EFAMA Technical Advice on the AIFMD

Thursday December 1 2011

Fund Axis would like to draw your attention to an EFAMA publication offering comments in relation to ESMA’s final technical advice to the EU Commission on possible implementing measures of the AIFMD. The purpose of the EFAMA paper is that whilst most of the concerns EFAMA voiced regarding the draft technical advice by ESMA have been taken into account in this final report, some of ESMA’s recommendations for possible implementing measures in the final report still raise significant concerns with the industry and as a result EFAMA wishes to highlight the concerns of its members to ESMA and the Commission. The concerns raised within the paper by EFAMA are set out below;

 EFAMA COMMENTS ON ESMA FINAL TECHNICAL ADVICE TO THE COMMISSION IN IMPLEMENTING THE AIFMD

1.    Transparency

EFAMA states in its paper that it remains highly concerned about the reporting obligations proposed by ESMA in its final advice as it believes these reporting obligations will prompt too detailed and too frequent reporting which neither the authorities nor investors will be able to analyse in any meaningful way. EFAMA also believes that under current proposals the thresholds currently proposed by ESMA are too low. Nearly all AIFM will be subject to quarterly reporting which will not permit any meaningful analysis of the data which is designed to detect systemic risks.

Therefore EFAMA proposes a no. of alternative measures for reporting and the frequency of same, a) distinguish between AIFM’s by the strategies pursued by the AIFM or by the types of funds that it manages and b) distinguish between AIFM’s not by AUM by AIFM but rather by rather AUM by AIF. Either of these approaches would remove a large no. of AIF from the quarterly reporting requirements and allow regulators to receive information that is more meaningful and digestible by focussing on those AIF’s that do pose a systemic risk. Again with this aim in mind of producing meaningful and digestible information for regulators, EFAMA states that the current ESMA thresholds to trigger quarterly reporting are too low and if raised would limit the reporting to regulators to that data which they need to identify systemic risks, otherwise the volume of reporting may overwhelm regulators and the key data lost along the way.

EFAMA also points out in its responses to ESMA that as of yet no automated standard reports have been agreed between member states, which may a) lead to manual reporting and b) additional reporting requirements being imposed by local regulators. Given the tight deadlines required for such reporting and possible manual and differing standards EFAMA, believes this gives rise to significant scope for reporting errors occurring and therefore render the data being received by regulators as unusable. EFAMA also highlights in its response differences between other international reporting requirements and current EU proposals. EFAMA suggests that further harmonisation on an international scale should be explored to reduce the administrative burdens on AIFM’s and to facilitate the ease of sharing and collating information at an international level and improving the accuracy of such data.

Finally EFAMA also highlights in its response its continued opposition to the use of the gross method for calculating the leverage employed by an AIF and that the reporting in its current format would be misleading for investors. It therefore advocates that if the current calculation as set out is continued with then such calculations should be for regulators, in the context of monitoring systemic risk only and not be disclosed to investors.

2.    Inducements

EFAMA in its response also highlights it concerns that ESMA current proposals apply to all the marketing activities of CIS. Whilst it is in agreement that such proposals should apply to all direct marketing by affected CIS, it also believes that indirect marketing should be exempt from the requirements.

EFAMA also in the paper states that it does not believe that distributors which are not tied agents of the AIFM but only have a relationship via distribution agreements should not form part of the “Fund Management Services” as they currently do in ANNEX I of the AIFMD. EFAMA also states in its response that it believes payments to such 3^rd party agents do not constitute inducements which ensure investor protection and that such payments are already regulated by and captured under Article 26 (1) (b) of MiFiD where the distributor has a duty to provide investors with details of any inducements that they have received and that therefore there is no need to again justify the need for such payments under the AIFMD in the AIF annual report.

3.    Additional own funds and professional indemnity insurance

EFAMA in its response also urges the commission to consider introducing a cap for additional own funds therefore not inflicting an undue and infinite burden on the AIFM. In addition EFAMA also requests clarification that when calculating the additional own funds or the coverage of professional indemnity insurance that only the AUM of the AIF be counted as if this is the case, where the AIFM is also a UCITS Management Company or MiFiD Form, this will permit the exclusions of the UCITS or MiFiD assets as these are already captured under the UCITS & MiFiD Directives and as such there is no need to double count same.

4.    Types of AIF

EFAMA in its response also offers both ESMA and the commission its assistance in compiling classifications for AIF’s / AIFM’s and believes it’s input would be critical to such classification not only due to the amount of work EFAMA itself has carried out in the past on developing European Fund Classifications but also from an industry point of view to ensure that the classifications developed do not place undue burdens on AIF’s/AIFM’s that should not be subject to same.

Fund-Axis welcomes EFAMA’s responses to the ESMA Final advice and believes it highlights some important industry issues and burdens which may be placed on the AIF industry if the AIFMD is implemented as currently set out. The offer to assist in the classification of AIF’s is also an important initiative and one that Fund-Axis hopes will be welcomed and acted upon by both the Commission and ESMA as it is vital that industry opinion be taken account off in the setting of these AIF definitions / classifications.  

Please note that if you wish to discuss any of the issues raised by EFAMA, ESMA’s Final advice to the commission or indeed preparing for the implementation of the AIFMD and the impact that this may have on your business, then please don’t hesitate to contact a member of our team via email at info@fund-axis.com