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ESMA needs to clarify specific Annex IV issues

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Ask any AIFM what the key regulatory challenge is under AIFMD and the response is unanimous: Annex IV reporting. 

The first deadline, 31 January 2015, has passed. But there are still many points to clarify on a substantial transparency report; one that any manager, EU or non-EU, must file regardless of whether they are using the AIFMD passport or merely privately placing their offshore fund in one or two markets. 

“EU-based AIFMs left it to the very last minute to begin the process and there was a mad scramble to gather a range of disparate data from all their service providers and counterparties. In many cases, AIFMs have left themselves little time to review and reconcile ESMA guidance with FCA guidance. That’s what is consuming a lot of my time now; for the first time people are looking closely at the reporting obligations and trying to make sense of them,” says Dan Connell (pictured), President at New York-based ConceptONE LLC. 

ConceptONE specialises in regulatory and risk reporting. The firm has developed a regulatory enterprise risk management solution – RegERM™ – specifically to meet the regulatory reporting challenge. A holistic solution, it arms managers with the tools needed to meet today’s myriad reporting needs: not just Annex IV, but Form PF and CPO-PQR under Dodd Frank, as well as EMIR and ESMA short selling.

ConceptONE typically works with large established managers, who by default fall under the full scope of the directive.

“For non-EU managers, most are facing confusion over how to file Annex IV. In the UK, for example, non-EU managers that were not previously registered with the FCA do not yet have all of the necessary identifying information to file via GABRIEL (the FCA’s online reporting hub). Other Member States like the Netherlands and Norway have said that AIFMs do not have to submit their first filings until Q2 because they themselves are not yet ready to process them,” explains Connell. 

Another key issue with Annex IV that needs clarifying is the master/feeder look-through requirement. Under article 24.2 of the directive, the reporting obligations apply only to AIFs that a manager markets into the EU. Most managers market feeder funds but the aim of Annex IV is to capture systemic risk by receiving details on the fund’s trade positions, leverage, counterparty relationships, etc; basically, all the key information that resides in the Master Fund.

“The only Member State that has provided clear clarification on this is the UK. They have instructed EU-based AIFMs to look-through into the underlying investments of the Master Fund. Non-EU AIFMs have no such requirement. Germany and the Netherlands have publicly stated that they will not expect look-through whilst Belgium has stated they expect both EU and non-EU AIFMs to provide look-through,” says Connell. 

Everything in Europe, from usernames and passwords to what version of XML needs to be used for the report, has been decentralised and as a result is quite disorientating for managers, says Connell, who stresses that how to calculate the AuM and the look-through requirement are the two key issues that need to be harmonised by ESMA as soon as possible.

“We feel that for EU managers in particular, this whole exercise of compiling data for Annex IV will create a lot of demand for RegERM moving forward,” concludes Connell. 

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