EU Directive on Alternative Investment Fund Managers (AIFMs)
from the International Association of Hedge
Funds Professionals (IAHFP)
Proposal for a Directive on Alternative Investment Fund Managers
Chapter III
Operating conditions for AIFM
SECTION 1: CONDUCT OF BUSINESS
Article 9
General principles
1. Member States shall ensure that
Alternative Investment Fund Managers (AIFM) may provide their management
services
within the Community only if they comply with the provisions of this
Directive on
an ongoing basis.
The
Alternative Investment Fund Managers (AIFM) shall:
(a) act honestly, with due skill, care and diligence and fairly in
conducting itsactivities;
(b) act in the best interests of the AIF it manages, the investors
of those AIF and
the integrity of the market;
(c) ensure that all AIF investors are treated fairly.
No investor may obtain a preferential treatment, unless this is
disclosed in the AIF
rules or instruments of incorporation.
2. The Commission shall adopt implementing measures specifying the
criteria to be
used by competent authorities to assess whether AIFM comply with
their obligation
under paragraph 1.
Those measures, designed to amend non-essential elements of this
Directive by
supplementing it, shall be adopted in accordance with the regulatory
procedure with
scrutiny referred to in Article 49(3).
Article 10
Conflicts of interest
1. Member States shall require
Alternative Investment Fund Managers (AIFM) to take all reasonable steps to
identify conflicts of
interest between the AIFM, including their managers, employees or
any person
directly or indirectly linked to the AIFM by control, and the
investors in AIF
managed by the AIFM or between one investor and another that arise
in the course of
managing one or more AIF.
Alternative Investment Fund Managers (AIFM) shall
maintain and operate effective organisational and
administrative
arrangements with a view to taking all reasonable steps designed to
prevent conflicts
of interest from adversely affecting the interests of the AIF and
its investors.
Alternative Investment Fund Managers (AIFM) shall
segregate within its own operating environment, tasks and
responsibilities which may be regarded as incompatible with each
other.
Alternative Investment Fund Managers (AIFM) shall
assess whether its operating conditions may involve any other
material conflicts of
interest and disclose them to the AIF investors.
2. Where organisational arrangements made by the AIFM to manage
conflicts of
interest are not sufficient to ensure, with reasonable confidence,
that risks of damage
to investors' interests will be prevented, the AIFM shall clearly
disclose the general
nature or sources of conflicts of interest to the investors before
undertaking business
on their behalf, and develop appropriate policies and procedures.
3. The Commission shall adopt implementing measures:
(a) further specifying the types of conflicts of interests as
referred to in paragraph
1;
(b) specifying the reasonable steps AIFM are expected to take in
terms of internal
and organizational procedures in order to identify, prevent, manage
and
disclose conflicts of interest.
Those measures, designed to amend non-essential elements of this
Directive by
supplementing it, shall be adopted in accordance with the regulatory
procedure with
scrutiny referred to in Article 49(3).
Article 11
Risk management
1. The
Alternative Investment Fund Managers (AIFM) shall
ensure that the functions of risk management and
portfolio
management are separated and subject to separate reviews.
2. The
Alternative Investment Fund Managers (AIFM)
shall implement risk management systems in order to
measure and
monitor appropriately all risks associated to each AIF investment
strategy and to
which each AIF is or can be exposed to.
The
Alternative Investment Fund Managers (AIFM) shall
review the risk management systems at least once a
year and adapt
it, whenever necessary.
3. The
Alternative Investment Fund Managers (AIFM) shall at least:
(a) implement an appropriate, documented and regularly updated due
diligence process when investing on behalf of the AIF, according to the
investment
strategy, the objectives and risk profile of the AIF;
(b) ensure that the risks associated to each investment position of
the AIF and their
overall effect on the AIF's portfolio can be accurately identified,
measured and
monitored at any time through appropriate stress testing procedures;
(c) ensure that the risk profile of the AIF shall correspond to the
size, portfolio
structure and investment strategies and objectives of the AIF as
laid down in
the AIF rules or instruments of incorporation.
4. In the case of AIFM which engage in short selling when investing
on behalf of one
or more AIF, Member States shall ensure that the AIFM operates
procedures which
provide it with access to the securities or other financial
instruments at the date when
the AIFM committed to deliver them, and that the AIFM implements a
risk
management procedure which allows the risks associated with the
delivery of short
sold securities or other financial instruments to be adequately
managed.
5. The Commission shall adopt implementing measures further
specifying the
following:
(a) the risk management requirements to be employed by AIFM as a
function of
the risks which the AIFM incurs on behalf of the AIF that it
manages;
(b) any arrangements needed to enable AIFM to manage the particular
risks
associated with short selling transactions, including any relevant
restrictions
that might be needed to protect the AIF from undue risk exposures.
Those measures, designed to amend non-essential elements of this
Directive by
supplementing it, shall be adopted in accordance with the regulatory
procedure with
scrutiny referred to in Article 49(3).
Article 12
Liquidity management
1. For each AIF it manages the AIFM shall employ an appropriate
liquidity
management system and adopt procedures which ensure that the
liquidity profile of
the investments of the AIF complies with its underlying obligations.
The
Alternative Investment Fund Managers (AIFM) shall regularly conduct stress tests, both under normal and
exceptional
liquidity conditions and monitor the liquidity risk of the AIF
accordingly.
2.
Alternative Investment Fund Managers (AIFM) shall ensure that each AIF it manages has a redemption
policy which is
appropriate to the liquidity profile of the investments of the AIF
and which must be
laid down in the AIF rules or instruments of incorporation.
3 The Commission shall adopt implementing measures further
specifying:
(a) the liquidity management requirements set out in paragraph 1 and
(b) in particular, the minimum liquidity requirements for AIF which
redeem units
or shares more often than half-yearly.
Those measures, designed to amend non-essential elements of this
Directive by
supplementing it, shall be adopted in accordance with the regulatory
procedure with
scrutiny referred to in Article 49(3).
Article 13
Investment in securitisation positions
In order to ensure cross-sectoral consistency and to remove
misalignment between the interest
of firms that repackage loans into tradeable securities and other
financial instruments
(originators) and
Alternative Investment Fund Managers (AIFM)that invest in these securities or other
financial instruments on behalf
of one or more AIF, the Commission shall adopt implementing measures
laying down the
requirements in the following areas:
(a) the requirements that need to be met by the originator in order
for an
Alternative Investment Fund Manager (AIFM) to
be allowed to invest in securities or other financial instruments of
this type
issued after 1 January 2011 on behalf of one or more AIF, including
requirements that ensure that the originator retains a net economic
interest of
not less than 5 per cent;
(b) qualitative requirements that must be met by
Alternative Investment Fund Managers (AIFM) which invest
in these
securities or other financial instruments on behalf of one or more
AIF.
Those measures, designed to amend to amend non-essential elements of
this Directive by
supplementing it, shall be adopted in accordance with the regulatory
procedure with scrutiny
referred to in Article 49(3).
SECTION 2: CAPITAL REQUIREMENTS
Article 14
Initial and ongoing capital
Alternative Investment Fund Managers (AIFM) shall have own funds
of at least EUR 125 000.
Where the value of the portfolios of AIF managed by the
Alternative Investment Fund Managers (AIFM)
exceeds
EUR 250 million, the
AIFM shall provide an additional amount of own funds; that
additional amount of own funds
shall be equal to 0.02 % of the amount by which the value of the
portfolios of the AIFM
exceeds EUR 250 million.
Irrespective of the amount of the requirements set out in the first
and second subparagraphs, funds of the AIFM shall never be less than the amount
required under Article 21 of
Directive 2006/49/EC of the European Parliament and of the Council
of 14 June 2006 on the
capital adequacy of investment firms and credit institutions
(recast).
For the purposes of the first, second and third subparagraphs the
following portfolios shall be
deemed to be the portfolios of the AIFM:
(a) any AIF portfolios managed by the
Alternative Investment Fund Manager (AIFM), including AIF for which
the AIFM
has delegated one or more functions in accordance with Article 18;
(b) any AIF portfolios that the AIFM is managing under delegation.
SECTION 3: ORGANISATIONAL REQUIREMENTS
Article 15
General principles
Alternative Investment Fund Managers (AIFM) shall, at all times, use adequate and appropriate resources
that are necessary for the
proper performance of their management activities.
They shall have updated systems, documented internal procedures and
regular internal
controls of their conduct of business, in order to mitigate and
manage the risks associated with
their activity.
Article 16
Valuation
1.
Alternative Investment Fund Managers (AIFM) shall ensure that, for each AIF that it manages, a valuator
is appointed which
is independent of the AIFM to establish the value of assets acquired
by the AIF and
the value of the shares and units of the AIF.
The valuator shall ensure that the assets, shares and units are
valued at least once a
year, and each time shares or units of the AIF are issued or
redeemed if this is more
frequent.
2.
Alternative Investment Fund Managers (AIFM) shall ensure that the valuator has appropriate and
consistent procedures to
value the assets of the AIF in accordance with existing applicable
valuation standards
and rules, in order to reflect the net asset value of the shares or
units of the AIF.
3. The rules applicable to the valuation of assets and the
calculation of the net asset
value per unit or share of the AIF shall be laid down in the law of
the country where
the AIF is domiciled or in the AIF rules or instruments of
incorporation.
4. The Commission shall adopt implementing measures further
specifying the criteria
under which a valuator can be considered independent in the meaning
of paragraph
1.
Those measures, designed to amend non-essential elements of this
Directive by
supplementing it, shall be adopted in accordance with the regulatory
procedure with
scrutiny referred to in Article 49(3).
Article 17
Depositary
1. For each AIF it manages, the
Alternative Investment Fund Manager (AIFM) shall ensure that a depositary
is appointed to
fulfil, where relevant, the following tasks:
(a) receive all payments made by investors when subscribing units or
shares of an
AIF managed by the AIFM and book them on behalf of the AIFM in a
segregated account;
(b) safe-keep any financial instruments which belong to the AIF;
(c) verify whether the AIF or the AIFM on behalf of the AIF has
obtained the
ownership of all other assets the AIF invests in.
2. An
Alternative Investment Fund Manager (AIFM) shall not act as depositary.
The depositary shall act independently and solely in the interest of
AIF investors.
3. The depositary shall be a credit institution having its
registered office in the
Community and be authorised in accordance with Directive 2006/48/EC
of the
European Parliament and Council of 14 June 2006 relating to the
taking up and pursuit of the business of credit institutions
(recast).
4. Depositaries may delegate their tasks to other depositaries.
5. The depositary shall be liable to the AIFM and the investors of
the AIF for any losses red by them as a result of its failure to perform its
obligations pursuant to this
Directive.
In case of any loss of financial instruments which the depositary
safe-keeps, the
depositary can only discharge itself of its liability if it can
prove that it could not
have avoided the loss which has occurred.
Liability to AIF investors may be invoked either directly or
indirectly through the
AIFM, depending on the legal nature of the relationship between the
depositary, the
AIFM and the investors.
The depositary's liability shall not be
affected by any
delegation referred to in paragraph 4.
SECTION 4: DELEGATION OF AIFM FUNCTIONS
Article 18
Delegation
1.
Alternative Investment Fund Managers (AIFM) which intend to delegate to third parties the task of
carrying out on their behalf
one or more of their functions shall request prior authorisation
from the competent
authorities of the home Member State for each delegation.
The following conditions have to be complied with:
(a) the third party must be creditworthy and the persons who
effectively conduct
the business must be of sufficiently good repute and sufficiently
experienced;
(b) where the delegation concerns the portfolio management or the
risk
management, the third party must also be authorised as an
Alternative Investment Fund Manager (AIFM)to
manage an
AIF of the same type;
(c) the delegation shall not prevent the effectiveness of
supervision of the AIFM,
and in particular it must not prevent the AIFM from acting, or the
AIF from
being managed, in the best interests of its investors;
(d) the
Alternative Investment Fund Manager (AIFM) must demonstrate that the third party is qualified and
capable of
undertaking the functions in question, that it was selected with due
care and
that the AIFM is in a position to monitor effectively at any time
the delegated
activity, to give at any time further instructions to the third
party and to
withdraw the delegation with immediate effect when this is in the
interest of
investors.
No delegation shall be given to the depositary, the valuator, or to
any other
undertaking whose interests may conflict with those of the AIF or
its investors.
The
Alternative Investment Fund Manager (AIFM) shall review the services provided by each third party on
an ongoing
basis.
2. In no case shall the AIFM's liability be affected by the fact
that the AIFM has
delegated functions to a third party, nor shall the AIFM delegate
its functions to the
extent that, in essence, it can no longer be considered to be the
manager of the AIF.
3. The third party may not sub-delegate any of the functions
delegated to it.
4. The Commission shall adopt implementing measures further
specifying the
following:
(a) the conditions for approving the delegation;
(b) the conditions under which the manager could no longer be
considered to be
the manager of the AIF as set out in paragraph 2.
Those measures, designed to amend non-essential elements of this
Directive by
supplementing it, shall be adopted in accordance with the regulatory
procedure with
scrutiny referred to in Article 49(3).
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