Alternative Investment Fund Managers Directive
AIFMD Level 2 regulations published on 19 December 2012
On 19 December 2012, the European Commission (EC) published its delegated acts (the Level 2 Regulation) under the Alternative Investment Fund Managers Directive (AIFMD). The Level 2 Regulation provides the long awaited detail behind many of the elements of the Directive which sets out to regulate all managers of non-UCITS funds in Europe or marketing funds into Europe.
With the adoption of Level 2, we are publishing a series of Newsbriefs to provide a closer look at the requirements that AIFMs and depositaries will need to meet as well as issues they will be facing:
- The AIFM: Getting Authorised
- The AIFM and its delegates: Getting organised
- Depositaries
- Risk Management
- Valuation
- Transparency and Reporting
- Strategy, Marketing and Distribution
- The AIFMD outside the European Union
An overview of the key provisions of the Level 2 regulations is included in our Flash News: AIFMD: the final details take shape
ESMA final guidelines on sound remuneration policies
On 11 February 2013, the European Securities and Markets Authority (ESMA) published its final guidelines on sound remuneration policies under the Alternative Investment Fund Managers Directive (AIFMD).
AIFMD implementation overview in EU Member States
With an implementation deadline of 22 July 2013 for AIFMD, this document provides an overview of the AIFMD implementation in EU Member States as of 26 April 2013.
AIFMD - Luxembourg - Bill of Law has been submitted to the Parliament on 24 August 2012
On 24 August 2012, the Minister of Finance, Mr Luc Frieden, submitted a bill to Parliament implementing the Alternative Investment Fund Managers Directive (AIFMD) in Luxembourg. The bill of law n°6471 includes the transposition of the AIFMD as well as modifications and enhancements to existing laws. The bill is expected to be passed by the Parliament before the end of the year, seven months ahead of the deadline imposed by the Directive.
The AIFMD Background
After nineteen months of heated and controversial debates, both at an industry and at a political level, the final text of the Alternative Investment Fund Managers Directive (« AIFMD ») was adopted on its first reading in the European Parliament plenary session on 11 November 2010. The Directive was published in the Official Journal on 1 July 2011 and entered into force 20 days after its publication. The Member States are required to implement the Directive into their national laws within two years, i.e. mid-2013.
The European Securities and Markets Authority (ESMA) has been given the mandate by the EU to define Level 2 legislation in response to Level 1 text. The ESMA published on 13 July 2011 a consultation paper setting out its proposals for the detailed rules underlying the AIFMD. The consultation periods for the consultation papers closed in September 2011, leaving ESMA with the substantial task of having to review, distil and interpret over 100 responses to formulate its Final Advice to the Commission.
ESMA published its Final Advice on 16 November 2011to the European Commission on possible implementing measures. The final Level 2 regulation were issued by the European Commission on 19 December 2012.
The expected next steps are the following:
- Both the Council and the Parliament will have three months to review the draft measures;
- EU Member States will need to transpose the AIFMD into their national law by July 2013; and
- AIFM’s existing as of July 2013 will need to be authorised by July 2014.
The Challenge
The AIFMD will heavily affect the non-UCITS sector. Gearing up for AIFMD requires all industry participants, especially managers, to start taking action as soon as possible.
With its 71 articles, the AIFMD will result in a number of significant alterations to the current organisational structure and business practice of the non-UCITS sector. With at least 48 subsidiary pieces of technical guidelines, rule making and review to follow, many more details on how AIFMD will apply in practice will emerge. There are a number of challenges to be addressed by the AIFMs in scope of the directive and we have listed some of the most important challenges ahead:
- Scope: This remains an area of uncertainty. The definitions of an AIFM and an AIF in the Directive seem straight-forward, but because of the diversity of entities and products within the EU, applying these definitions is far more complex. ESMA is fully aware of these issues and, to the extent that the individual Member State regulators do not deal with this issue, ESMA will hopefully address this in the technical standards it is also due to produce;
- Depository: The range of responsibilities of the depositary is now much strictly defined than under the UCITS regime and will significantly increase. Rules regarding the liability of the depositary are far reaching;
- Operating conditions: The AIFM will have to comply with specific substance, conflict of interest, risk management and liquidity management requirements;
- Risk management: A clear risk management process needs to be implemented whereby all risks associated with the AIF will need to be measured and monitored (e.g. market risk, counterparty risk and operational risk). A strong liquidity management process will need to be put in place;
- Valuation: The valuation function will need to be robust and have a high degree of operational independence;
- Remuneration: The AIFM will have to adopt specific remuneration policies which are aligned to the recent EU Capital Requirements Directive for the financial services industry;
- Reporting and disclosure: The AIFM will have to comply with several reporting and disclosure requirements towards the regulators and the authorities; and
- Third country regime: EU AIFs and non-EU AIFs, managed either by an EU AIFM or a non-EU AIFM, and marketing to MiFID professional investors domiciled within the EU will need to review their organisational structures and business models to see how they can best fit the requirements of the AIFMD.
In addition to other conditions, there are certain requirements which may have major impacts for specific industries, like the asset stripping rules and requirements in case of investments in non-listed companies and issuers which will primarily affect the private equity industry.
How we can help?
We have a multi-disciplinary and multi-industry team of professionals in business strategy, operation and structuring, regulatory compliance, tax, remuneration and assurance services ready to assist you: identify and assess the many impacts of the Directive on your organisation and develop an integrated response to the AIFMD. Our team works closely with the PwC European AIFMD working group to ensure knowledge and best practices are shared on a Pan-European basis.
