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AIFMD Update – European Developments

April 22, 2013

ESMA publishes Regulatory Technical Standards on Types of AIFMs

ESMA issued its final report on regulatory technical standards (“RTS”) to distinguish between open-ended and closed-ended Alternative Investment Funds (“AIFs”) on 3 April 2013.  The distinction is relevant for the purposes of applying the rules on liquidity management, valuation procedures and the transitional provisions of the Directive.

The RTS broadly maintains the same approach as set out in a consultation paper issued by ESMA on 19 December 2012.

An AIF will be considered to be open-ended provided the following conditions are both satisfied:

  • There is a right to redeem at least once a year.
  • The redemption price does not vary significantly from the Net Asset Value per unit of the AIF at the time the price is determined (calculated in accordance with the AIF’s governing documents).

Lock-up periods or powers to impose side-pockets, gates or similar arrangements should not be taken into account in determining whether an AIF is open-ended.  A closed-ended AIF is simply any AIF which does not meet the criteria set out above.

The RTS must be approved or varied by the Commission within a three-month period.

Commission publishes Q&A’s on application of AIFMD

On 27 March 2013, the European Commission published a series of question and answers on the application of AIFMD.  The series provides a degree of clarity on several technical questions in relation to the application of the Directive.

In particular, the Commission has sought to address the somewhat vexed issue as to how the transitional arrangements set out in the Directive for pre-existing AIFs should be interpreted.  The Directive provides that AIFMs performing activities before 22 July 2013 (the deadline for transposition of the Directive into national law) “shall take all necessary measures to comply with national law stemming from this Directive and shall submit an application for authorisation within 1 year of that date”.  It is clear therefore that AIFMs have a one-year grace period within which they are required to apply for authorisation but what is less clear is whether the remaining provisions of the Directive (and in particular those relating to depositaries) can apply before such authorisation is obtained.  In the view of many commentators it would be extremely difficult to de-couple many of the remaining provisions of the Directive from the AIFM authorisation.

However, the Commission has taken the position that during the one-year grace period, AIFMs are expected to comply with the requirements on a “best efforts basis”, while acknowledging that all obligations under the Directive only become “legally binding” after the transitional period.  The Commission has taken the view that Member States should be in a position to monitor compliance by “not-yet authorised AIFMs” under national law implementing the Directive, although the measures to be adopted to achieve this is left to national regulators.  The Commission lists the requirements that it considers should be complied with on a “best efforts” basis, which includes practically all provisions contained within the Directive (other than the provisions relating to authorisation and marketing within the EU). 

Another area of debate that the Commission has sought to clarify relates to the extent to which AIFMs can be authorised to carry out activities for which an authorisation under MiFID would otherwise be required and whether that aspect of an AIFM’s authorisation could be “passported” across the EU.  The Directive prevents an AIFM from also holding an authorisation under MiFID.  However, the Directive goes on to provide that Member States may authorise an AIFM (other than an internally managed AIF) to manage portfolios of investments in accordance with mandates given by investors on a discretionary, client-by-client basis.  Furthermore, Member States may authorise an AIFM to provide certain “non-core services” comprising investment advice, safe-keeping and administration in relation to shares or units of collective investment undertakings and the reception and transmission of orders in relation to financial instruments.
The Commission has now clarified that the above should be read as an exception to the general rule that an AIFM cannot be authorised to engage in activities that require a MiFID authorisation and therefore should be interpreted narrowly.  In particular, the Commission has confirmed that no passport applies to any authorisation to carry out such activities and consequently an AIFM may not provide these services on a cross-border or branch basis across the EU.

The Commission’s Q&A series also deals with a range of other issues including:

  • Scope and exemptions
  • Passporting
  • Responsibilities of and co-ordination between regulators
  • Master/ feeder AIFs
  • Member state of reference for non-EU AIFMs
  • Issues related to private equity
  • Marketing to retail investors
  • Depositaries
  • Delegation
  • Valuation
  • Remuneration
  • Application of ‘own funds’ rules

Contributed by Paul Murray