A consultation paper (232-page / 1.8MB PDF) is the first of two which will be published by the Financial Services Authority (FSA) on how the Alternative Investment Fund Managers Directive (AIFMD) will be implemented in the UK. Implementation will involve changes to the FSA Handbook and changes to primary and secondary legislation, which will be consulted on by the Treasury. The new rules must be transposed into UK law by 22 July 2013.
The AIFMD aims to create a harmonised regulatory structure for AIFMs across the EU. It will apply to any person or company whose regular business is managing one or more alternative investment funds including hedge funds, private equity funds, real estate funds and a wide variety of other types of institutional fund.
It is intended to cover the management and administration of all 'collective investment undertakings' that are not subject to an existing collection of directives known as the Undertakings for Collective Investment in Transferable Securities (UCITS) regime. Under the AIFMD, a company cannot be authorised to act as an AIFM unless it also providers portfolio management and risk management functions.
A timeline set out in the AIFMD could see the creation of a 'passport' allowing funds from outside the European Economic Area (EEA), including those that are managed by non-EEA fund managers, to be marketed or managed. A further provision could allow the European Commission to terminate any national regimes for the private placement of funds three years after this. The Commission will decide whether to adopt these aspects of the AIFMC subject to the advice of international regulator the European Securities and Markets Authority (ESMA).
The FSA's first paper sets out details of how the FSA and its successors will regulate all types of AIFM and the eligibility criteria and capital requirements for firms that will act as depositories for funds. The regulator said the EU member states do not have much flexibility about how to implement the new rules into domestic law and added that it had "generally avoided" imposing any new requirements on firms beyond those set out in the AIFMD. Proposed rules and guidance, set out in an appendix to the paper, remain subject to change as the European Commission has not yet issued its 'Level 2 Regulation' on the new regime.
Much of the detail of the AIFMD will be set out in 50 so-called 'level 2 measures'. These must be specified by the European Commission, and will cover almost all areas of the new Directive with the exemption of its scope and specific provisions for the managers of a certain type of fund. The implementing measures are still to be finalised by the Commission following technical advice (500-page / 3.6MB PDF) from ESMA, which was issued in November 2011. ESMA is also preparing draft regulatory technical standards and guidelines ahead of the implementation date.
According to the paper, the FSA will spend £5m on staffing and the costs of anticipated systems developments in the run up to initial implementation of the AIFMD. Additional supervisory staff may be needed on an ongoing basis due to the corresponding increase in the number of regulated firms, it added. However, as most potential AIFMs are already authorised by the FSA the new regime is unlikely to result in a significant number of new managers.
Fund managers and stakeholders have been asked to respond to the consultation by 1 February 2013 to give the FSA time to "finalise [its] rules and guidance as early as possible". The second consultation paper, which will contain further clarifications on the scope of AIFMD and regimes for firms and products that do not fall fully within its scope, will follow later in February. The regulator intends to publish its policy statement, relating to both consultations, in June 2013.