European private fund firms may become subject to tougher reporting requirements as the bloc’s regulator seeks to eliminate arbitrage between two pieces of regulation.
A review may result in stricter and more extensive reporting requirements being written into the Alternative Investment Fund Managers Directive to better align it with the forthcoming second Markets in Financial Instruments Directive, the European Commission has said.
It comes as a number of hedge funds have sought to avoid MiFID II’s onerous requirements, which begin in January, by switching from a MiFID to an AIFMD license. Unlike their private fund firm peers, hedge funds can choose to be licensed under either directive.
Many previously opted for a MiFID license, but the AIFMD is now considered the easier of the two regulations. It requires managers to submit a quarterly, semi-annual or annual report to their national regulator. This should include information such as the fund’s financial statements, activities and the total amount of remuneration paid by the fund manager to its staff. The reporting frequency depends on the fund’s assets under management.
MiFID II obliges managers to report each individual transaction at the time of completion. Unlike the first version of the rule, it does not permit the reporting burden to be passed on to a broker. In total, 81 data fields must be completed for each reported transaction, up from 23.
There is no time frame for the completion of the AIFMD review or any subsequent rule change to be written in, although it is expected to take a few years. The European Commission is currently analyzing its impact on investors and funds both inside and outside the bloc, and said it is still “too early” to draw any valuable conclusions.
Most private fund firms are unaffected by MiFID II. Those authorized by the UK Financial Conduct Authority are obliged to comply with a number of its provisions including recording telephone calls that fall into the category of “arranging a transaction.”