Following a protracted period of intense lobbying at European level, the European Parliament and the EU Council recently finalised their respective drafts of the Alternative Investment Fund Managers Directive. There are currently a number of differences between the two draft texts on areas such as the treatment of third-country funds, delegation requirements and depositary liability, and further efforts are needed to try and reconcile the two competing texts. Sarah Lyons reports. The aim of the Alternative Investment Fund Managers Directive is to enhance the transparency of the activities of alternative investment fund managers and the funds they manage. The Directive aims to regulate alternative fund managers, rather than the alternative investment funds themselves. However the provisions of the Directive indirectly impose requirements on alternative investment funds, including requirements for valuation, risk management and depositary rules. It also applies to the marketing of alternative investment funds in an EU Member State, whether or not the fund manager or the fund is established in the European Union.
Under the new regime, alternative investment fund managers will need to obtain authorisation in their home member state to operate within the EU. This will require fund managers to demonstrate that they are suitably qualified to manage alternative investment funds and to submit detailed information about planned activities, details of the characteristics of the funds under management and extensive information where it is intended to delegate management of a fund. Fund managers will be subject to conduct of business rules, conflicts of interest procedures and other regulatory requirements. The main justification for the draft Directive was the alleged susceptibility of alternative investment fund managers to risk and their ability to undermine the integrity of the European financial markets. However, many see the new legislation as another regulatory measure that will drive hedge fund activity offshore to avoid regulation. There are still a number of issues which are a cause of concern for member states and these issues need to be resolved. The main areas that will generate further debate are as follows:
The assets of the alternative investment fund must be placed with a depositary that is an EU credit institution, an investment firm compliant with the Markets in Financial Instruments Directive, or a firm...