Regulation Watch: mind the gap

Reporting requirements could ramp up

European private fund firms may become subject to tougher reporting requirements as the bloc’s regulator seeks to eliminate arbitrage between two pieces of regulation.

A review may result in stricter and more extensive reporting requirements being written into the Alternative Investment Fund Managers Directive to better align it with the forthcoming second Markets in Financial Instruments Directive, the European Commission has said.

It comes as a number of hedge funds have sought to avoid MiFID II’s onerous requirements, which begin in January, by switching to an AIFMD license. Unlike private fund firms, hedge funds can choose to be licensed under either directive.

There is no time frame for the completion of the AIFMD review or any subsequent rule change to be written in, although it is expected to take a few years. The European Commission is currently analysing its impact on investors and funds inside and outside the bloc, and said it is still “too early” to draw any conclusions.

Regulators have their say on ICOs

The UK’s Financial Conduct Authority has become the latest regulator to say initial coin offerings could be subject to regulation on a “case-by-case” basis.

Regulation will depend on whether they are structured in a similar way to traditional financings such as initial public offerings, private placements of securities, collective investment schemes or crowdfunding.

The watchdog highlighted six risks associated with ICOs including scant regulation in the UK, investments lacking cover in the investment protection schemes, cryptocurrency market correction risks, risk of fraudulent activity, no requirement for a prospectus and lack of a track record.

Similar regulatory guidance has also emerged from authorities in Canada, China, South Korea, the US and Singapore in recent months. Private equity managers are beginning to explore the cryptocurrency space.

Additional ADV disclosure can wait

Private fund firms making ad hoc amendments to Form ADV are not expected to complete the new data fields that will be added to the document in October at the same time, the Securities and Exchange Commission has confirmed.

If a firm files an amendment to the regulatory document before its annual update is due, but does not have enough data to provide a complete response to the new or revised questions, “the staff would not recommend enforcement action if it responds ‘0’ as a placeholder with a note identifying it as a placeholder,” the agency said.

VC firms tap fund admins after delay

Venture capital firms have registered as third parties to fund administrators to more easily market their funds in the EU while a regulation which allowed them to do so without having to meet AIFMD requirements was revamped.

The EuVECA regulation was enforced in 2013 but was then amended due to a lack of interest from managers and re-published in May.

Registering as a third party to a fund administrator allows firms to carry out fund marketing under its aegis and gives managers, particularly first-time managers, a lighter regulatory load.