There is now less than a month before the industry’s pan-European marketing regulation, the Alternative Investment Fund Managers (AIFM) directive, takes hold.
Since the directive’s introduction in April 2009, the industry has seen the good, the bad, and at times unimaginable in various drafts and guidance papers. But spare a thought for the national regulators. They have to not only implement the legislation by a tough July 22 deadline, but also provide guidance in areas of ambiguity; while at the same time ensure their jurisdiction remains open for private equity business. On the latter goal, some EU states plan to introduce a transitional period for fund managers captured by the directive. This will provide some GPs an extra year to fully comply with the directive, though some jurisdictions are being selective on which types of fund managers can use the transitional period.
Here’s how far regulators have come in five of the industry’s most important EU jurisdictions:
=====================================================================
UK
Will the directive be implemented by July 22?
The legislation that transposes the directive into law has yet to be formally adopted. However UK regulator the Financial Conduct Authority (FCA) said it will consider draft applications for GPs seeking authorization under the directive ahead of the July 22 transposition date. That is welcome news considering it was unclear whether the FCA would be in a position to grant authorization requests by that time, leading some GPs to wonder if a pan-EU marketing passport would be made available to approved firms on day one of the directive’s expected implementation date. The FCA said only firms that “have a good reason” will be granted early authorization. The decision to consider draft applications follows a survey the regulator asked firms to complete asking if they wanted to become authorized under the directive as of July 22. The FCA discovered that some 200 UK fund managers may have their marketing and management activities disrupted if authorization wasn’t granted by the directive’s implementation date. Firms that apply for early authorization will not be treated as though formally applying for the directive, meaning GPs will be asked to re-confirm their application when the directive comes into force next month.
Will I be able to market during a one year transitional period?
The short answer is it depends. Firms, both UK-based and from elsewhere, can make use of a one year transitional period if they are currently marketing a fund in the UK. But firms that want to begin marketing in the UK after July 22, but either don’t want to be authorized yet or are non-EU (meaning they can’t get authorized), must use the UK’s updated private placement regime.
However despite concerns that firms using the private placement route would have to undergo an approval and registration process with the FCA, firms will only be required to submit a notification form. The notification must confirm that the manager is responsible for complying (and that the manager complies) with the relevant provisions of the directive that the UK’s private placement regime requires – namely the transparency, disclosure and reporting requirements.
Will the UK ‘gold-plate’ any areas of the directive?
The UK’s regulator has been called “enlightened” by many in the industry for the pragmatic approach it has taken to implementation. It is understood that the FCA will not ask private equity fund managers to comply with anything above the minimum required by the directive.
=====================================================================
GERMANY
Will the directive be implemented by July 22?
On June 7 the German Bundesrat, its federal chamber, formally accepted the draft legislation transposing the directive into German law. It is expected that applications will be accepted from the German regulator by July 22 deadline. But as it stands Germany will not be opening up a fast-track application process for firms that want to become authorized from day one. The directive requires the approval process of AIFM applications take no longer than three months (six in exceptional cases) and Germany is expected to meet this requirement. So far application forms for the directive have not been issued in Germany.
Will I be able to market during a one year transitional period?
There will be a transitional period available in Germany. But the fund must be marketing before July 22 and only marketing of that particular fund is permitted. But much like the UK this is available for both German and non-German managers, including those outside the EU. Firms using the transitional period will need to meet the requirements of the current German private placement regime.
Will Germany ‘gold-plate’ any areas of the directive?
Germany is often used as an example when naming countries that were taking a hardline approach to the directive’s implementation. Political pressure in Germany saw early drafts of the legislation described as a “jurisdiction killer” by one local funds lawyer. But fortunately for the industry later drafts and the final wording of the regulation are much more workable. For example it is expected that the revised draft will allow notaries, lawyers, tax advisors and auditors to act as a depository, whereas the original was much more restrictive in who could take on the depository role.
And whereas the old draft put in place strict measures over non-EU managers, the revised draft allows them to solicit investors in Germany if the fund complies with basic AIFM marketing requirements, including hiring a custodian to safekeep securities. Additionally the custodian will not need to undertake all depository duties. The revision puts Germany much closer to the AIFM’s default position.
Germany’s interpretation of the directive also introduces the concept of a “semi-professional investor” who can invest in private equity. In crude terms this is a sophisticated investor committing at least €200,000 or an employee of the private equity firm. The concept was written to eliminate fears that investors like family offices and high net worth individuals would be barred from private equity funds post-implementation.
=====================================================================
IRELAND
Will the directive be implemented by July 22?
Ireland was even quicker off the draw than the UK in allowing fast-track applications, even if just by a month. The fund domicile, which has recently been growing in popularity with the funds industry, issued application forms and detailed rules for GPs to become authorized under the directive back in May. The forms can be found on the Central Bank of Ireland’s website and the regulator has already started accepting applications.
Will I be able to market during a one year transitional period?
An existing EU manager must submit an application for authorization and is expected to comply on a best efforts basis with the directive. But until authorized the manager can continue using Ireland’s pre-existing fund rules.
Non-EU managers must be authorized before July 22 and ensure it is capable of carrying out all of the tasks of an authorized AIFM by July 22 2015. However until 2015, non-EU managers may continue to operate under Ireland’s existing funds regime during the transitional period.
Will Ireland ‘gold-plate’ any areas of the directive?
The Irish Central Bank confirmed changes to its investment funds framework in light of the directive.
But the bank created a new type of investment fund that complies in full with the directive, without the burden of any additional domestic requirements.
=====================================================================
FRANCE
Will the directive be implemented by July 22?
French regulator the Autorité des Marchés Financiers (AMF) is expected to be ready to accept applications by July 22. Private equity firms also have the possibility to file an AIFM authorization application with the AMF’s pre-registration desk. In April the AMF published a Q&A document designed to provide, among other points, a practical guide to gaining authorization.
Will I be able to market during a one year transitional period?
France has yet to afford GPs any transitional period, but according to regulatory lawyers, that is expected to change as the July 22 deadline draws closer.
Will France ‘gold-plate’ any areas of the directive?
At the time of press the French government was still engaged in a consultation period on the directive, making it too early to tell if they will gold plate any areas of the directive. But sources indicate that it has been the French regulator’s aim to not make any significant adjustments to the directive text, or introduce any rules that go far beyond what the directive requires.
=====================================================================
LUXEMBOURG
Will the directive be implemented by July 22?
Despite trumpeting its eagerness to become one of the first jurisdictions to transpose the directive, Luxembourg’s parliament has yet to do so. However Luxembourg’s regulator, the Commission de Surveillance du Secteur Financier, is still expected to be ready to accept applications by the directive’s go-live date.
Will I be able to market during a one year transitional period?
Luxembourg will offer managers based in the country a transitional period, but non-EU managers must continue using the country’s private placement regime.
Will Luxembourg ‘gold-plate’ any areas of the directive?
Similar to Ireland, Luxembourg has used the AIFM directive as an opportunity to overhaul its fund regime. The bill modernizes the country’s limited partnership law by introducing a structure more similar to the Anglo-Saxon model that comes without legal personality and features full tax transparency. The legislation also provides buyout firms using Luxembourg investment vehicles in “risk capital’’ (SICAR) or specialized investment funds (SIF), two popular structures for pan-European private equity acquisitions, both an AIFM compliant and non-AIFM compliant option. And like most other European jurisdictions the industry will benefit by the CSSF permitting non-bank depositories to meet the AIFM’s custodian requirement. Private equity employees, but not GPs, will also receive a tax break under the draft bill.
=====================================================================
For a look at how the directive is being implemented in Italy, click here.
If you do not receive this within five minutes, please try to sign in again. If the problem persists, please email: