Our latest monthly update on recent AIFMD developments. Some progress has been made but remains slow despite only a little over 120 days to go to the 22 July 2013 implementation date.
Since the last update, Denmark is the only new country to publish draft AIFMD legislation. Uncertainty remains around how the AIFMD will be implemented by the majority of EU member states and, in particular, what national private placement regimes will exist post AIFMD. Switzerland and Brazil are still the only countries to have agreed AIFMD co-operation agreements with ESMA.
In recent weeks, at least two firms have publicly announced they intend to act as depositary to private equity funds. Discussions continue between depositaries and prime brokers for EU hedge funds and, to our knowledge, no firms have publicly announced their service offering. The UK’s final position relating to the so-called ‘depo-lite’ functions, which impact the large number of EU AIFM of non-EU AIF marketed to EU investors, remains unclear.
Developments over the last month include:
Twelve European countries, including the UK, collaborated in an unprecedented way to express concerns to the EU over the AIFMD implementation process
EU Council confirms it has no objection to the AIFMD ‘Level 2 Regulation’, paving the way for AIFMD to enter into force on 22 July 2013
FSA surveyed UK alternative investment management firms to understand the likely timing of applications to become an AIFM. In particular, any UK manager of EU AIF that wishes to become an AIFM by 22 July 2013, should respond. Responses due by 28 March 2013
HM Treasury published a second consultation paper and related regulations, covering common investment funds and common deposit funds, marketing to retail investors and application of the approved persons regime to internally managed funds. Responses due by 5 April 2013.
Coming up:
Delayed FSA Consultation Paper 2 (FSA CP2) expected imminently; to cover issues arising from level 2 regulation including FSA interpretation of letterbox/ delegation provisions
UK application of the Remuneration Guidelines now not expected to form part of FSA CP2, and to be subject to separate consultation
FSA expected to transition into Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) on 1 April 2013
HM Treasury Consultation Paper 3 to be published covering issues arising from the level 2 measures not addressed in previous consultation papers
The above blog was also published by COO Connect, click here.
Further HM Treasury AIFMD consultation
While the industry eagerly anticipates the second FSA consultation papers (which was due today, but not published as yet), HM Treasury have published a follow-up Consultation Paper to their first paper published on 11 January. This shorter consultation paper considers a number of issues that could not be addressed in the first paper, in particular the managers of Common Investment Funds and Common Deposit Funds and their charity investors, non-UK managers of UK “recognised schemes”, and non-UK EEA managers of UK authorised funds. There is also an impact on the managers of internally managed investment companies. Draft regulations accompany the paper. The closing date for responses is the 5th April 2013.
INDOS Financial “Depo-Lite” article in Hedge Fund Journal
The latest issue of the Hedge Fund Journal includes INDOS Financial’s article “Depositary-Lite: Simple as the theory sounds?”. The article highlights the issues which many hedge funds may experience when trying to identify so-called ‘depo-lite’ service providers, particularly in the area of Article 21(9) oversight. At the time of writing the industry urgently awaits clarity from the FSA as to whether they will remove their ‘gold plating’ of the AIFMD and allow one or more firms (as contemplated by the level 1 text, rather than the FSA’s single firm approach) to perform the depo-lite functions. Persisting with the current gold plating would be a big issue for the industry and exacerbate the issues highlighted in the article. Latest thoughts are this will be clarified in an HM Treasury/ FSA publication over the next two weeks.
During February 2013 over 75 hedge fund chief operating officers took part in a series of AIFMD discussion groups initiated and moderated by Bill Prew of INDOS Financial. Following the sessions a large number of the attendees completed a survey, the results of which have been covered by HFM Week.
Whilst there are clearly frustrations that many of the requirements are not yet final only 4 months before the July implementation date, the hedge fund community is now actively engaging in AIFMD and working out how to implement in their organisations.
The results demonstrate many managers are intending to comply with the directive, rather than attempt to structure around it, although the majority expect to wait until 2014 to apply to the FSA to vary their permission. One of the biggest areas of concern is the impact the directive will have on a firm’s ability to market to EU professional investors, and whether what has been accepted as reverse solicitation in the past will be acceptable going forward.
Click on the link below to download the full survey results and industry comment.
AIMA AIFMD implementation event provides some answers
On 12th March 2013, the Alternative Investment Management Industry Association (AIMA) held an AIFMD implementation conference at the London offices of Simmons & Simmons. AIMA were joined by a representative from HM Treasury. Some useful feedback from HM Treasury (HMT) noting: strong support for the UK’s position that managers have a one year transitional period to become compliant with AIFMD; HMT are open to extending the transitional provisions to other EEA managers to market to UK investors through private placement (although they don’t think the directive allows them to extend this flexibility to non EU AIFM); and clarification which many managers have been looking for around the ability to launch a new AIF during the transitional period if you are not an AIFM.
Unfortunately remuneration will now be subject to consultation (and not form part of the FSA Consultation Paper 2 due around 14th March 2013) – creating more delay and uncertainty. In response to a question posed by INDOS Financial, there is still no clarity on the position with respect to the ‘gold plating’ of the depo-lite requirements which will impact the majority of the industry, but HMT appear mindful to allow non-bank depositaries for private equity funds.