The end of the beginning

With just weeks left until the AIFM reaches a final compromise text, key issues between the EU council and EU parliament remain up in the air.

Back from a long summer recess, European politicians have reopened negotiations over the final language of the Alternative Investment Fund Managers’ (AIFM) Directive, which is designed to monitor and reign in the activities of private equity and hedge fund managers. Discussions as yet have been deadlocked between the EU Parliament – arguing for stricter regulation of fund managers – and the more GP-friendly EU Council.

This September Belgium, which is the fourth EU presidency in rotation to oversee the process, has amalgamated the bulk of the competing parliament and council draft proposals in an attempt to pass the directive before lawmakers go back on holiday later this year. However, the compromise text has left out a few key sticking points which have caused the most heated debate between the respective camps.

Debate over “third-country” rules – which regulate foreign managers and funds who wish to raise money and operate within the European Union; fund transparency measures – which would impose greater disclosure requirements to regulators and investors; and rules on depositaries – notably liability in the event of a fund suffering losses – will instead be “included after discussions on the third country section in trialogue”, according to the compromise text, or left for later negotiations. 

It is difficult at this stage to predict whether the Council or Parliament will come out more on top, say several legal sources, but it remains certain that funds will undergo increased reporting and regulatory requirements.

The directive is expected to be finalised as early as October, and once signed into law, a slew of follow up rules can be expected down the line, explains Norton Rose partner Michael Newell.

“The AIFM tasks the EU Commission and the European Securities and Markets Authority with creating secondary rules and guidance once the directive is agreed.  They will go through a likely yearlong consultation process with industry working groups to clarify and detail the provisions of the directive.”

Following the consultation period, European countries should have one further year to pass the directive’s provisions into national law, meaning the long-anticipated regulation of the industry could be fully implemented by October of 2012, explains Newell.

Voting on the directive’s negotiated text was originally scheduled for 21 September, but has been pushed back to early October due to the need for further debate.