(I) COMMISSION PUBLISHES LEVEL 2 REGULATION ON AIFMD
On 19 December, 2012, the Commission published its Level 2 measures on AIFMD which flesh out the rules for Alternative Investment Fund Managers ("AIFMs") in accordance with the AIFMD.
The Level 2 measures, formally a Commission Delegated Regulation, supplements AIFMD in a number of areas dealing in particular with operating conditions, organisational requirements, valuation rules, rules concerning the delegation of AIFM functions, depositaries' responsibilities and liabilities as well as capitalisation and own funds requirements for AIFMs and ancillary matters.
The Level 2 measures are now subject to a three month scrutiny period by the European Parliament and the Council and, unless either objects, will enter into force at the end of the three month period following publication in the Official Journal.
The level 2 measures will be directly effective in each EU Member State and therefore will not require any implementing measures to be adopted by national legislators or regulators.
(II) REVISED ALTERNATIVE INVESTMENT FUNDS HANDBOOK EXPECTED TO BE PUBLISHED IN JANUARY 2013
AIFMD sets out rules which will apply to all alternative investment fund managers from 22 July, 2013. In Ireland, AIFMD will be transposed into law by means of secondary legislation. The Central Bank has taken this opportunity to review, consolidate and simplify the existing regulation of non-UCITS investment funds into a single "AIF Handbook". This new draft handbook formed the basis of consultation paper (CP 60) on the implementation of AIFMD in Ireland and was published by the Central Bank on 30 October, 2012.
It is interesting to note that the format of the new handbook is different to the regime that is currently in place in that it does not contain any guidance but instead contains prescriptive language as to what can/cannot be done.
The Central Bank asked stakeholders for their views on the following proposals in CP60;
- Discontinuation of the Professional Investor Fund (PIF) regime;
- Removal of the promoter regime (which includes the promoter approval application and capital requirements). The Central Bank will place reliance instead on the AIFM taking into account the obligations which AIFMD imposes on the AIFM;
- Removal of a number of requirements which currently apply to Qualifying Investor Funds (QIFs) which do not substantially increase investor protection;
- Changes to the prime brokerage provisions which are currently contained in the Central Bank's Prime Broker Guidance Note;
- Measures to facilitate property and private equity funds;
- Provision for fair as opposed to equal treatment of investors in different share classes;
- Greater flexibility around side pockets;
- The introduction of Retail Investor Alternative Investor Fund.
The consultation period for CP 60 closed on 11 December 2012 and it is hoped that the AIF Handbook will be put in place in early 2013.
(III) ESMA CONSULTATION PAPER ON DRAFT REGULATORY TECHNICAL STANDARDS ON TYPES OF AIFMs
ESMA published a consultation paper entitled "Draft regulatory technical standards on types of AIFMs on 19 December, 2012. Article 4(4) of AIMFD provides that ESMA shall develop draft regulatory technical standards ("RTS") to determine types of Alternative Investment Fund Managers ("AIFMs"), where relevant in the application of AIFMD and to ensure uniform conditions on the application of AIFMD. ESMA published a discussion paper on the key concepts of AIFMD and the types of AIFM on 23 February, 2012 (the "Discussion Paper") and the Discussion Paper represented the first step in the elaboration of the draft RTS under Article 4(4) of AIFMD. It is intended the draft RTS should be aimed at determining the types of AIFM covered by AIFMD, thereby allowing appropriate differentiation of the requirements according to the nature of the entity.
The questions posed in the draft RTS can be summarised as follows;
- Do you agree with the approach taken by ESMA on the topics which are included in the draft RTS?
- Do you agree with the proposed definition of AIFM of open ended/closed ended Alternative Investment Funds ("AIFs")?
- Can you provide qualitative and quantitative data on the costs and benefits that the proposed definition of AIFMs of open ended/closed ended AIFs would imply?
- Do you consider that any possibility to redeem the AIFs units/shares on the secondary market and not directly from the AIF should be taken into consideration when assessing whether AIFM is and AIFM of open ended or closed ended AIFs? Alternatively do you consider (that as within the UCITS framework) only an action taken by an AIFM to ensure that the stock exchange value of the units of the AIF it manages does not significantly vary from their net assets value should be regarded as equivalent to granting to unitholders/shareholders the right to redeem their units or shares out of the assets of this AIF?
- Do you agree with the proposed approach as regards the treatment of hybrid structures?
- Do you consider merit in clarifying further the notion of contracts with prime brokers?
- Do you consider that there is a need to develop further typologies of AIFMS in the application of AIFMD?
ESMA has invited comments on the draft RTS and responses should be submitted by 1 February, 2013 online at www.esma.europa.eu under the heading "Your input – Consultations". All contributions received will be published following the close of the consultation period unless ESMA receives a request that a response should not be published. It is hoped that any response received will help ESMA to finalise the draft RTS to be submitted to the Commission in the first half of 2013 for endorsement.
It is likely that this consultation will be of particular relevance those who wish to avoid being the subject of AIFMD.
(IV) ESMA CONSULTATION PAPER "CONSULTATION ON GUIDELINES ON KEY CONCEPTS OF AIFMD"
ESMA published a consultation paper entitled "Guidelines on key concepts of the AIFMD" on 19 December, 2012 (the "draft Guidelines"). This draft Guidelines set out formal proposals for guidelines ensuring common, uniform and consistent application of the concepts of "AIF" which is contained in Article 4(1)(a) of AIFMD by providing clarification on these concepts. ESMA has stated that it is necessary to have a clear understanding of which entity is the AIFM which depends on a harmonised approach as to what constitutes an AIF.
The questions posed in the draft Guidelines can be summarised as follows;
- Do you agree with the approach taken by ESMA on the topics which are included in the draft Guidelines?
- What are your views on the concepts used in the definition of AIF in AIFMD? Do you agree with the criteria identified by ESMA for defining an AIF?
- Do you agree with the views expressed by ESMA on the concept of "raising capital"?
- Can you provide qualitative and quantitative data on the on the costs and benefits that the proposed guidance on the notion of raising capital would imply?
- Do you agree with the proposed guidance for identifying a "collective investment undertaking" for the purposes of the definition of AIF?
- Can you provide qualitative and quantitative data on the costs and benefits that the proposed guidance for identifying a "collective investment undertaking" would imply?
- Do you agree with the analysis on the absence of any day-to-day investor discretion or control of the underlying assets in an AIF?
- Do you agree that an ordinary company with general commercial purpose should not be considered a collective investment undertaking?
- What are the key characteristics defining an ordinary company with general commercial purpose?
- Do you agree with the proposed guidance for determining whether a "number of investors" exists for the purposes of the definition of AIF?
- Can you provide qualitative and quantitative data on the costs and benefits that the proposed guidance for determining whether a "number of investors" exists would imply?
- Do you agree with the proposed indicative criteria for determining whether a "defined investment policy" exists for the purposes of the definition of AIF?
ESMA has invited comments on the draft Guidelines and responses should be submitted by 1 February, 2013 online at www.esma.europa.eu under the heading "Your input – Consultations". All contributions received will be published following the close of the consultation period unless ESMA receives a request that a response should not be published. It is hoped that any response received will help ESMA to finalise guidelines on the key concepts of AIFMD in the first half of endorsement.
(V) EU AND SWISS REGULATORS TO CO-OPERATE ON CROSS-BORDER SUPERVISION OF AIFs
ESMA approved the co-operation arrangements between the Swiss Financial Market Supervisory Authority FINMA and the EU securities regulators for the supervision of AIFs including hedge funds, private equity and real estate funds on 3 December, 2012. ESMA negotiated the agreement with FINMA on behalf of all 27 EU national competent authorities for securities markets regulation. The agreement will take the form of a Memorandum of Understanding (MoU) between the EU securities supervisors and FINMA.
The co-operation arrangements include the exchange of information, cross-border on-site visits and mutual assistance in the enforcement of the respective supervisory laws. This co-operation will apply to Swiss AIFMs that manage or market AIFs in the EU and to EU AIFMs that manage or market AIFs in Switzerland.
The agreement also covers co-operation in the cross-border supervision of depositaries and AIFMs' delegates.
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