There has been a lot of attention in recent months on the progress of managers toward the adoption of the Alternative Investment Fund Managers Directive (AIFMD). In this survey, we have taken an alternative standpoint and sought to develop an understanding of EU Member States’ AIFMD readiness. This will help clarify the likely future operating environment for firms and support their decision-making process as they move toward authorisation.
The AIFMD, which came into force on 22 July 2013, seeks to establish a harmonised regulatory framework for firms that manage and/or market alternative investment funds (AIFs) in the EU. An AIF has been defined broadly and catches a variety of non-UCITS investment vehicles such as closed-end listed vehicles (e.g., investment trusts) and private equity, real estate and hedge funds.
Scope and approach
EY and AIMA conducted a survey to assess EU Member States’ readiness for, and implementation approach to AIFMD, with emphasis on transposition timing, transitional provisions and private placement requirements. The survey also identified other key topical areas such as remuneration, depositary and reporting.
The initial findings, which were released on 24 July 2013, focused on transposition and transitional provisions for the 27 EU Member States as at 30 June 2013. The findings summarised here include Croatia, which became a member of the EU on 1 July 2013.
The survey was completed by leveraging EY and AIMA’s respective networks of contacts. The results represent responses collated by EY and AIMA as at 28 August 2013.
In our initial report we identified 12 countries that had transposed the AIFMD within the deadline. Since then, two more countries have adopted the Directive, and Croatia (which was not part of the initial sample) also transposed within the deadline. So far, 15 EU Member States have transposed the AIFMD.
Bulgaria, Italy, Romania and Spain have drafted their final regulations and are waiting for parliamentary approval. Belgium, Finland, Greece, Hungary, Lithuania, Poland, Portugal and Slovenia are in the early stages of drafting. Estonia has only partially implemented the Directive, which is the reason for its current classification.
The European Securities and Markets Authority (ESMA) has noted the lack of transposition in certain Member States and in alegal opinion issued on 2 August 2013, indicated that a lack of transposition should not be a barrier to market entry. EU firms that obtain AIFM authorisation in one Member State should therefore be able to utilise the marketing and management passport in a country that has not transposed the Directive.
While the formal launch date was 22 July 2013, the Directive allows Member States to provide a one-year transitional period. Some Members States have chosen to provide transitional relief related to the management and/or marketing of AIFs in their jurisdictions.
However, depending on the Member State, transitional relief may be limited or conditional on the nature of the AIFM (domestic, other European Economic Area (EEA) or non-EEA), the nature of the AIF (e.g., open-end or closed-end) and/or where the AIF was established. The summary table (see Table 1) does not distinguish on the basis of these AIF-related factors or on whether the transitional relief relates to management or marketing activities.
Firms should not be complacent during any available transitional period as most regulators have emphasised that an application for authorisation as an AIFM will take at least three months. In addition, regulators like the Financial Conduct Authority (FCA) in the UK and Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg have urged firms to consider submitting their AIFM applications sooner rather than later. The FCA in particular has advised that firms should submit their application by 22 January 2014.
Firms who have planned to submit an application toward the last available date of the transitional period should bear in mind that regulators are likely to be inflexible with “incomplete” applications.
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The survey shows that 17 countries intend to allow some form of private placement (under Articles 36 and/or 42 or otherwise), but the requirements vary among Member States:
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Most Member States are aligning the application of the remuneration requirements to AIFM authorisation, regardless of whether the AIFM is authorised during the transitional period. Financial groups whose employees manage a range of “regulated” portfolios will face a remuneration conundrum in that they will have to consider and potentially comply with at least two (AIFMD and CRD III/IV), and possibly three (UCITS), remuneration standards.
Seven countries intend to allow AIFMs to appoint a depositary in a different EU location to an EU AIF during the transition period. After 2017, the depositary and the AIF must be in the same location. The initiative may lead to opportunities for product development and should increase competition in the depositary space in some countries.
Most countries are looking to ESMA for guidance and clarification in relation to reporting dates, reporting languages and format. Where the local regulator has defined the requirements, there is variation in the reporting dates. In most cases, the reporting language has been defined as either English or the official local language with the exception of the Netherlands, which appears set to require reporting in both.
In addition, the reporting format will differ depending on the systems used by individual regulators.
Nine Member States will require AIFMs marketing non-EEA AIFs in their jurisdiction to engage a qualified auditor to perform statutory audits of each non-EEA AIF under the Statutory Audits Directive. This may result in an extra audit cost for such non-EEA AIFs.