EU Regulation and Implications for Asian Alternative Investment Fund Managers
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The European Commission adopted a regulation on the 19th December 2012, setting out the detailed requirements applicable to Alternative Investment Fund Managers (AIFMs) arising from the Alternative Investment Fund Managers Directive (AIFMD). The requirements under the AIFMD will take effect in July 2013 and the Regulation is also expected to come into force by that time. When it is in effect, the AIFMD and the Regulation will create a single European regime for the alternative investment funds industry.
The Regulation is of most relevance to EU-domiciled investment fund managers who will be required to be authorized in accordance to the AIFMD. However, certain aspects of the Regulation will also impact investment fund managers domiciled outside the EU but who wish to market one or more funds to European investors (non-EU AIFMs).
Application to Non-EU AIFMs
The AIFMD will apply to a non-EU AIFM if it is:
- managing or marketing one or more AIFs established in the European Union to investors in the European Union; or
- marketing one or more AIFs established outside the European Union (a non-EU AIF) to investors in the European Union.
The AIFMD will not apply if a non-EU Manager is managing a closed-ended non-EU AIF which is either not making any investments after 22 July 2013 or will be wound-up under its constitution no later than 22 July 2016 (provided that the fund’s subscription periods closed prior to 21 July 2011).
In summary, the significant dates with regards to marketing are:
22 July 2013: Implementation Date: the Directive becomes law in all EU Member States; non-EU AIFMs can market AIFs into the EU under Member States’ national Private Placement Rules.
July 2015: EU-wide marketing passports potentially to become available to non-EU AIFMs and marketing under EU Member States’ Private Placement Rules continues to be available.
- During 2018: Marketing under EU Member States’ national Private Placement Rules is likely to come to an end. Non-EU AIFMs will then be subject to the full impact of the Directive.
Private Placement Rule for Non-EU AIFMs
The AIFMD will only apply to a non-EU Manager conducting marketing activities in a EU Member State that has transposed the AIFMD into national law (the long-stop date for each EU Member State to make this transposition is 22 July 2013).
As a result, until such transposition takes effect in the EU Member State in question, a non-EU Manager can continue to market the non-EU AIF to professional investors in that EU Member State by using the existing private placement regime in that EU Member State.
Until the passporting system is extended to non-EU fund managers, (expected after 2015), any marketing that takes place in an EU Member State after the date of national transposition of the AIFMD will need to be carried out in accordance with the AIFMD.
Thus, in order for a non-EU Manager to continue to take advantage of the private placement regime in an EU Member State, the non-EU Manager must comply with a minimum of three conditions.
First Condition: Disclosure
The first condition is that the non-EU Manager must comply with certain disclosure and transparency provisions in the AIFMD. In brief, these are:
- making available an annual report for each non-EU AIF which it markets to in the European Union;
- making available to investors relevant information before they invest, as well as notifying them of any material changes in that information;
- regular reporting by the non-EU Manager to the competent authorities in the EU Member State where the AIF is marketed;
- where a non-EU AIF acquires “control” (individually or jointly) of an unlisted or listed EU company, the non-EU Manager must make a number of disclosures to that company, its shareholders and to regulators.
Second Condition: Co-operation
The second condition is that appropriate information exchange agreements must be in place between:
- the competent authorities in each EU Member State where the non-EU AIF is to be marketed;
- the supervisory authority of the domicile of the non-EU AIF; and
- the supervisory authority of the country where the non-EU Manager is established.
This is to ensure that information on the non-EU AIF and its manager can be exchanged efficiently, allowing the authorities of the relevant EU Member States to carry out their supervisory duties effectively under the AIFMD.
Third Conditon: FATF
The third condition is that at the time of marketing, neither the non-EU AIF nor the non-EU Manager should be authorized or registered in a country which is listed by the Financial Action Task Force (FATF) as a “Non-cooperative Country and Territory” on anti-money laundering and terrorist financing.
If any of these “minimum” conditions are not satisfied after the date of national transposition, then a non-EU Manager cannot continue to market to, and therefore raise capital from, investors in the European Union. In addition, non-EU Managers should also be aware that EU Member States have discretion under the AIFMD to impose stricter conditions on non-EU fund managers. As a result, the three conditions listed above may not be exhaustive.
The AIFMD private placement regime is expected to be in place until at least the end of 2018 when the European Security and Markets Authority (ESMA) is expected to report on whether this regime should remain a route available to access investors in the European Union.
However, if ESMA recommends that the AIFMD private placement regimeshould be abolished, then the passporting system (AIFMD) would become the only route available for a non-EU Manager to access investors in the European Union. In order to benefit from the passporting system, a non-EU AIFM will be required to obtain authorization under the Directive from the regulatory authorities of its EU Member State of reference and will then be subject to the full rigours of the Directive.
Source Orangefield ICS