Alternative Investment Fund Managers Directive
|European Union directive|
|Text with EEA relevance|
|Title||Alternative Investment Fund Managers Directive|
|Made by||European Parliament and Council of the European Union|
|Made under||Art. 53|
|Journal reference||L 174, 1.7.2011, p. 1–73|
|Date made||8 June 2011|
|Came into force||21 July 2011|
The Alternative Investment Fund Managers Directive (AIFMD) is a European Union (EU) directive governing the regulation of alternative investment fund managers (AIFMs) operating in the EU. It was published in the Official Journal of the European Union on 1 July 2011 and came into force on 21 July 2011. EU directives usually take effect in the individual member states only after transposition into national law.
The Directive regulates:
- EU fund managers that manage alternative investment funds (essentially hedge funds and private equity funds) ("AIFs") (wherever they are based);
- fund managers (wherever they are based) that manage AIFs established in the EU; and
- fund managers (wherever they are based) that market the units or shares of an AIF in the EU.
Hedge funds and private equity funds and their Investment Managers (AIFMs) have not been subject to the same rules to protect the investing public as mutual (including UCITS) and pension funds and their managers. In general, the lack of financial regulation is seen by some to have contributed to the severity of the global financial crisis. The Directive was aimed at redressing this perceived regulatory gap.
The Directive was approved by the European Parliament and Council of the European Union on 8 June 2011 and published in the EU Official Journal on 1 July 2011 (OJ L171). The Directive is following the Lamfalussy process and has so far been supplemented by three Level II Regulations:
- Commission Delegated Regulation (EU) No 231/2013 on exemptions, general operating conditions, depositaries, leverage, transparency and supervision;
- Commission Implementing Regulation (EU) No 447/2013 on opt-in AIFMs;
- Commission Implementing Regulation (EU) No 448/2013 on the procedure for establishing the member state of reference for non-EU fund managers.
The Directive needed to be written into national statute books by 22 July 2013 and, subject to the transitional periods, be brought into effect from this date. As of 1 October 2013, 16 EU Member States had not yet transposed the Directive including Belgium, Finland, Greece, Italy, Poland, Portugal and Spain.
The AIFMD was prompted as part of a wider regulatory effort undertaken by G20 nations following the global market downturn of 2008. Provisions of the AIFMD include increasing transparency by AIFMs and assuring that national supervisors, the European Securities and Markets Authority (ESMA), and the European Systemic Risk Board (ESRB) have the information they need to monitor financial systems in the EU. The AIFMD also is intended to protect investors.
The directive came into force on July 21, 2011. On November 16, 2011, ESMA issued technical advice to the European Commission (EC) on possible implementation measures for the AIFMD. On December 19, 2012, the EC added a series of new regulations to supplement the AIFMD text. EU Member States were required to write the AIFMD into national law by no later than July 22, 2013. As of July 2014, not every EU Member State had transposed the AIFMD into national law. Some, but not all, Member States provided for a one-year transition period, beginning July 22, 2013, before AIFMs would become subject to the AIFMD requirements.
Requirements under the AIFMD include authorisation of an AIFM with the AIFM’s home state regulator for AIFMs that have assets under management in AIFs above the thresholds of: (1) 100 million EUR, if the AIF uses leverage; or (2) 500 million EUR, if the AIF does not use leverage. The AIFMD also includes capital obligations, organizational and governance requirements, and the regular disclosure of information to investors. Further, the AIFMD's reporting regulations assert that each AIF should be named using a series of codes, including its national identification code, the Bank Identifier Code (BIC) and the Legal Entity Identifier code. The AFIMD requires AIFMs to select only brokers and counterparties that are subject to regulatory supervision, that are financially sound, and that have the necessary organizational structure to provide services to the AIFM or the AIF. Finally, all AIMs must submit quarterly, semi-annual, or annual reports to their respective Member State regulator with information about the AIFM and its AIFs as well as an annual report with information such as the fund's financial statements, activities, and information about the total amount of remuneration paid by the AIFM to its staff.
Under the AIFMD, special requirements apply to AIFMs using leverage. AIFMs are required to disclose the extent of the leverage employed within their funds, and prove that leverage in any fund has been limited to a reasonable amount. The scope of AIFMD requirements that apply to AIFMs are different, depending on whether the AIFM is engaged in portfolio or risk management activities within the EU or markets its funds (AIFs) to EU investors. Under the AIFMD, each fund can only have one AIFM, though the AIFM can delegate certain functions to other entities. EU AIFMs became subject to all of the provisions of the AIFMD once it was implemented at the EU Member State level. Authorised fund managers located within the EU are permitted to market their EU funds to professional investors in any EU member state under what the AIFMD calls a passport.
The AIFMD outlines several changes in regards to the regulation of non-EU AIFMs, although non-EU AIFMs managing non-EU AIFs and not marketing them in the EU are not subject to AIFMD. Non-EU AIFMs marketing AIFs within the EU will be required to comply with disclosure requirements to both investors and EU regulators. Non-EU AIFMs must provide an annual report for each AIF they market in the EU. Beginning in 2015, non-EU AIFMs may acquire a passport to market units or shares in AIFs within the EU but will require authorisation within the EU.
Annex IV reporting
The reporting requirements of the AIFMD apply to all AIFMs who manage or market alternative funds within the EU. To fulfill the reporting requirements, AIFMs must file an Annex IV report within 30 days of the end of the applicable reporting period, which is determined by the amount of an AIFM's assets under management. Reporting periods range from quarterly to half-yearly to annually. The Annex IV report is a government regulatory document comprising 41 questions, analyzing a fund's investment portfolios, exposures, leverage ratios, liquidity and risk analysis.
Malta (27 June 2013)
On 27 June 2013 (the measures were released on 25 June 2013) Malta became the first EU Member State to complete the transposition of the requirements of the Directive into national law. The Maltese legislator and the Malta Financial Services Authority transposed the requirements of the Directive by means of a series of regulations issued under the Investment Services Act (Cap. 370, Laws of Malta) and a number of new MFSA rulebooks.
Luxembourg (12 July 2013)
In Luxembourg, the AIFM directive was transposed into national law on 12 July 2013. According to the 2013 law an entity – in order to become an AIFM – will have to submit an application to, and obtain authorization from, the Commission de Surveillance du Secteur Financier (CSSF). The application must include information on the directors of the AIFM, its shareholders, and the alternative investment funds (AIF), which it intends to manage and demonstrate how the entity will comply with the requirements of the AIFM Law.
France (27 July 2013)
The AIM directive was transposed into France's national law on 27 July 2013.
According to a study conducted by Deloitte, most of the UK-based asset managers think that the AIFM Directive could reduce the competiviteness of the EU's alternative investment funds industry because of the compliance the regulations impose on the industry. In addition, these managers from the hedge fund, private equity and real estate sectors believe that the directive will reduce the number of non-EU managers operating within the EU.
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