21 March 2012

UK HMT: Policy options for implementing the Alternative Investment Fund Managers Directive

The Directive establishes an EU-wide harmonised framework for monitoring and supervising risks posed by Alternative Investment Fund Managers and the funds they manage; and for strengthening the internal market in alternative investment funds. The Directive requires the authorisation of AIFMs.

There are provisions relating to how AIFMs conduct their business, transparency and marketing. The Directive covers the investment managers of hedge funds, private equity funds and real estate funds among others and is therefore relevant to many different types of asset manager.

The Directive provides for an extensive set of implementing measures. Following advice provided by the European Securities and Markets Authority, the Commission is currently developing such measures and it is anticipated these will be proposed shortly. The measures will then be adopted using the EU’s legislative procedures for delegated and implementing acts; these are expected in summer 2012.

The Alternative Investment Fund Managers Directive (AIFMD) was adopted by the European Parliament and Council on 8 June 2011. The Directive is due to be transposed into national law by 22 July 2013.

Transposition into UK law will require a number of high-level policy decisions, as well as a considerable number of operational ones. The Financial Services Authority has published a discussion paper covering operational issues and the Treasury paper highlights some of the key high-level issues that will need consideration. To ensure consistency, the abbreviations and terms in the FSA paper are used in this paper. The areas covered by this paper are:

• Requirements for AIFs falling below the Directive’s threshold for full authorisation;
• Interaction with proposed Regulations on Venture Capital and Social Entrepreneurship Funds;
• Application of the approved persons regime;
• The extent to which AIFs should be marketed to retail investors;
• Private placement regime.

The Government has set out its overall approach to transposing EU legislation, with the expectation that a “copy-out” approach will be adopted wherever possible in order to minimise the regulatory burden on firms. Consideration of the questions raised in this paper will be consistent with this; strong justification will be required for proposed additional measures which exceed the terms of EU legislation (“gold-plating”). When making its assessment, the Government will be considering UK competitiveness, costs to consumers, consumer protection and confidence in the regulatory system.

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