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Alternative Investment Fund Managers Directive (AIFMD) – Level 2
The European Parliament ECON Committee agreed on a final text to the AIFM Directive which would include clauses on asset stripping and remuneration as well as a compromise on marketing passports. The agreed text was set to impose a passport system and registration, reporting and capital requirements on companies. It also included depository liability, capital requirements and rules covering leverage use. The main regulatory component is an obligation for EU-based managers of alternative investment funds to register and disclose their activities. This includes divulging investment strategies and accounting practices to investors and regulators, Hedge fund managers would also be forces to retain minimum capital requirements and ensure these assets are secured in depository banks.

Controversially, it allows non-EU hedge funds and private equity firms to market to investors across the EU without having to seek permission from each member government. Parliament had pushed for a marketing passport to be granted to non-EU players. But under a compromise with member states, MEPs agreed that managers will obtain passports only if the non-EU country they are located in meets minimum regulatory standards and has agreements in place to allow information sharing. Initially only EU AIF and AIF managers will be able to obtain a passport with those based outside the EU having to market through the current national private placement regimes. After an opinion from ESMA and the adoption of implementing legislation by the Commission, the passport would then also become available to non-EU AIF and AIF managers.

In addition a new clause was inserted to ensure that fund managers will have to obey the same rules as those for bank managers to remove incentives for excessive risk-taking.

Although the Commission’s very first proposal had already dealt with regulating depositories’ liability, MEPs felt that too much leeway was being given to depositories to delegate this liability. To this end, MEPs inserted a clause stating that if a depository legally delegates its tasks to others, then it must provide a contract which allows the fund or the fund manager to claim damages against the entity which received the delegation. This should ensure that at no point in the chain will liability be irretrievably lost. MEPs also secured a requirement that the AIF investors concerned are closely involved with the potential delegation of liability.

CESR published a call for evidence on level 2 measures. The AMIC made some general comments on the implementing measures. In particular the response highlighted the value of the alternative investment industry to the investors, the AMIC believes that maintaining diversity of investment is crucial. There was concern that investors would lose the ability to design optimal portfolios and there was a risk that overly burdensome regulation results in addition to the reduction in the quantity of funds available, also in the reduction in both the variety of funds and also the quality of funds which EU investors can access.