AIFMs expect regulatory arbitrage to increase in EU

Addressing differences in the way member states implement rules is likely to be a key part of AIFMD II.

Two-thirds of alternative investment fund managers believe EU countries will increase levels of regulatory arbitrage in the next two years, according to a survey by Intertrust.

Although most managers are calling for better harmonization of Alternative Investment Fund Managers Directive regulations across the 28 member states, managers expect greater levels of divergence as states seek to attract businesses.

Intertrust’s research found that while 60 percent of firms would like AIFMD II to lead to more unity, 67 percent believe there will be more regulatory arbitrage in the near future.

Although AIFMD has become normalized since it was introduced in 2011, 91 percent of the firms surveyed said regulation was a cause for concern when marketing funds across Europe. More than half of those surveyed said it was “very challenging.”

As a result, almost 80 percent of those surveyed expect more firms to take up third-party solutions to avoid having to create their own AIFMs in the next two years owing to the challenges of implementing the rules across borders.

Variance in applications and permissions processes were highlighted by 87 percent of firms, while compliance was a concern for 79 percent. Differences in risk management, governance and fee transparency rules were also worrying for a majority of the firms surveyed.

Ciara Smith, head of regulatory and compliance services at Intertrust, said: “Regulatory arbitrage between different EU countries vying for new business is one of the unintended consequences of AIFMD, and the perception is this will continue to intensify. This has made an already complex piece of regulation even harder to understand, particularly for non-EU managers looking to set up AIFs in the region.”

Firms want AIFMD II to improve on the weaknesses of the original legislation, with 44 percent asking for a more consistent approach to marketing rules and 33 percent wanting marketing passports to be extended to non-EU AIFMs.