommended threshold, above which extensive quarterly reporting on each AIF is required, will result in the industry and regulators drowning in data."
She also noted that the July 2013 deadline left national regulators and their funds management industries alike "with an impossible-looking deadline".
To view the Delegated Regulation in full on the EC’s website, click here.
