ESMA releases AIFMD discussion paper
Key concepts of AIFMD and types of AIFM
The European Securities and Markets Authority (ESMA) is empowered under the Alternative Investment Managers Directive (AIFMD) to develop draft regulatory technical standards to determine the types of AIFMs and to ensure consistent application of the Directive. On 23 February ESMA issued a consultation paper covering key concepts of the Directive:
Definition of AIFM
The AIFM must be able to provide both portfolio management and risk management in order to be authorised but may choose to delegate these functions. However, ESMA states that the AIFM may not delegate both functions in whole at the same time. Entities performing either the portfolio management or the risk management under a delegation arrangement with an AIFM will not be required to be authorised as an AIFM. The AIFM is responsible for activities carried out by a delegated entity.
Appointment of AIFM
ESMA acknowledges that there may be more than one legal entity which could be appointed as the AIFM depending on the legal structure of the AIF. Corporate AIFs (and possibly limited partnerships) may be internally managed or another entity who is responsible for the portfolio management and risk management functions for the AIF may be appointed AIFM. Only one entity can be appointed as AIFM and ESMA considers that an AIF is free to appoint any legal person as AIFM provided this entity is authorised under the AIFMD. The agreement entered into between the AIF and the third party should be clear regarding the nature of the relationship and the responsibilities of each party.
Definition of AIF
ESMA acknowledges the difficulty in determining all the different types of AIF in existence given the broad definition. ESMA puts forward a list of proposed criteria to assist national authorities in identifying AIFs. The criteria include raising capital, collective investment, more than one investor (nominee arrangements do not count as a single investor), defined investment policy, ownership of underlying assets and control of underlying assets.
Treatment of UCITS management companies
ESMA confirms it will be possible for a single entity to hold both a UCITS and AIFMD authorisation. ESMA considers it will also be possible for a UCITS management company to provide services, including investment management services, to AIFs but not to be the appointed AIFM because, for example, the AIF is internally managed. In this situation the UCITS management company will not need to seek authorisation under the AIFMD.
Treatment of MiFID firms and credit institutions
ESMA acknowledges that AIFMD only permits dual authorisation in the case of AIFMs and UCITS management companies. Consequently a firm authorised under MiFID or the Banking Consolidation Directive cannot be appointed AIFM. MiFID firms and credit institutions can continue to provide services to AIFs under delegation arrangements.
Next steps and timelines
Responses to ESMA’s consultation on key concepts of the AIFMD are requested by 23 March 2012. In light of the feedback received, ESMA will develop a consultation paper in Q2 2012 setting out formal proposals for draft regulatory technical standards to be adopted by the European Commission. ESMA also plans to issue further guidelines in relation to the remuneration requirements under AIFMD.
Based on ESMA’s advice issued in November 2011, the Commission plans to issue its draft implementing measures (Directive or Regulation) in Q1 2012. In consultation with the European Parliament and Council of Ministers the Commission plans to issue final implementing measures by Quarter 2 2012. EU member states must transpose the AIFMD by 22 July 2013. EU AIFMs will have a further year to comply with the provisions by 22 July 2014.
Partner, Head of Investment Management
T: +353 1 417 2303
Partner, Investment Management Advisory
T: +353 1 417 2448
Director, Investment Management Advisory
T: +353 1 417 2975