Regulation

Some key EU markets ‘gold plating’ AIFMD, says AIMA/EY survey

Some key European markets are “gold-plating” the marketing requirements for legacy national private placement regimes (NPPR) over and above those required by the Alternative Investment Fund Managers Directive (AIFMD).

This according to “AIFMD: The Road to Implementation”, a joint survey by the Alternative Investment Management Association (AIMA), the global hedge fund industry association, and EY.

The survey sought to develop an understanding of EU member states’ actual readiness to implement AIFMD. While several countries including the UK, Ireland, Sweden and Luxembourg are requiring non-domestic AIFMs to comply only with the minimum rules laid down by the AIFMD when using private placement in their countries, some countries have chosen to impose additional requirements.

France has elected to impose such significant additional requirements on non-domestic AIFMs seeking to market under France’s private placement regime that they will find it extremely difficult to market AIFs in France. Germany is one of a small number of EU countries that will require non-EU AIFMs of non-EU AIFs to appoint an entity to carry out the so called “depositary-lite” duties of cash monitoring, safekeeping of assets and oversight and verification, a requirement under the Directive applied only to EU AIFMs marketing non-EU AIFs.

Jiri Krol, AIMA’s deputy chief executive, head of government and regulatory affairs, says: “Investors in those jurisdictions that have gold-plated the minimum requirements set out in the Directive for the national private placement regimes will have a more restricted selection of funds to choose from compared to peers in other countries. However those member states which sought the preservation of private placement regimes have provided transitional relief and refrained from imposing additional rules.”

Other requirements across member states are not uniform. At least nine countries will require EU AIFMs marketing non-EU AIFs in their jurisdictions to engage a qualified auditor to perform statutory audits of each non-EU fund under the EU’s Statutory Audits Directive, potentially increasing those funds’ audit costs.

At least seven countries intend to allow AIFMs of EU AIFs to appoint a depositary in a country other than the country of the fund’s domicile – an option which, if introduced more widely, could generate greater competition in the depositary sector.

Benjamin Lucas, director at EY, says: “Uncertainty and a lack of clarity have impacted the number of authorisations to date. However, the survey shows that, while managers may be hesitant, the commitment from member states to adopt AIFMD has actually been remarkably positive. AIFMD is taking root far quicker than other regulations have in the past.

“Almost all ‘core’ member states have transposed the Directive and the majority are allowing transitional relief. However, it is clear from some of the changes made to private placement regimes that the transition period is little more than short-term pain-relief. Regulators are keen to incentivise firms to get authorised as soon as possible and the recent clarification of reporting requirements from ESMA appears to have acted as a trigger event for managers who have been holding back until the last minute. In the past month there has been a significant increase in firms looking for support both through the authorisation process and beyond. The extent to which this will translate into actual authorised entities remains to be seen.” 

The survey, which was completed on 28 August 2013, builds on an initial set of findings that AIMA and EY released two days after the AIFMD began to take effect on 22 July. That initial report focused on transposition and transitional arrangements and showed mixed progress in terms of AIFMD implementation.

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