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
Proposal for a
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
on Alternative Investment Fund Managers and amending Directives
2004/39/EC and
2009/…/EC
(Text with EEA relevance)
THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty establishing the European Community, and
in particular Article
47(2) thereof,
Having regard to the proposal from the Commission,
Having regard to the opinion of the European Economic and Social
Committee,
Having regard to the opinion of the European Central Bank,
Acting in accordance with the procedure laid down in Article 251 of
the Treaty,
Whereas:
(1) Managers of alternative investment funds (AIFM) are responsible
for the management
of a significant amount of invested assets in Europe, account for
significant amounts
of trading in markets for financial instruments, and can exercise an
important influence
on markets and companies in which they invest;
(2) The impact of
Alternative Investment Fund Managers (AIFM) on the markets in which they operate is
largely beneficial, but
recent financial difficulties have underlined how activities of
Alternative Investment Fund Managers (AIFM)
may also serve to
spread or amplify risks through the financial system.
Uncoordinated
national
responses to these risks make the efficient management of these
risks difficult.
This
Directive therefore aims at establishing common requirements
governing the
authorisation and supervision of
Alternative Investment Fund Managers (AIFM) in order to provide a coherent
approach to the
related risks and their impact on investors and markets in the
Community.
(3) Recent difficulties in financial markets have underlined that
many
Alternative Investment Fund Managers (AIFM) strategies are
vulnerable to some or several important risks in relation to
investors, other market
participants and markets.
In order to provide comprehensive and
common
arrangements for supervision, it is necessary to establish a
framework capable of
addressing those risks taking into account the diverse range of
investment strategies
and techniques employed by
Alternative Investment Fund Managers (AIFM).
Consequently, this Directive should
apply to
AIFM managing and marketing all types of funds which are not covered
by Directive
2009/…/EC on the coordination of laws, regulations and
administrative provisions
relating to the undertakings for collective investment in
transferable securities
(UCITS) (recast) irrespective of the legal or contractual manner
in which the AIFM
is entrusted with this responsibility.
AIFM should not be entitled
to manage UCITS
within the meaning of Directive 2009/…/EC on the basis of
authorisation under this
Directive.
(4) The Directive lays down requirements regarding the way in which
Alternative Investment Fund Managers (AIFM) should
manage alternative investment funds (AIF) under their
responsibility.
It would be
disproportionate to regulate the structure or composition of the
portfolios of the AIF
managed by AIFM and it would be difficult to provide for such
extensive
harmonisation due to the very diverse types of AIF managed by
Alternative Investment Fund Managers (AIFM).
(5) The scope of this Directive should be confined to the management
of collective
investment undertakings which raise capital from a number of
investors with a view to
investing it in accordance with a defined investment policy on the
principle of risk spreading
for the benefit of those investors.
This Directive should
not apply
to the
management of pension funds or managers of non-pooled investments
such as
endowments, sovereign wealth funds or assets hold on own account by
credit
institutions, insurance or reinsurance undertakings.
This Directive
should neither apply
to actively managed investments in the form of securities, such as
certificates,
managed futures, or index-linked bonds.
It should, however, cover
managers of all
collective investment undertakings which are not required to be
authorised as UCITS.
Investment firms authorised under Directive 2004/39/EC on
Markets in
Financial
Instruments should not be required to obtain an authorisation
under this Directive in
order to provide investment services in respect of AIF.
Investment
firms can however
only provide investment services in respect of AIF, if and to the
extent the units or
shares thereof can be marketed in accordance with this Directive.
(6) In order to avoid imposing excessive or disproportionate
requirements, this Directive
provides for an exemption for AIFM where the cumulative AIF under
management
fall below a threshold of EUR 100 million.
The activities of the
Alternative Investment Fund Managers (AIFM) concerned are
unlikely to have significant consequences for financial stability or
market efficiency.
For AIFM which only manage unleveraged AIF and do not grant
investors redemption
rights during a period of five years a specific threshold of
EUR 500
million applies.
This specific threshold is justified by the fact that managers of
unleveraged funds,
specialised in long term investments, are even less likely to cause
systemic risks.
Furthermore, the five years lock-up of investors eliminates
liquidity risks.
AIFM
which are exempt from this Directive should continue to be subject
to any relevant
national legislation.
They should however be allowed to be treated
as
Alternative Investment Fund Managers (AIFM) subject to
the opt-in procedure foreseen by this Directive.
(7) This Directive aims at providing a harmonised and stringent
regulatory and
supervisory framework for the activities of
Alternative Investment Fund Managers (AIFM). Authorisation in
accordance with this Directive should cover the services of management and
administration of AIF
throughout the Community.
In addition, authorised
Alternative Investment Fund Managers (AIFM) should be
entitled to market
AIF in the Community to professional investors, subject to a
notification procedure.
(8) This Directive does not regulate AIF and therefore does not
prevent Member States
from adopting or from continuing to apply additional requirements in
respect of AIF
established on their territory.
The fact that a Member State may
impose additional
requirements on AIF domiciled on its territory should not prevent
the exercise of
rights of
Alternative Investment Fund Managers (AIFM) authorised in other Member States in accordance with
this Directive to
market to professional investors AIF domiciled outside the Member
State imposing
additional requirements and which are therefore not subject to and
do not need to
comply with those additional requirements.
(9) Without prejudice to the application of other instruments of
Community law, Member
States may impose stricter requirements on
Alternative Investment Fund Managers (AIFM) whenever AIFM market
an AIF
solely to retail investors or whenever AIFM market the same AIF both
to professional
and retail investors, irrespective of whether units or shares of
this AIF are marketed on
a domestic or cross-border basis.
These two exceptions enable Member
States to
impose additional safeguards which they deem necessary for the
protection of retail
investors.
This takes account of the fact that AIF
are often
illiquid and subject to high
risk of substantial capital loss.
Investment strategies in relation
to AIF are generally
not adapted to the investment profile or needs of retail investors.
They are more
suitable for professional investors and investors having a
sufficiently large investment
portfolio so as to be able to absorb the higher risks of loss
associated with these
investments.
Nevertheless, Member States may allow the marketing of
all or certain
types of AIF managed by
Alternative Investment Fund Managers (AIFM) to retail investors on their territory.
Against the
background of paragraphs 4 and 5 of Article 19 of Directive
2004/39/EC, Member
States should continue to ensure that appropriate provision is made
whenever they
permit the marketing of AIF to retail investors.
Investment firms
authorised in
accordance with Directive 2004/39/EC which provide investment
services to retail
clients have to take into account these additional safeguards when
assessing whether a
certain AIF is suitable or appropriate for an individual retail
client.
Where a Member
State allows the marketing of AIF to retail investors on its
territory, this possibility
should be available regardless of the Member State where the AIFM is
established,
and any additional provisions should apply on a non-discriminatory
basis.
(10) In order to ensure a high level of protection of clients of
investment firms within the
meaning of Directive 2004/39/EC, AIF should not be considered as
non-complex financial instruments for the purposes of that Directive.
That
Directive should
therefore be amended accordingly.
(11) It is necessary to provide for the application of minimum
capital requirements to
ensure the continuity and the regularity of the management services
provided by the
Alternative Investment Fund Managers (AIFM).
The ongoing capital requirements should cover the potential
exposure of
Alternative Investment Fund Managers (AIFM)
to professional liability in respect of all their activities,
including management services
provided under delegation or on the basis of a mandate.
(12) It is necessary to ensure that
Alternative Investment Fund Managers (AIFM) operate subject to
robust
governance controls.
AIFM should be managed and organised so as to minimise
conflicts of
interest.
Recent
developments underline the crucial need to separate asset
safe-keeping and
management functions, and segregate investor assets from those of
the manager.
To this end, the AIFM has to appoint a depositary and entrust it with
the booking of
investor money on a segregated account, the safe-keeping of
financial instruments and
the verification of whether the AIF or the
Alternative Investment Fund Managers (AIFM) on behalf of the AIF
has obtained
ownership of all other assets.
(13) Reliable and objective asset valuation is crucial for the
protection of investor interests.
Different
Alternative Investment Fund Managers (AIFM) employ different methodologies and systems for
valuing assets,
depending on the assets and markets in which they predominantly
invest.
It is
appropriate to recognise these differences but to, nevertheless,
require the valuation of
assets to be undertaken by an entity which is independent of the AIFM.
(14)
Alternative Investment Fund Managers (AIFM) may delegate responsibility for the performance of its
functions in accordance
with this Directive.
AIFM should remain responsible for the proper
performance of
their functions and compliance with the rules set out in this
Directive.
(15) Given that AIFM employing high levels of leverage in their
investment strategies may,
under certain conditions, contribute to the build up of systemic
risk or disorderly
markets, special requirements should be imposed on
Alternative Investment Fund Managers (AIFM) using
certain techniques
giving rise to particular risks.
The information needed to detect,
monitor and respond
to those risks has not been collected in a consistent way throughout
the Community,
and shared across Member States so as to identify potential sources
of risk to the
stability of financial markets in the Community.
To remedy this
situation, special
requirements should apply to AIFM, which consistently use high
levels of leverage in
their investment strategies.
Those
Alternative Investment Fund Managers (AIFM) should be
obliged to
disclose information
regarding their use and sources of leverage.
That information should
be aggregated
and shared with other authorities in the Community, so as to
facilitate a collective
analysis of the impact of the leverage of those
Alternative Investment Fund Managers (AIFM) on the
financial system in the
Community, as well as a common response.
(16) Activities of AIFM based on the use of high levels of leverage
could be detrimental to
the stability and efficient functioning of financial markets.
It is
considered necessary to
allow the Commission to impose limits on the level of leverage that
AIFM could use,
in particular in those cases where
Alternative Investment Fund Managers (AIFM) employ
high levels of
leverage on a
systematic basis.
The limits to the maximum amount of leverage
should take into
account aspects related to the source of leverage and the strategies
employed by the
Alternative Investment Fund Managers (AIFM).
They should also take into account the essentially dynamic
nature of the
management of leverage by most
Alternative Investment Fund Managers (AIFM) using a
high level of leverage.
In this respect
the limits to leverage could for example either consist in a
threshold that should not be
breached at any point in time or a limit on the average leverage
employed during a
given period (i.e. monthly or quarterly).
(17) It is necessary to ensure that an AIFM provides all companies
over which it can
exercise a controlling or dominant influence with the information
necessary for the
company to assess how this controlling influence in the short to
medium term impacts
the company's economic and social situation.
To this end, particular
requirements
should apply to
Alternative Investment Fund Managers (AIFM) managing AIF which are in a position to
exercise controlling
influence over a listed or non-listed company, in particular to
notify the existence of
this position and to disclose information to the company and all its
other shareholders
about the intentions of the AIFM with regard to the
future business
development and
other planned changes of the controlled company.
In order to ensure
transparency
regarding the controlled company, enhanced reporting requirements
should apply. The
annual reports of the relevant AIF should be supplemented with
information that is
specific to the type of investment and the controlled company.
(18) Many
Alternative Investment Fund Managers (AIFM) currently manage AIF domiciled in third countries.
It
is appropriate to
allow authorised
Alternative Investment Fund Managers (AIFM) to manage AIF domiciled in third countries,
subject toappropriate arrangements that ensure the sound administration of
those AIF and the
effective safe-keeping of assets invested by Community investors.
(19)
Alternative Investment Fund Managers (AIFM) should also be able to market AIF domiciled in third
countries to professional
investors both in the home Member State of the AIFM and in other
Member States.
That right should be subject to notification procedures and the
existence of a tax
agreement with the third country concerned which ensures an
efficient exchange of
information with the tax authorities in the domicile of the
Community investors.
Given
the fact that such AIF and the third country in which they are
domiciled have to meet
additional requirements, some of which first have to be laid down in
implementing
measures, the rights granted under the Directive to market AIF
domiciled in third
countries to professional investors should only become effective
three years after the
transposition period.
In the meantime Member States may allow or
continue to allow
Alternative Investment Fund Managers (AIFM) to market AIF domiciled in third countries to professional
investors on their
territory subject to national law.
During this period of three
years,
Alternative Investment Fund Managers (AIFM) can however
not market such AIF to professional investors in other Member States
on the basis of
rights granted under this Directive.
(20) It is appropriate to allow the
Alternative Investment Fund Managers (AIFM) to delegate administrative
tasks to an entity
established in a third country provided that necessary safeguards
are in place.
Similarly, a depositary may delegate its depositary tasks in respect
of AIF domiciled in
a third country to a depositary domiciled in that third country,
provided that the
legislation of that third country ensures a level of protection of
investor interests which
is equivalent to that in the Community.
Under certain conditions, it
should also be
possible for the
Alternative Investment Fund Managers (AIFM) to appoint an independent valuator established
in a third
country.
(21) Subject to the existence of an equivalent regulatory framework
in a third country, as
well as of effective access for
Alternative Investment Fund Managers (AIFM) established in the Community to
the market of
that third country, Member States should be allowed to authorise AIFM in accordance
with the provisions of this Directive, without requiring that it has
a registered office in
the Community, after a period of three years as from the end of the
transposition
period.
This period takes account of the fact that such
Alternative Investment Fund Managers (AIFM)and the
third country in
which they are domiciled have to meet additional requirements some
of which first
have to be laid down by implementing measures.
(22) It is necessary to clarify the powers and duties of competent
authorities responsible for
implementing this Directive, and to strengthen the mechanisms needed
to ensure the
necessary level of cross-border supervisory cooperation.
(23) The relative importance of the activities of
Alternative Investment Fund Managers (AIFM) in some
financial markets, especially
in those cases where the AIF they manage do not have a material
interest in the
underlying products or instruments from which those markets derive,
could, under
some circumstances, hinder the efficient functioning of those
markets.
For example it
could make those markets excessively volatile or affect the correct
pricing of the
instruments traded in them. It is therefore considered necessary to
make sure the
competent authorities enjoy the powers necessary to monitor the
activities of
Alternative Investment Fund Managers (AIFM) in
those markets and to intervene in those circumstances where it would
be necessary to
protect their orderly functioning.
(24) Member States should lay down rules on sanctions applicable to
infringements of the
provisions of this Directive and ensure that they are implemented.
The sanctions
should be effective, proportionate and dissuasive.
(25) Any exchange or transmission of information between competent
authorities, other
authorities, bodies or persons should be in accordance with the
rules on transfer of
personal data as laid down in Directive 95/46/EC of the European
Parliament and of
the Council of 24 October 1995 on the protection of individuals with
regard to the
processing of personal data and on the free movement of such data.
(26) The measures necessary for the implementation of this Directive
should be adopted in
accordance with Council Decision 1999/468/EC of 28 June 1999 laying
down the
procedures for the exercise of implementing powers conferred on the
Commission.
(27) In particular the Commission should be empowered to adopt the
measures necessary
for the implementation of this Directive. In this respect, the
Commission should be
able to adopt measures determining the procedures under which AIFM
managing
portfolios of AIF whose assets under management do not exceed the
threshold set out
in this Directive may exercise their right to be treated as
Alternative Investment Fund Managers (AIFM) covered by this
Directive.
These measures are also designed to specify the criteria
to be used by
competent authorities to assess whether AIFM comply with their
obligations as
regards their conduct of business, the type of conflicts of
interests AIFM have to
identify, as well as the reasonable steps
Alternative Investment Fund Managers (AIFM) are expected to take
in terms of internal
and organizational procedures in order to identify, prevent, manage
and disclose
conflicts of interest.
They are designed to specify the risk
management requirements to
be employed by AIFM as a function of the risks which the
Alternative Investment Fund Managers (AIFM) incurs
on behalf of
the AIF that it manages as well as 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.
They are designed to specify the liquidity management
requirements of this
Directive and in particular the minimum liquidity requirements for
AIF.
They are
designed to specify the requirements that originators of
securitisation instruments have
to meet in order for an AIFM to be allowed to invest in such
instruments issued after 1
January 2011.
They are as well designed to specify the requirements
that AIFM have
to comply with when investing in such securitisation instruments.
They are designed
to specify the criteria under which a valuator can be considered
independent in the
meaning of this Directive.
They are designed to specify the
conditions under which the
delegation of AIFM functions should be approved and the conditions
under which the
manager could no longer be considered to be the manager of the AIF
in case of
excessive delegation.
They are designed to specify the content and
format of the
annual report that AIFM have to make available for each AIF they
manage and to
specify the disclosure obligations of
Alternative Investment Fund Managers (AIFM) to investors and
reporting requirements to
competent authorities as well as their frequency.
They are designed
to specify the
disclosure requirements imposed on AIFM as regards leverage and the
frequency of
reporting to competent authorities and of disclosure to investors.
They are designed to
setting limits to the level of leverage AIFM can employ when
managing AIF
They are
designed to determine the detailed content and the way
Alternative Investment Fund Managers (AIFM)
acquiring controlling
influence in issuers and non-listed companies should fulfil their
information obligation
towards issuers and non-listed companies and their respective
shareholders and
representatives of employees, including the information to be
provided in the annual
reports of the AIF they manage.
They are designed to specify the
types of restrictions
or conditions that can be imposed on the marketing of AIF to
professional investor in
the home Member State of the AIFM.
They are designed to specify
general criteria for
assessing equivalence of valuation standards of third countries
where the valuator is
established in a third country, the equivalence of legislation of
third countries
regarding depositaries and, for the purpose of the authorisation of
Alternative Investment Fund Managers (AIFM) established in
third countries, the equivalence of prudential regulation and
ongoing supervision.
They are designed to specify general criteria for assessing whether
third countries
grant Community AIFM effective market access comparable to that
granted by the
Community to AIFM from third countries.
They are designed to specify
the
modalities, content and frequency of exchange of information
regarding AIFM
between the competent authorities of the home Member State of the
AIFM and other
competent authorities where the AIFM individually or collectively
with other
Alternative Investment Fund Managers (AIFM)
may have an impact on the stability of systemically relevant
financial institutions and
the orderly functioning of markets.
They are designed to specify the
procedures for on the-spot verifications and investigations.
(28) Since those measures are of general scope and are designed to
amend non-essential
elements of this Directive, by supplementing it with new
non-essential elements, they
must be adopted in accordance with the regulatory procedure with
scrutiny provided
for in Article 5a of Decision 1999/468/EC.
Measures not falling
under the above
category should be subject to the regulatory procedure provided in
Article 5 of that
Decision.
Those measures are designed to state that the fund
valuation standards of a
specific third country are equivalent to those applicable in the
Community where the
valuator is established in a third country.
They are designed to
state that the legislation
on depositaries of a specific third country is equivalent to this
Directive.
They are
designed to state that the legislation on prudential regulation and
on-going supervision
of AIFM in a specific third country is equivalent to this Directive.
They are designed
to state whether a specific third country grants Community AIFM
effective market
access comparable to that granted by the Community to
Alternative Investment Fund Managers (AIFM) from that
third country.
They are designed to specify standard models for notification and
attestations and to
specify the procedure for the exchange of information between
competent authorities.
(29) Since the objectives of the action to be taken, namely to
ensure a high level of
consumer and investor protection by laying down a common framework
for the
authorisation and supervision of
Alternative Investment Fund Managers (AIFM) cannot be sufficiently
achieved by the Member
States, as evidenced by the deficiencies of existing nationally
based regulation and
oversight of these actors, and can therefore, be better achieved at
Community level,
the Community may adopt measures, in accordance with the principle
of subsidiarity
as set out in Article 5 of the Treaty. In accordance with the
principle of
proportionality, as set out in that Article, this Directive does not
go beyond what is
necessary in order to achieve those objectives.
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