EUROPEAN UNION: Commission Publish Impact Assessment

Wednesday December 19 2012

On 19 December 2012 the European Commission adopted a Delegated Regulation supplementing Directive 2011/61/EU of the European Parliament and of the Council with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision. Accompanying this Delegated Regulation, the European Commission published an Impact Assessment.

Throughout the process of drafting its technical advice to the European Commission, ESMA was in close contact with the relevant industry by means of bilateral meetings and open public consultations. In addition to written consultations, ESMA organised three open hearings covering the Call for Evidence and the two parts of the draft technical advice.

Problems identified in the level 1 impact assessment covered issues surrounding:

Macro-prudential (systemic) risks;Micro-prudential risks;Investor protection; and Market efficiency.

The ability of the AIFMD to achieve its policy goals will depend on how level 2 deals with eight issues:

1. Exemptions: The method of calculating the AIFM`s assets under management is key in defining the AIFMD`s scope.
2. Definitions: The method of how leverage is to be calculated is important for an early identification of systemic risk.
3. Additional own funds: The requirement of additional own funds or of a professional indemnity insurance (PII) that covers professional liability risk has implications for the level of investor protection achieved by the AIFMD.
4. Depositary: The perimeter of financial instruments that can be registered in a depositary`s financial instruments account determines the scope of the latter`s obligation to return instruments lost in custody.
5. Depositary: The scope of liability for losses that occur while an instrument is held in custody determines the level of investor protection.
6. Depositary: The precise scope of cash monitoring is important for investor protection.
7. Reporting to competent authorities: Reporting frequencies are decisive in achieving adequate monitoring of systemic macro- and micro-prudential risk and an adequate level of investor protection.
8. Reporting to competent authorities: The issue of when leverage is to be considered to be employed on a substantial basis is crucial in triggering the reporting obligations in Article 24(4) AIFMD.

By ensuring a harmonised implementation and application of the AIFMD the level 2 measures will make sure that the main objectives of the level 1 Directive, micro- and macroprudential risk oversight, investor protection, and market efficiency, can be achieved without imposing excessive administrative burden and costs on AIFMD and other relevant stakeholders (e.g., depositaries).

Please click on the above link for a full copy of the impact assessment.