Client Newsletter Winter 2009 - Financial Services

Author:Ms Karen Jennings
Profession:Dillon Eustace

In this issue:-

Compromise Proposal Published By The Council Of The European Union On The Draft AIFM Directive UCITS IV Redomiciling Investment Fund To Ireland EU regulation Of Packaged Retail Investment Products European Commission Public Consultation On UCITS Depositaries IFIA And AIMA Launch Revised Guide To Sound Practices For Hedge Fund Administrators The Payment Services Regulations, 2009 Lehman's Client Money Ruling COMPROMISE PROPOSAL PUBLISHED BY THE COUNCIL OF THE EUROPEAN UNION ON THE DRAFT AIFM DIRECTIVE


On 30 April 2009, the EU Commission ("EC") published an initial draft of the Directive on Alternative Investment Fund Managers (the "Directive"). Since the publication of the Directive, the provisions of the Directive have been the subject of considerable debate (and criticism) amongst interested parties and have been discussed at numerous meetings of the EU Council working group, most recently under the Swedish Presidency. On 25 November 2009 the Swedish Presidency published a compromise proposal for the Directive. Details of the latest compromise proposal are set out below.


The Directive will apply to alternative investment fund managers ("AIFM") established in the EU that manage or market non-UCITS funds with assets under management exceeding €100 million. Accordingly, managers of hedge funds, private equity funds, real estate funds, commodity funds, infrastructure funds and any other alternative investment funds (hereinafter "AIF") will come within the scope of the Directive.

Under the Directive the EU Home State regulator is required to ensure that no AIFM manages an AIF unless it has been authorised in accordance with the Directive.

The Directive will:

Adopt an 'all encompassing' approach to ensure that no significant AIFM is outside of regulation and oversight, while providing exemptions for smaller managers. It will only apply to AIFM managing a portfolio of €100 million plus. A higher threshold of €500 million applies to AIFM not using leverage (and having a five year lock-in period for their investors) as they are not regarded as posing systemic risks. Aim to regulate major sources of risks in the alternative investment value chain by ensuring that AIFM are authorised and subject to ongoing regulation; The original daft of the Directive would have required the AIFM to ensure that each AIF it manages appoints an independent valuation agent. The Directive as amended no longer requires the appointment of an independent valuation agent, however, the Directive sets out rules in relation to the valuation of investments; Both the original and second draft of the Directive impose certain obligations as regards "depositaries". An AIFM is required to ensure that a "depositary" holds all financial instruments that can be kept and which are subject to regular trading in a segregated account opened or held in the name of one or more AIF (and not in the name of the depositary or its agents). The original draft of the Directive imposed strict liability on depositaries for its own failures and for those of any sub-custodians which it appointed. The compromise proposal contained in the latest draft Directive modifies the strict liability position in a manner which is not entirely clear; Increase the transparency of AIFM and the funds they manage for supervisors, investors and other key stakeholders; The new draft of the Directive includes entirely new and detailed provisions relating to the remuneration policies and practices followed by AIFM. Details of the remuneration paid to the AIFM's employees (together with carried interest) will need to be disclosed to investors in the annual report. Such requirements were not contained in the initial draft...

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