The European Commission has adopted on December 19 a delegated regulation providing detailed implementing rules for the Alternative Investment Fund Managers Directive, a document that industry members have awaiting for several months.
The Level 2 regulation, which will have direct application throughout the European Union without the need for transposition into national law, was first expected to be published in July but has been repeatedly delayed, but the Commission has kept its promise that it would appear before the end of 2012.
The deadline for the transposition of the directive into national law is July 22, 2013. Other elements of the legislation’s implementation rules, including aspects of guidelines and technical standards from the European Securities and Markets Authority, are contingent on the Level 2 regulation.
The Commission says the delegated regulation is a precondition for the application of the directive in EU countries and was adopted to supplement certain elements of the AIFMD, which is designed to establish a comprehensive and effective regulatory and supervisory environment for alternative investment fund managers in Europe.
The new rules concern the conditions and procedure for the determination and authorisation of alternative fund managers, including applicable capital requirements, and operating conditions for managers including rules on remuneration, conflicts of interest, risk management, liquidity management, investment in securitisation positions, organisational requirements and rules on valuation.
Other parts of the regulation deal with the conditions under which managers can delegate functions to investment advisers, risk managers or other providers of outsourced services, as well as rules governing depositaries to alternative funds, including their tasks, responsibility and liability.
The regulation details the reporting requirements for alternative fund managers and sets out how the leverage used by funds should be calculated. Finally, it includes rules for the co-operation arrangements to be established between EU national regulators and their counterparts in jurisdictions outside the union.
The delegated regulation published by the Commission is subject to a three-month scrutiny period by the European Parliament and the Council, after which it will come into force, providing neither institution objects, on the day following publication in the EU Official Journal.
The publication of the Level 2 regulation has been welcomed by industry members such as the Alternative Investment Management Association, which represents hedge fund managers. AIMA chief executive Andrew Baker says: “We are pleased that the text of the implementing measures of the AIFMD has been published, enabling the global industry to make its final preparations for implementing the directive by July 2013. We have engaged intensively with European and international policymakers since the release of the first draft of the AIFMD back in 2009, and while we may not agree with all the final provisions – notably on areas like depositaries and delegation – it is now important to look forward.”
European Private Equity & Venture Capital Association secretary-general Dörte Höppner says: “Publication of the Level 2 delegated acts is an important step toward giving European private equity fund managers and their investors legal certainty.
“This regulation recognises private equity as a mature and established asset class, and although it could be more proportionate, the industry is prepared for the challenges in terms of cost and timing that the AIFMD poses.
“The EVCA will continue to remain engaged on the outstanding areas of remuneration, third countries and the definition of an alternative investment fund manager and fund. It is now vital that the AIFMD is implemented consistently across member states without any gold-plating to ensure a level playing field.”