AIFMD: Countdown to Compliance
The July 22 deadline for EU Member States to transpose the Alternative Investment Fund Managers Directive (AIFMD) into national law has arrived. While the competent authorities in the UK and Germany have made significant progress in implementing new regulations to transpose the AIFMD into national law, other EU member states, including France and Italy, are currently consulting regarding the relevant implementation rules. It is unclear whether those Member States will be ready in time.
In the UK, the Financial Conduct Authority (FCA) provided clarity by setting out its response to its November 2012 and March 2013 consultation papers and confirmed the FCA's final rules for implementation of the AIFMD in its June 28 policy statement (PS13/5) (Policy Statement). The rules in the Policy Statement supplement the UK's Alternative Investment Fund Managers Regulations 2013, which were approved by the Delegated Legislation Committee in the UK on July 3.
For further details on the key provisions of the AIFMD and the specific measures implemented by Member States in an effort to transpose the AIFMD into national laws, please click here.
ESMA Finalises Cooperation Agreements for Alternative Investment Funds
On July 18, the European Securities and Markets Association (ESMA) published a press release stating that it has approved seven Memoranda of Understanding (MoUs) between EU securities regulators and non-EU authorities granting responsibility for the supervision of alternative investment funds (AIFs). The MoUs are applicable from July 22 and will enable cross-border marketing of AIFs to professional investors between jurisdictions.
ESMA's Board of Supervisors approved MoUs with authorities from the Bahamas, Japan, Malaysia, Mexico and the United States, including the Commodity Futures Trading Commission. ESMA has now negotiated 38 MoUs on behalf of the 31 EU/EEA authorities.
The Alternative Investment Fund Managers Directive (AIFMD) requires that MoUs are entered into between the EU and non-EU authorities. MoUs allow alternative investment fund managers (AIFMs) from non-EU countries access to EU markets or to perform fund management by delegation from EU AIFMs. The MoUs cover non-EU AIFMs that market AIFs in the EU and EU AIFMs that manage or market AIFs outside the EU. The MoUs also cover cooperation in the cross-border supervision of depositaries and AIFMs' delegates. Press Release. Memoranda of Understanding.
ESMA Consults on Non-EU Counterparties OTC Derivative Transactions
On July 17, the European Securities and Markets Authority (ESMA) launched a consultation on draft regulatory technical standards (RTS). The consultation is aimed at implementing the provisions of the European Markets Infrastructure Regulation (EMIR) related to OTC derivative transactions by non-EU counterparties and at preventing attempts by non-EU counterparties to evade EMIR's provisions.
The consultation paper clarifies conditions where EMIR's provisions regarding central clearing or risk mitigation techniques applies to OTC derivatives by two non-EU counterparties which have a direct, substantial and foreseeable effect in the EU. The RTS would only apply when (i) two counterparties to the same transaction are established outside the EU; (ii) their jurisdictions' rules are not considered equivalent to EMIR; and (iii) where either a) one of the two non-EU counterparties is guaranteed by an EU financial counterparty for at least €8 billion of OTC derivatives entered into and for an amount of at least 5% of the OTC derivatives exposures of the EU financial counterparty, or b) the two non-EU counterparties execute transactions via their EU branches. Consultation.
EBA Report on Risks and Vulnerabilities of the EU Banking System
On July 17, the European Banking Authority (EBA) published a report on risks and vulnerabilities of the EU banking system. The report considered EBA key risk indicators and EBA risk assessment questionnaires for banks and market analysts. The report highlighted the following:
Increasing uncertainty about the quality of banks' assets and valuation.
Significant strategic and implementation challenges. This includes the CRD IV reforms and proposals to establish a single supervisory mechanism for banking union member states.
Detrimental business practices of EU banks such as product misselling and failures regarding rate benchmark setting. This will require heightened supervisory oversight and improvements in institutions' risk management functions, compliance procedures and risk culture to improve consumer relationships with banks. Report.