There are now just over 60 days to go until the 22 July 2013 AIFMD implementation date. It has been a busy month since the last update.
In the UK, where most hedge fund managers manage non-European hedge funds domiciled in the Cayman Islands, there are signs that many managers plan to make use of the UK’s flexible interpretation of AIFMD’s one year transitional provision. Managers appear to accept that this might be at the expense of not being able to market their funds through private placement to certain non-UK, EU professional investors for several months. In return, it will allow managers more time to implement the directive, let others learn from being ‘first movers’, and avoid the remuneration provisions until 2014. Having said this, the FCA confirmed in a joint AIFMD Town Hall meeting with HM Treasury on Friday 17th May that some 180 – 200 UK managers had still indicated (in response to the March AIFMD survey) they intended to adopt early. The FCA also confirmed it will issue the UK variation of permission application forms within the next two weeks, and will endeavour to turn around applications from early adopters within one month.
There has been no further guidance from ESMA, including guidance anticipated around the Annex IV reporting requirements. In the UK, HM Treasury has issued amended AIFMD regulations. Third country AIFM’s, such as US managers, will now also be able to make use of the one year transitional period for marketing. In addition, post the transitional period, marketing to UK investors will now be subject to FCA notification, not pre-approval, requirement. The UK will no longer apply AIFMD to sub-threshold managers. In Germany, it has been reported marketing via private placement will still be possible, contrary to previous expectations, subject to registration with the local regulator, BaFIN.
Switzerland and Brazil are still the only countries to have agreed AIFMD co-operation agreements. There are reports that a number of offshore jurisdictions, including the Cayman Islands, are meeting with ESMA later this month with a view to entering co-operation agreements before 22 July.
Prime brokers and depositaries continue to negotiate a ‘Day One’ AIFMD depositary model for EU AIFs. Under AIFMD a depositary is permitted to delegate its functions and to contractually discharge its liability to a delegate provided there are objective reasons for doing so. The Central Bank of Ireland has this week indicated that there will be high bar to justify contractual discharge. HM Treasury has removed an element of the gold-plating around the so-called ‘depositary-lite’ duties, which impact the large number of EU AIFM of non-EEA AIF marketed to EU investors. More than one firm can now be appointed but it appears any UK entity may require an appropriate FCA depositary authorization.
The FCA was due to issue its third consultation paper in May and also consult on the Remuneration Guidelines. The FCA confirmed in the Town Hall meeting that they are now focused on their AIFMD Policy Statement which they still aim to publish during June. There was no firm indication of timing in relation the remuneration consultation but, from other reports, this could now be July at the earliest.
Finally the Irish Central Bank has now opened its doors to AIFM applications for Irish managers and reiterated its commitment to authorizing early adopters by 22 July.
As with all of AIFMD, the devil is in the detail and a lot of uncertainty remains. But with the July deadline looming, there is a flurry of activity and the mist is at least starting to clear.