European Parliament votes overwhelmingly to enact AIFM Directive

Meeting in Brussels, the European Parliament has voted on 11 November to give a first reading to the Directive on Alternative Investment Fund Managers in the form agreed last month by representatives of the Parliament, the European Commission and EU member states. The directive was approved by 513 votes to 92, with three abstentions.
The accord by the so-called ‘trialogue’ meeting on October 26 followed a compromise drawn up by Belgium, which holds the rotating presidency of the EU Council, and approved by EU economic affairs and finance ministers on October 19.
The legislative process has taken more than 18 months since the European Commission published the first proposal for the directive on April 30, 2009, and has required a succession of drafts. The process was temporarily stalled in May when the Parliament’s Economic and Monetary Affairs Committee and the Council of EU Economic affairs and Finance Minister approved conflicting versions of the directive.
The compromise text introduces an EU marketing ‘passport’ for alternative fund managers based within the 27-member union. After a two-year transition period, managers and funds based in non-EU countries will also be able to obtain a passport, subject to their adherence to the terms of the directive and regulatory co-operation on the part of their host jurisdictions as well as compliance with international standards on money-laundering prevention and tax transparency.
It also preserves the existing system of country-by-country private placement rules for distribution of alternative funds by non-EU managers for at least five years, or until the Commission and the new European Securities and Markets Authority determine that the passport system is operating satisfactorily.
The agreed version of the directive also imposes strict rules on the responsibility of depositories providing custody services to alternative funds, introduces measures designed to prevent ‘asset stripping’ by private equity firms, and sets new requirements on remuneration of alternative managers. It will come into force by 2013 once transposed into national law by EU member states.