Hedge Funds Worried By EC Plan To Enforce AIFMD

Apr 2 2012 | 9:27am ET

The Alternative Investment Management Association, a hedge fund lobby group, is worried about the European Commission’s plans for implementing new regulations governing alternative investment managers.

The source of AIMA’s concern is the Commission’s 110-page draft text of “supplementing rules” to enforce the Alternative Investment Fund Managers Directive. AIMA is concerned that the new rules ignore the advice of the European Securities and Markets Authority.

AIMA says the EC is seeking to implement the AIFMD as a regulation rather than a directive, meaning it would take effect more quickly. The  Commission has given EU member states and the European Parliament two weeks to respond to this new text.

Said AIMA CEO Andrew Baker, in a statement: “We are concerned that this draft regulation appears to significantly and substantially diverge from the ESMA advice in a number of key areas, including third-country provisions, depositaries, delegation, leverage, own funds, professional indemnity insurance, appointment of prime brokers and calculation of assets under management.

“We fully respect the Commission’s right not to follow ESMA advice when producing secondary legislation. However, there should be more transparency and better consultation if the Commission has decided to depart from the advice in such crucial areas for the global asset management industry.”

AIMA is particularly alarmed about the third-country provisions, which govern how managers operating in non-EU jurisdictions may access EU investors. The  Commission is considering requiring EU and non-EU regulators to sign cooperation agreements that would be legally binding on both parties.

Said Baker, “These would be extremely problematic if not impossible to conclude if the regulation prescribes that the cooperation agreements ensure that third-country regulators enforce EU law in their territories. It could be extremely difficult for many regulators to be able to sign up to that. We urge the Commission to clarify this issue in their final text.

“Without cooperation agreements, asset managers outside the EU will not be able to access investors in the EU except through reverse solicitation. This would close the door to national private placement regimes in the EU, which would have a major impact on asset managers globally. It would also prevent delegation of portfolio management outside of the EU, which would-be of great concern for global asset managers.     

“ESMA has made it clear in its advice that cooperation agreements are to be signed on a best-efforts basis and are meant to reflect international norms such as the IOSCO Multilateral Memorandum of Understanding. We hope the Commission follows this advice.” 

EU officials claim that most of the ESMA advice was incorporated by the Commission and that any changes made as the advice was translated into legal text were needed to improve legal certainty or make sure the regulations were comparable across the EU.

“Implementing measures are made to make the directive operational, not to try and get back what might have been lost in earlier compromises,” a Commission spokesperson told the Financial Times. “There is very broad support for the direction of travel. Some issues still need to be ironed out which is completely normal at this stage.”


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