Updated ESMA AIFMD Q&A deals with reporting details, depositary obligations and PE leverage calculation

The European Securities and Markets Authority has published on July 21 the latest update to Question and Answers document on the Alternative Investment Fund Managers Directive, which seeks to ensure the application of common supervisory approaches and practices in the application of the AIFMD and its implementing measures.
The Q&A document, which was last updated in June, offers responses to questions from the general public and national regulators regarding the practical application of the directive. Although primarily designed to ensure that regulators’ supervisory actions are in line with ESMA’s guidance, the answers also aim to provide alternative fund managers with clarity about the AIFMD rules, and do not constitute fresh requirements.
The Q&A now deals with seven topics: remuneration, notification of alternative investment funds, reporting to national regulators, notification of alternative fund managers, MiFID services under the AIFMD, depositaries, and calculation of leverage.
As regards reporting to national regulators, ESMA’s new answers deal with issues including reporting of derivative trade volumes, repo trades, FX spot trades, cross-currency interest rate swaps, the assessment of “substantial” leverage, rehypothecation of collateral, and the currency denomination for reporting on principal markets and financial instruments in which they trade.
In the area of depositary requirements, the clarifications cover cash monitoring and reconciliation obligations, verification of compliance by the fund and manager with AML, employment law and non-management related contractual obligations, verification of ownership of derivatives, custody requirements regard interests in other funds, and the definition of the close of the business day.
Regarding calculation of leverage, ESMA has clarified that debt raised by financial structures controlled by private equity funds for the acquisition of assets should be included in the calculation of leverage where the structure is specifically set up for that purpose, but not where the fund does not have to bear losses beyond its investment in the structure, nor does it have to include debt raised by unlisted companies or issuers subject to the same proviso, even where the debt is raised to pay a dividend enabling the financial structure to repay its acquisition debt.
The ESMA Q&A can be consulted at http://www.esma.europa.eu/system/files/2014-esma-868__qa_on_aifmd_july_update.pdf.


CSSF issues new update to AIFMD law Q&A

Luxembourg’s Financial Sector Supervisory Authority has published on July 18 the latest update to its Frequently Asked Questions document on the grand duchy’s law of July 12, 2013 implementing the European Union’s Alternative Investment Fund Managers Directive and the European Commission’s Level 2 regulation on implementation of the AIFMD.
The FAQ document, now in its seventh version in just over a year, is intended by the CSSF to highlight aspects of the AIFMD rules from a Luxembourg perspective for the benefit primarily of alternative funds and managers established in the grand duchy.
It should be read in conjunction with the Q&A document published by the European Securities and Markets Authority, most recently updated on July 21, at http://www.esma.europa.eu/system/files/2014-esma-868__qa_on_aifmd_july_update.pdf. The European Commission also publishes on an ongoing basis answers to questions regarding the AIFMD, at http://ec.europa.eu/yqol/index.cfm?fuseaction=legislation.show&lid=9&maxRows=*.
The FAQs include the scope of the law, the authorisation and registration regimes applicable to alternative managers, delegation requirements, entry into force of the law and duration of transitional provisions, the scope of authorised managers’ activities, depositary aspects, the application of the AIFMD passport to Luxembourg managers and funds as well as for foreign managers marketing in Luxembourg, reporting, valuation, transaction costs and co-operation agreements signed by the CSSF with non-EU regulators.
The new version primarily updates information regarding reporting requirements, in conjunction with ESMA’s Reporting Guidelines and its Opinion on Reporting under Article 24(5) of the directive. The guidelines recommend that reporting periods for alternative fund managers be aligned with the calendar year, with quarterly, half-yearly or annual reporting periods depending on the requirements applicable to the particular manager.
CSSF says managers authorised between July 22, 2013 and June 30 this year must submit their first reporting statement, for the period starting July 1, by the end of October for those subject to quarterly reporting, or by the end of January 2015 for those reporting half-yearly and annually, or 15 days later in the case of fund of funds managers. They also have the option to report for periods before July 1. The deadline for transmission information is one month following the end of the reporting period for ordinary funds, and the 15th of the following month for funds of funds.
Following ESMA’s guidelines, the CSSF says managers should start reporting as of the first day of the following quarter after they have information to report until the end of the first reporting period – for instance, from April 1 to June 30 for a manager required to report half-yearly whose first information is as of February 15. Registered AIFMs, which represent more than half of all those in Luxembourg, must report annually. Once authorised or registered, AIFMs that have no funds on which to report must nevertheless report to the regulator to that effect.
The regulator has also clarified that managers are informed of the effective date of their status as authorised or registered AIFMs by the CSSF, and this date should be used as the basis for determining the application of reporting obligations.
The Q&A update also covers the initial capital and own funds requirements applicable to Chapter 15 (UCITS) ManCos that hold AIFMD licences (so-called Super ManCos), which are subject to the provisions of both Luxembourg’s 2013 investment fund legislation transposing UCITS IV and the 2013 AIFMD law and regulation.
These must hold at least €125,000 in initial capital, plus own funds equivalent to 0.02% of the value of AIF, UCITS and other fund portfolios managed exceeding a threshold of €250m. The maximum initial capital plus own funds is €10m, the minimum 25% of the fixed overheads projected in the business plan or of the fixed overheads of the previous year. Additional own funds for coverage of professional liability risks should be at least equal to 0.01% of the value of AIF portfolios under management, unless the manager has professional indemnity insurance. For Chapter 16 ManCos or other Luxembourg-based AIFMs, only the value of the alternative fund portfolios is taken into account in assessing own funds.
The CSSF states that the professional liability risks to be covered comprise risks of loss or damage caused by a relevant person (according to the Commission Level 2 regulation) through negligence in the performance of activities for which the AIFM has legal responsibility. The manager’s professional liability coverage must cover both master and feeder levels of such structures, insofar as the AIFM has legal responsibility for the aspects in question.
Finally, the Q&A sets out the rules for marketing alternative funds to professional investors in Luxembourg by non-EU managers. They may carry out such marketing without a passport, but must inform the CSSF when they start (and also stop), and are subject to reporting requirements set out in Article 24 of the directive, but only in respect of funds marketed in the grand duchy. The reporting requirement applies to both regulated and non-regulated Luxembourg funds. Once the AIFMD passport is available to non-EU managers, they will be required to report to the regulator of their member state of reference.
As of July 22 this year, non-EU managers that marketed alternative investment funds to professional investors in Luxembourg under the existing national private placement regime before July 22, 2013 will have to send to the CSSF the required information in order to continue to market their funds in Luxembourg under Article 45 of the 2013 legislation. This also applies to non-EU managers marketing regulated and non-regulated Luxembourg funds in the grand duchy.
The CSSF FAQs can be consulted at http://www.cssf.lu/fileadmin/files/AIFM/FAQ_AIFMD.pdf.


CSSF receives 215 requests for full AIFMD authorisation

As of July 22, the deadline for application for authorisation of alternative managers under European Union’s Alternative Investment Fund Managers Directive, the CSSF had received a total number of 773 applications under Luxembourg’s legislation of 12 July 2013 implementing the AIFMD, comprising 215 requests for full manager authorisation and 558 requests for registration for sub-threshold firms.
Out of the 215 requests for full authorisation, the CSSF had approved 151 firms as alternative investment fund managers by July 22, and 74 are now on the official list of authorised AIFMs. Some applications for which the approval process is still ongoing relate to businesses that were not active in management of alternative funds before July 22, 2013 and therefore did not benefit from the one-year transitional period for existing managers.
The CSSF says regulated entities active before July 2013 that were required to apply for AIFMD authorisation at the latest by July 22 this year submitted applications to the regulator within the deadline.
Of the 215 authorisation requests, 105 came from existing UCITS management companies, 48 from existing non-UCITS ManCos and 62 from other existing or newly-created entities.
A total of 487 entities had received the status of registered alternative investment fund manager under Article 3(2) of the Luxembourg legislation as of July 22. The remaining 71 applications for registration were either incomplete as of that date or had been withdrawn by the applicant.
Existing non-UCITS management companies that have not applied for authorisation or registration in Luxembourg have designated a third-party AIFM, for the most part established within the EU, or are in the process of doing so.


ESMA draws up proposed AIFMD passport questions for regulators

The European Securities and Markets Authority has issued on March 26 technical advice regarding information that must be provided by national regulators on the functioning of the Alternative Investment Fund Managers Directive as a precursor to the potential extension of the AIFMD passport to non-EU managers and funds after July next year.
ESMA has drawn up the report in response to a request from the European Commission on December 20 last year for advice on the possible content of its delegated act required under Article 67(5) of the AIFMD on the information regulators must provide quarterly to ESMA, and was delivered a month ahead of the Commission’s deadline of April 30.
The information to be provided by the national regulators will enable ESMA to advise the Commission on the planned opening up of the passporting system, which will become possible two years after the directive took effect on July 22, 2013 – the date from which, according to the directive, the regulators were originally due to begin providing information to ESMA.
The information concerns the functioning of the passport for EU alternative fund managers and of national private placement regimes for non-EU managers and funds, as well as issues arising from the functioning of both systems. ESMA says the input will enable it to co-operate closely with the European Commission to facilitate the rapid adoption of a delegated act extending the AIFMD passporting system.
The questions that ESMA proposes that national regulators answer include the number of managers authorised under the AIFMD, the number that are using the passport for managing or marketing funds in other member states, and that have set up cross-border branches, cases arising of rule breaches or misconduct by managers using the passport, and their outcomes, the functioning of co-operation arrangements and cross-border notification between national regulators, cases relating to systemic risk, and similar information relating to the distribution by private placement of non-EU funds or of EU funds run by non-EU managers.
The information to be requested on the functioning of the two systems includes any evidence of market disruption or distortion of competition between EU and non-EU managers, and of any difficulties faced by managers in established themselves or marketing their funds in other EU countries, or problems that have deterred managers from doing so.
The directive lays down that by July 22, 2015, ESMA should send the European Parliament, Council and Commission an opinion on the current functioning of the passport and national private placement regimes, and advice on application of the passport to third-country managers and funds in accordance with the rules set out in Article 35 and Articles 37 to 41 of the AIFMD.
Within three months of receiving a positive opinion and advice from ESMA, the Commission is required to adopt the delegated act, specifying the date when these rules take effect in all member states, thus extending the passport to non-EU managers and funds.
It is planned for the Commission to adopt a delegated act formalising the requirement on national regulators to provide the information. Supervisors from member states that have not yet transposed the AIFMD are expected to start providing the information as soon as the directive has been incorporated into their legal systems.
Because the act will affect only regulators, ESMA sees no need to conduct a cost-benefit analysis or a consultation on the proposed advice. While supervisors are expected to have most of the information required to hand, ESMA says they may consider seeking input from the national industry associations, particular regarding any market disruption, access to other EU markets or competition issues.
ESMA is seeking information from regulators quarterly on alternative managers managing or marketing funds under their supervision, either via the passport or private placement, and every six months on market and competition questions. It proposes that regulators provide information for the first time on May 19 this year, for the period from July 22, 2013 to March 31, and thereafter on August 8, October 31 and January 31, 2015.


CSSF updates Q&A on AIFMD implementation law

Luxembourg’s Financial Sector Supervisory Authority has published on March 17 an update to its Frequently Asked Questions document on the grand duchy’s law of July 12, 2013 implementing the European Union’s Alternative Investment Fund Managers Directive, as well as the European Commission’s Level 2 regulation on implementation of the AIFMD.
The CSSF says the FAQ document, which is now in its sixth version in nine months, is designed to highlight certain key aspects of the AIFMD rules from a Luxembourg perspective and is primarily aimed at alternative funds and managers established in the grand duchy.
It should be read in conjunction with the Q&A document published by the European Securities and Markets Authority at http://www.esma.europa.eu/page/Investment-management-0, which was most recently revised on February 17. The European Commission has also published answers to questions regarding the transposition of the AIFMD, which is published at http://ec.europa.eu/yqol/index.cfm?fuseaction=legislation.show&lid=9.
The FAQs include the scope of the law, the authorisation and registration regimes applicable to alternative managers, delegation requirements, entry into force of the law and transitional provisions, the scope of authorised managers’ activities, depositary aspects, the application of the AIFMD passport to Luxembourg managers and funds as well as for foreign managers marketing in Luxembourg, reporting, valuation, transaction costs and co-operation agreements signed by the CSSF with non-EU regulators.
The new elements added in the latest versions of the FAQs concern reporting requirements. The CSSF says managers authorised between July 22, 2013 and June 30 this year must submit their first reporting statement, for the period starting July 1, by the end of October for those subject to quarterly reporting, or by the end of January 2015 for those reporting half-yearly and annually, or 15 days later in the case of fund of funds managers. They also have the option to report for periods before July 1.
Alternative managers authorised between July 1 and 22 must submit their first reporting, for the period from October 1 to December 31, by January 31, 2015 or February 15 for funds of funds, whatever their reporting frequency.
Registered managers of alternative funds with assets below the AIFMD authorisation threshold that have received confirmation of their registration in 2013 must report for 2014 by January 31, 2015, or February 15 for funds of funds. They too can report for earlier periods if applicable, if they choose.
Managers registered in 2014 must begin reporting as of the quarter following registration for a period up to the end of the calendar year (2015 in the case of managers registered in the fourth quarter), and file their report by the end of the following January, or February 15 for funds of funds.
Other points covered by the CSSF:
• Managers taking advantage of the transitional provisions may report in advance of their authorisation, but must obtain identifiers for reporting purposes from the CSSF in advance.
• The only acceptable language for all AIFMD reporting is English. Reporting must use channels accepted by the CSSF, for now e-file and SOFIE.
• Authorised managers must ensure an annual report based in conformity with article 20(2) of the 2013 law is made available for all funds whose managers were authorised before the end of the fund’s financial year, including managers authorised during 2013 for the 2013 financial year. Annual reports must comply with the naming conventions and format set out in CSSF circulars 11/509 and 08/371.
• Annual reports must include a balance sheet or a statement of assets and liabilities, and an income and expenditure account for the financial year. Managers must comply with the requirements under scheme B of Luxembourg’s 2010 funds law for part II funds, in the appendix to the 2007 SIF law where applicable, and article 104 of the AIFMD Level II regulation.
• The CSSF will require managers to provide all information indicated in Article 24(5) of ESMA’s Opinion on Reporting.
• The reporting requirements also apply to non-EU managers that are managing Luxembourg-domiciled alternative funds (irrespective of where the funds are marketed, even if this is exclusively outside the EU) or marketing either EU or non-EU funds in Luxembourg, during the “transitional period” before they obtain access to the marketing passport, expected in 2015
• Non-EU managers should in principle take the date of CSSF approval for marketing in Luxembourg as the start date for their AIFMD reporting requirements, with the same reporting frequency and reporting periods as those applicable to Luxembourg managers. This does not apply to non-Luxembourg funds that were marketed in the grand duchy by non-EU managers under the existing Luxembourg placement rules before July 22, 2013.
The CSSF FAQs can be consulted at http://www.cssf.lu/fileadmin/files/AIFM/FAQ_AIFMD.pdf.


ESMA Q&A targets common supervisory approach to AIFMD application

The European Securities and Markets Authority has published on February 17 a Question and Answers document on the Alternative Investment Fund Managers Directive, with the aim of promoting common supervisory approaches and practices in the application of the AIFMD and its implementing measures.
ESMA says the Q&A document has been compiled to offer responses to questions from the general public and national regulators regarding the practical application of the directive. Although primarily intended to ensure that regulators’ supervisory activities are in line with the authority’s guidance, the answers are also intended to help alternative fund managers by providing clarity about the AIFMD rules, rather than creating an extra layer of requirements.
Because the Q&A mechanism is a convergence tool for promoting common supervisory approaches and practices under Article 29(2) of the ESMA Regulation, formal consultation on the draft answers is considered unnecessary, although ESMA may discuss them with representatives of its Securities and Markets Stakeholder Group, other consultative groups or external parties.
The authority says it will continually edit and update the Q&A as and when new questions are received, and review the document regularly to determine whether there is a need to convert any of the material into formal guidelines.
The Q&A currently deals with five topics. ESMA says that while the AIFMD remuneration rules apply to an existing alternative fund manager from its date of regulatory authorisation, the directive’s regime on variable remuneration applies only from the first full performance period after authorisation: the 2014 accounting period for firms approved between July 22 and December 31, 2013, and 2015 in the case of authorisation between January 1 and July 22, 2014. The determining factor is the manager’s date of authorisation, not the date of application. The same principle applies to firms performing AIFMD activities for the first time after July 22, 2013.
Where an alternative fund manager delegates portfolio management or risk management activities, ESMA says contractual arrangements to prevent circumvention of the remuneration rules need apply only to identified staff of the delegate entity that have a material impact on the risk profiles of the fund portfolios managed under the delegation, and only in respect of remuneration applicable to the delegated management.
Where the delegate entity is subject to the Capital Requirements Directive rules on remuneration, as long as the particular staff in question are subject to the CRD rules, these are deemed as effective as those applicable under the AIFMD.
ESMA also clarifies that managers seeking to market new investment compartments of an existing alternative fund in a member state where the fund has been already notified must undertake a new notification procedure via their home regulator. In addition, where a non-EU manager reports information to an EU regulator under Article 42 (marketing of alternative funds under national private placement regimes), only funds marketed in that member state need be taken into account.
The ESMA Q&A can be consulted here below.


CSSF offers technical details for AIFMD manager reporting

Luxembourg’s Financial Sector Supervisory Authority (CSSF) has issued a circular that aims to clarify technical details of how alternative fund managers should comply with the reporting obligations set out in the European Union’s Alternative Investment Fund Managers Directive, as transposed into Luxembourg’s legislation by the law of July 12, 2013 (“Circular 14/581“).
The frequency and nature of the reporting requirements depend on managers’ levels of assets under management, investment strategies and use (if any) of leverage. The obligations are set out in article 3 (3)(d) of the directive for registered alternative fund managers (those whose assets are below the thresholds triggering the obligation for full compliance) and article 24 (1), (2) and (4) for authorised managers subject to the full requirements of the legislation. In the Luxembourg law these articles correspond to article 3 (3)(d) for registered managers and article 22 (1), (2) and (4) for authorised managers.
The European Commission’s so-called Level 2 implementing Regulation 231/2013 of December 19, 2012 provides details on the reporting obligations to national regulators under Articles 3 and 24 of the AIFMD, and the regulation’s Annex IV contains a reporting template for managers to use.
Following a consultation exercise, the European Securities and Markets Authority published in November its revised final report on AIFMD reporting guidelines, along with further details and technical supporting material comprising a consolidated reporting template, detailed IT guidance for filing of the XML and the XSD schema.
Information on operational issues applicable to AIFMD reporting, including its frequency, reporting periods and first reporting period for existing, registered and authorised managers is available in the final ESMA report and in the Frequently-Asked Questions document for managers published by the CSSF on its website  (see also our newsflash on the FAQ by clicking here).
CSSF Circular 14/581 stipulates that the reporting files should be submitted electronically exclusively via channels accepted by the regulator in accordance with its existing Circular 08/334. Further details regarding legal reporting is available on the CSSF website by clicking here.
The new circular details the technical specifications of the reporting files, as defined by ESMA, including the requirement for all text fields to be completed in English, the contents of the files to be submitted for managers and funds, certification of the sender if not the manager itself, naming conventions and CSSF response messages.


CSSF publishes new update of AIFMD FAQs

The CSSF has published on its web site on January 10, 2014 a fresh update, the fourth, of its Frequently Asked Questions document regarding Luxembourg’s law of July 12, 2013 on alternative investment fund managers.
The FAQs cover the European Union’s Alternative Investment Fund Managers Directive, as transposed into Luxembourg legislation last July, and the Level 2 AIFMD regulation issued by the European Commission in December 2012.
The document highlights important aspects of the legislation from a Luxembourg legal standpoint. Since the previous version, issued on July 19 last year, the CSSF has added two new topics, covering marketing and reporting issues.
The new sections on marketing detail the provisions applicable to managers established in Luxembourg marketing EU-domiciled funds using the AIFMD passport, as well as those covering the marketing in Luxembourg of EU-based alternative funds by managers based elsewhere in the union.
Under the grand duchy’s transitional arrangements, Luxembourg’s private placement regime remains available for the distribution of EU-based funds run by EU managers until July 22 this year.
In its detailed explanation of AIFMD regulatory reporting obligations, the CSSF refers to the guidelines issues by the European Securities and Markets Authority, which set out reporting start dates and transmission deadlines depending on how often managers are required to provide information and whether or not the funds in question are funds of funds (which have transition deadlines 15 days later than single-manager funds).
The full text of the FAQs can be viewed here.


ESMA publishes amended final AIFM Directive reporting rules

The European Securities and Markets Authority has published on October 1st the final guidelines on the reporting obligations for alternative fund managers under Articles 3 and 24 the European Union’s Alternative Investment Fund Managers Directive, which took effect on July 22, after incorporating changes arising from a consultation exercise with market stakeholders in June.
The guidelines set out how managers of alternative investment vehicles including hedge funds, private equity and real estate funds will be required to report certain information regularly to national regulators. They clarify provisions of the AIFM Directive on the information required, which aims to provide supervisors with a more comprehensive and consistent oversight of managers’ activities.
At the same time, ESMA has published an opinion on transparency issues in which it proposes introducing additional periodic reporting, including information such as value at risk measures for alternative funds, or the number of transactions carried out using high-frequency algorithmic trading techniques.
ESMA chairman Steven Maijoor says that now the directive has come into force, both alternative fund managers and national supervisors need to prepare for the introduction of regulatory filings that will enable supervisors to monitor the systemic risks engendered by alternative funds.
Majoor says the authority’s guidelines and its opinion on future steps will contribute to the standardisation of reporting throughout the EU and facilitate exchange of information between national regulators, ESMA and the European Systemic Risk Board.
The AIFM Directive requires managers to report on their investment strategies, exposure and portfolio concentrations to national regulators. The guidelines specify that key elements of the information that must be provided for each alternative fund include the breakdown of investment strategies followed by the fund, the principal markets and instruments in which it trades, its total value of assets under management of each fund, its turnover, and – most importantly – its principal exposures and portfolio concentration.
In addition, the opinion issued by ESMA proposes that managers be required to report additional information on the risk profile of each fund that they manage, including its risk measures, liquidity profile and leverage.
The guidelines document incorporates ESMA’s response to the consultation feedback. For instance, it has taken note of industry members who disagreed with its recommendation that existing managers of alternative funds should report for the first time by January 31, 2014 for the period between July 23 and December 31 this year, and by February 15 for managers of funds of funds.
The respondents argued that this prescription was not consistent with the transitional provisions laid down in Article 61(1) of the directive, which allow existing alternative fund managers up to one year to come into compliance, depending on the arrangements set out by their national legislation and regulators.
ESMA says it is now adopting a more principles-based approach and recommends that the nature and timing of existing managers’ reporting obligations for the period beginning on July 2013 should take into account the directive’s transitional provisions, the European Commission’s interpretation of Article 61(1) as set out in its Q&A document, and their authorisation status.
In response to requests from industry members, ESMA has clarified its position on when the period on which managers start reporting to their national regulators should begin, recommending the first day of the quarter after they have information to report until the end of the first reporting period. So a manager required to report half-yearly and that has information to report as from February 15 would start reporting information to its regulator from April 1 to June 30.
The authority has also clarified that managers should report to their regulators only once per reporting period, for the entire period. And it recommends that if managers do not have any information to report on their funds, for example if there is a delay between the authorisation or registration of a new manager and its actual start of activity, or between the creation of a fund and its first investments, managers should still report, indicating that no information is available.
ESMA has also taken into account the views of respondents who disagreed with its proposal to apply the reporting obligations of Article 24(2) of the directive to non-EU master funds not marketed in the union when a feeder fund to the master is domiciled or marketed in the EU. This article deals with reporting of funds’ liquidity issues, risk profile and management, asset types and stress test results. The respondents argued that through this position, ESMA was modifying the scope of the directive through guidelines, which it should not do.
In response, ESMA has omitted this recommendation from the final guidelines. However, it says it remains concerned by the risk in regulators not receiving the information covered in Article 24(2) for non-EU master funds in these circumstances. It therefore has included this information in its separate opinion to regulators on collection of information under the AIFM Directive, with the proviso that ESMA does not expect this information if the non-EU master fund and the feeder funds do not have the same manager.
Most respondents disagreed with ESMA’s introduction of reporting of further measures of risk for both legal and operational reasons, saying this would be an additional burden for managers that already face significant reporting obligations.
A number of respondents argued that if ESMA insisted on the reporting of VaR as an additional measure of risk, managers should be able to report other types of VaR, and that ESMA should consider further alignment with the risk measurement methods prescribed under the UCITS regime. The authority has therefore limited the guidelines to the measures of risk set out in the Commission’s Level 2 regulation.
However, ESMA remains convinced that where relevant, depending on the predominant type of the fund in question (for instance hedge funds), information on their VaR should be collected by regulators. It also believes that, where relevant to the investment strategy, further information such as the portfolio’s sensitivity to change in exchange rates or commodity prices would be useful to regulators. These additional measures of risk are therefore included in the separate opinion.
ESMA has also published on its web site at http://www.esma.europa.eu/page/Investment-management-0 addition technical supporting material, comprising a consolidated reporting template and detailed IT guidance for filing of the XML and the XSD schema, which will facilitate managers’ reporting to their local regulators.
The guidelines are now in the process of being translated into the EU’s official languages. National regulators will have two months from the date of the publication of the translations on ESMA’s web site to confirm to the authority whether they are already complying with the guidelines or intend to do so by incorporating them into their supervisory practices.
The CSSF has announced in press release of 8 October that it will soon publish a circular that includes practical aspects of reporting and clarification on the information to be reported to the Luxembourg regulator, as well as the timing of reporting via the reporting template stipulated in Appendix IV of the European Commission’s Level 2 regulation of December 19, 2012. The CSSF invites remarks, questions and contributions from industry members and other interested parties at aifm@cssf.lu.


ESMA publishes opinion on AIFM Directive rules covering late transposition

The European Securities and Markets Authority has published on August 1 an opinion on what rules should apply to alternative fund managers and their cross-border marketing of funds where this might be affected by the failure of European Union member states to adopt the Alternative Investment Fund Managers Directive into national law on time.
According to a survey by Ernst & Young and the Alternative Investment Management Association, only 12 out of 27 member states had transposed the directive into their national legislation by July 29, a week after the formal deadline of July 22 for all countries to do so and the date of entry into effect of the AIFMD’s provisions.
ESMA was obliged to take the same course two years ago in order to offer guidance to fund managers and regulators affected by the failure of several member states to adopt the UCITS IV directive on time, a particular problem given the widespread cross-border marketing of retail funds throughout the EU.
Essentially, ESMA argues that managers should not be impeded from managing or marketing funds in other EU member states simply because those countries have failed to meet their obligation to transpose the AIFMD into national law within the deadline.
ESMA notes that the failure of some member states to transpose the directive by the deadline can create difficulties where national regulators do not have the legislative framework in place to allow proper implementation of the rights and obligations conferred under the directive.
Without prejudice to any initiatives that may be taken by the European Commission regarding late transposition of the AIFMD, ESMA says its aim is to address the situation at an operational level to minimise as far as possible the impact on the fund industry and investors that might result from some countries having adopted the legislation and others not.
Specifically, it proposes practical arrangements for activities under articles 31 and 32 of the directive, covering cross-border marketing of funds by a manager with an AIFMD passport, and Article 33, regarding the management company passport, involving one member state that has not transposed the AIFMD.
ESMA acknowledges that not all situations arising from non-transposition can be accommodated by way of practical arrangements that are legally sound, but it has identified various issues that can be addressed through practical arrangements between regulators.
The first problem it highlights is where a manager in an EU member state where the directive has been transposed may not be able to manage a fund established in another member state that has not adopted the directive.
Secondly, managers and regulators in members states that have transposed the AIFMD may face difficulties notifying the marketing of EU-domiciled funds, whether or not set up in the manager’s own home member state, to regulators in countries that have not adopted the directive.
ESMA says the arrangements proposed are based on the jurisprudence of the EU Court of Justice regarding the direct effect of provisions contained in relevant directives. According to Article 288 of the Treaty on the Functioning of the European Union, a directive “is binding as to the result to be achieved, on each member state to which it is addressed, but shall leave to the national authorities the choice of form and methods”.
Member states are obliged, through the transposition process, to create a legal framework under which the rights and obligations arising from a directive may be recognised with sufficient clarity and certainty to enable citizens to invoke them.
This means EU countries are legally obliged to reconcile their legal order with the objectives of a directive at the end of the transposition period. The EU Court of Justice has ruled that member states are liable for damages in the event of loss resulting from failure to transpose a directive in whole or in part.
Regarding the marketing of EU alternative funds in countries that have not adopted the directive, with respect to articles 31 and 32, ESMA’s opinion is that if the manager’s home member state has transposed the AIFMD, neither the home regulator of the manager nor the regulator of the country in which the fund is to be marketed may refuse marketing notification because the directive has not been adopted in the latter member state, irrespective of whether the marketing is carried out under freedom of cross-border service provision or via a branch.
As regards the management passport provisions in Article 33 of the directive, ESMA’s opinion is that managers established in a member state that has transposed the AIFMD should be able to manage an EU-domiciled fund via the management passport, either on a freedom of services basis or through a branch, in a member state where the directive has not been transposed.
This principle should apply irrespective of the provisions currently in place in the jurisdiction in the country where the fund is to be managed, since the relevant provisions of the directive are of a self-executing nature, provided the manager is authorised to manage the particular type of fund in accordance with Article 33(1) of the AIFMD. Any local restrictions on managers that are not in accordance with the directive should not apply.