Compliance Clarified - May 2013

AIFMD: ESMA FINAL REPORT ON KEY CONCEPTS

On 24 May 2013, the European Securities and Markets Authority (ESMA) published a final report containing guidelines on key concepts of the Alternative Investment Fund Managers Directive (AIFMD).

Aimed at alternative investment fund managers (AIFM) and national regulators, the report seeks to clarify some of the key concepts used in the definition of alternative investment fund (AIF).

Specifically, there is guidance on the meaning of:

collective investment undertaking; raising capital; number of investors; and defined investment policy. ESMA confirms that an undertaking will not be an AIF if it does not meet the definition in Article 4(1)(a) of the AIFMD. It also says that an undertaking will be an AIF if it meets the definition, regardless of whether or not it also exhibits certain features described in ESMA's guidance. For a Directive with such broad scope and so many grey areas, this is somewhat stating the obvious when ESMA could have developed some of the key concepts further.

There is no additional guidance on joint ventures, with ESMA simply referring to the European Commission's Q&A website. The Commission states in a response to a query that joint ventures could only be excluded if they fell within an express exclusion in Article 2(3) or did not meet the definition of an AIF in Article 4(1)(a). The Commission states that each situation should be considered on its own merits, allowing substance to prevail over the formal denomination of the specific structure. National definitions should also be used to determine what a joint venture is. With no pan-European guidance on the features of a joint venture, problems of interpretation could arise when the joint venture parties are from different EU member states which interpret the meaning of a joint venture differently.

The concept of an "ordinary company" has been replaced with an "undertaking not having a 'general commercial or industrial purpose' [which is now defined]". The substance still seems largely the same with this measure intending to ensure consistent interpretation throughout the EU. ESMA has also included a definition of "day to day discretion or control" for the purposes of deciding whether an undertaking is a collective investment undertaking. It says this is again to ensure consistent application across the EU.

The final guidelines are helpful, but one could be forgiven for expecting more from ESMA, especially since many of these concepts can lead to different interpretations and firms are still left without certainty on certain aspects.

The guidelines need to be translated and will be published on the ESMA website. National regulators will need to confirm their compliance or intention to comply with the guidelines to ESMA within two months of the guidelines being published on the ESMA website.

Further reading ESMA Final Report

AIFMD: FCA WEBPAGE FOR DEPOSITARIES

The FCA has published a draft of the Variation of Permission (VOP) form for depositaries of AIF(s) and is seeking feedback from firms. Feedback should be emailed to AIFMD-Forms-Comments@fca.org.uk by 28 June 2013.

Firms seeking to become depositaries for the first time

Firms which are not currently authorised and are interested in acting as the trustee or depositary of an AIF(s) are not able to use the transitional provisions, but will need to apply to the FCA for authorisation. The FCA expects the forms to be available by 22 July 2013, but it will accept draft applications from unauthorised firms prior to 22 July 2013 to ensure applications are processed as quickly as possible. Such firms should complete the application pack for wholesale investment firms and append it to the completed draft VOP form. The FCA has up to six months to determine complete applications and this period will not commence until 22 July 2013.

Firms already authorised to act as a depositary

Firms that are already authorised will be able to act as the depositary of an AIF without needing to obtain the new permission from the outset under the UK's implementation of the transitional provisions. Such firms should submit their VOP applications in good time to meet the 22 July 2014 deadline, however.

Firms acting as a trustee or depositary of an AIF during the transitional period must still ensure that the service provided complies with the requirements of the AIFMD and the FCA's rules. Such firms will have to certify to the FCA to this effect.

Impact on AIFMs

The FCA expects to receive VOP applications from firms that wish to become a Full Scope UK AIFM (Alternative Investment Fund Manager) before 22 July 2013. Applicants will have to state in their VOP form:

the identity of the firm(s) they have appointed, or intend to appoint, to act as the trustee and/or depositary of the AIF(s) being managed from 22 July 2013; that the FCA may contact the firm(s) identified to discuss their suitability to perform that role; and that they have undertaken adequate due diligence and are satisfied the service that will...