The Alternative Investment Management Association has warned that the European Commission’s draft directive on Alternative Investment Fund Managers would negatively affect fund managers and investors around the world if enacted into European law.
The Directive applies primarily to any Alternative Investment Fund Managers which is established in an EU Member State and which provides management and administration services to one or more alternative investment funds. However, it will also apply to the marketing of a fund within the EU by Alternative Investment Fund Managers which are established outside the EU.
There are five conditions that a non EU registered fund manager must meet to be able to market the alternative investment fund in the EU:
- Its home country must have prudential regulation and ongoing supervision which is “equivalent” to the Directive’s provisions
- Its home country allows effective market access to EU fund managers which is comparable to that granted by the EU to fund managers from that country
- Its home country has a cooperation agreement with EU regulators for monitoring the potential implications of the activities of the Third Country Fund Manager for the stability of systemically relevant financial institutions and the orderly functioning of markets
- Its home country has signed an agreement with EU regulators to allow the sharing of information on tax matters
- The fund must provide EU regulators with the identities of significant owners
Satisfying the Conditions
Unfortunately for fund managers, four out of the five requirements require their home country to act. If the EU effectively locks out funds managed by non-EU fund managers, countries may reciprocate and lock out funds managed by EU managers from their markets.
If the Directive is adopted in its current form, fund managers may need to open an EU office and subject themselves to the EU and member state regulations.
The Directive is merely at the start of the EU’s legislative process and it is likely to be revised before the Directive comes into force.